Trying to time the market can make you a hero or a goat, but even the most successful investors will have a hard time making a case for the continued growth of the current equity market. Anything is possible for the next 4 to 6 weeks, but as we move into 2017, the election ether is sure to wear off, most probably leaving little behind, except a massive hangover. Tom Kendall is head of precious metals strategy for ICBC Standard Bank. In a report released last Friday, he focused on the rising cost of yield interest and its affect on the U.S. Treasury and national debt in particular.
Kendall reinforced my concerns that with just under $14 trillion in U.S. Treasury, notes, bills and bonds outstanding, the Congressional Budget Office indicated that net interest payments on the outstanding debt will amount to $250 billion this year and forecasts anticipating those payments to reach $712 billion by 2026. But he noted that the CBO report was released in August and 5 to 7-year Treasuries have increased by around 80 basis points, mainly since the election. He continued saying, “If we apply an 80bps increase to the CBO’s net interest forecasts and keep the other variables unchanged, then by 2026 the treasury would be paying an additional $185 billion in interest annually.”
He echoed my feelings through the first quarter, that real yields will continue to increase and the dollar will continue to be firm, but he too sees the party ending and the hangover presenting itself in full form, as the new government is forced to focus on the specific dynamics of the country’s debt. The President–elect’s sales pitch had better be polished when he has to get the legislature rallied around his infrastructure expansion plans and the debt ceiling increase that will be necessary. “Disappointment on the growth front coupled with rising interest costs and fractious negotiations on the debt ceiling could well result in a more bullish environment for gold.”
As you know if you read this blog with any regularity, I agree of course with all of Kendall’s concerns, but even more I am concerned with the utter incapability and complete lack of preparedness on the part of public corporations, to move into this new “expansion” era. Corporate tax breaks are just another tool to be flagrantly misused and abused by today’s corporate executives, as well as the planned wholesale discounting and removal of regulations. Accountability is going to be sorely lacking and all the excitement and ether in the world isn’t going to change the fact that we’ve handed our collective economic soul to Wall Street’s Corporate Executive Whores, all safely strapped to their golden parachutes. Without physical precious metals in the investment portfolio, today’s investors are quite simply playing Russian roulette with a loaded gun. Today’s low precious metal prices are just another bonus.