I’m not good at timing the markets.
I’m not good at predicting turning points.
I don’t know when certain asset classes, stocks, or strategies will over- or underperform.
I do know nothing is more dependable in the markets than cycles.
John Templeton famously said the four most dangerous words in investing are “this time is different.” The hard part about cycles is sometimes things really are different.
Templeton himself once said roughly 20% of the time things really are different.1
This stuff is hard sometimes.
I don’t have all the answers so I want to play a little game of Can This Continue?2
Here’s what I got:
U.S. interest costs. Torsten Slok shared a chart last week that shows the U.S. government is paying out $3 billion per day in interest expenses on our debt:
Higher interest rates and increased government spending during the pandemic sent this number vertical.
One of the reasons I thought the Fed would be hesitant to raise rates as high as they did is because of our huge debt load. I didn’t think this was politically feasible. I obviously underestimated how much people hate inflation.
To be fair, that $3 billion number requires some context. As a percentage of GDP, it’s still lower than it was in the 1980s and early-1990s:
But it is increasing at a fast clip. People have been worried about government debt for decades but it seems like this could become a political issue in the coming years.
Nothing can stop the runaway freight train of government spending, but we probably need much lower rates to service that debt.
Can the government continue spending so much money on interest before it becomes a problem (politically or otherwise)?
U.S. large cap outperformance. Here are the returns for the S&P 500, MSCI EAFE
