Some Quick Hits for a Friday
Here are some interesting (maybe only to me) charts, thoughts, links, ideas and articles that I thought were worth sharing, but didn't seem to find a home during the week.
1. Another Theory on the Surprising 2023 US Growth
Over the past two weeks, I have been writing about my belief that the surprising 2023 US growth / (non-recession) was based on “stealth liquidity” - most explicitly here.
I found an article that’s worth reading (here) that suggests that recent US growth was due to extreme fiscal spending. This includes the covid stimulus, the Inflation Reduction Act (IRA) and Chips Act.
I highlighted this in Chart 4 here.
In addition, to his view on growth, the author shows the annual change in tax receipts and suggests that it is consistent with recessionary levels (see Chart below).
The idea of complacency around a recession and the consensus view of a soft-landing is something I covered here.
We all love confirmation bias, but I found it interesting to find an article where a different author explained unexpected 2023 GDP growth (from a different perspective than mine - fiscal spending and liquidity likely both contributed) and concluded that the possibility of a recession was potentially higher than some are currently considering.
Source: Real Investment Advice. Lance Roberts. Through year-to-date 2024.
2. For those that Didn’t See it, This Was the Highlight of Davos
This is President Milei from Argentina providing his views on Socialism, Capitalism Entrepreneurs and the Argentine experience.
Watch this (English translation through AI).
3. The Healthcare Economy
I’ve had a theory that our economy is now driven by healthcare.
When we say we’re a “services” (rather than manufacturing) economy - that’s partially healthcare.
When I consider former industrial cities like Pittsburgh - it is now a healthcare city. It’s not the only one - Cleveland (Cleveland Clinic); Houston (MD Anderson); Nashville (HCA) and others.
Put a great hospital or hospitals in an ailing city and it requires housing, food and gas for healthcare workers. Pretty soon there’s an economy.
One aspect of US healthcare - nobody actually directly pays for it.
We pay an extraordinary amount for insurance, insurance companies, in turn (at least partially), pay for healthcare.
As a result costs are not transparent and bloated. The good news is that this has led to incredible discoveries and been a support for the economy.
With that in mind, I found the chart below interesting (shocking).
4. This Will Become an Issue - US Interest Payments
The chart below shows the interest payments that the US Government is currently paying on its debt (through Q2 2023).
We have highlighted the deficit as a % of GDP here.
To cover the shortfall (deficit), the Government borrows by issuing Treasury bills, bonds and notes as I described in Chart 3 here.
As the amount of debt expands, so does the overall interest expense (below).
In addition, when interest rates move higher - either due to Fed or market forces - borrowing costs move up.
The US has already added another ~$200 billion in Federal debt over the last 3 weeks and the annual interest expense is on track to hit $1.05 trillion.
From 1990 to 2010, the annual interest expense was relatively stable between $300-$400 billion.
Even with lower interest rates in the 2010-2020 period, interest expense climbed and hit a peak nearly $600 billion in 2019.
Since then, it has exploded higher.
To put this further in perspective, the annual defense budget for 2023 was $842 billion (less than the interest expense).
If the bond market - despite the work of Powell and Yellen - begins to require higher interest given the risk, it will be quite a challenge.
(By the way, no Presidential candidate is talking about this and the Government is considering a tax cut).
Source: St. Louis Fed “FRED”. Through Q2 2023.
5. China is Shrinking
About 10 years ago, I had a conversation with my boss at the time who explained to me that at the end of this century Chinese population would be down from over 1.2 billion people to around 800 million.
Demographics, he explained, was one of the most predictable sciences and the “one-child” policy that China had implemented would lead to a reverse of the Chinese population boom.
While the number is not large - the number of people in China fell for a second year by over 2 million to 1.41 billion - the drop in the Chinese population was not expected to begin for another 10 years (from now).
Part of the decline in the China’s population during 2023 can be explained by covid deaths.
However, only 9.02 million babies were born in 2023, the lowest since the founding of the People’s Republic of China in 1949.
This will have implications for commodities, global growth and other macro forces that will shape the world.
Have a great weekend!
