With October ushering in the year’s final quarter, another intense conflict took centre stage in capturing global attention. With Hamas launching its latest assault on Israeli targets and Israel’s prompt counterstrike, another Middle East war seemed imminent. And it did not take long for the questions of geopolitical scope to push investors into a “risk-off” state. October’s global markets performance is a sure reflection of the global collective investment psyche, as equities extended their September struggles and most commodities jumped vigorously. A degree in rocket science is not required to connect the dots here.
I see little point in further delving into this new conflict’s influence on financial and economic markets, though. At this stage, keeping tabs on its extent and duration is most prudent, making adjustments in the event the list of state actors involved grows on either side, and the marred territory expands.
I recognize the callousness of that statement, especially where innocent human life is expended with little thought or care. Regrettably, this is what may be the darker side of the investing world. It’s not an easy one to navigate, I assure you. But it’s also not one calmly sidestepped with “feel good” philosophies, especially for those centered on building and preserving wealth for the prosperity of one’s family and immediate community.
Recently, John Mauldin very succinctly emphasized the truth about investing and trading: “You don’t beat the markets by imagining things. You look at reality and figure out what it means.”(1.) In other words, if you’d rather shove your head in the sand and ignore what’s happening, don’t lament others who are building the wealth you wish you had. Life is about choices; this is no different.
With that said, my choice is to lead this month’s insights on a different track, one with implications that are dreadfully ignored. While it’s not difficult to find people tuned in to every word emanating from the halls of central banks, many miss the overtones hidden in between the lines.
Central banks of late regularly express the difficulties they have in balancing their inflation battle while minimizing the harm inflicted on borrowers, which could also spiral into traumatizing lenders. No doubt, it’s a fuzzy feeling knowing Powell, Macklem and co. are so worried about your debts. But there is a far more extensive debt burden lingering over them. As interest rates continue their march higher, so too do obligations owed by ever-indebted and spendthrift governments.
Let’s first look at the U.S., only due to its current global economic and fiscal power position. To the end of September 2023, the U.S. Government(2.) has spent $6.1 trillion, including $1.74 trillion to Health & Medicare, $1.35 trillion to Social Security, and $821 billion to National Defense. Not far behind? Net interest paid to debt rings in at $659 billion, approximately 11% of expenditures going to debt interest.
At home, Canada(3.) is estimated to spend $432.9 billion during the 2023-2024 fiscal year, with National Defense ringing up $26.49 billion, Healthcare $8.32 billion and Infrastructure at $9.64 billion. Where does our debt interest obligation fall? At a forecasted(4.) $34.5 billion, or about 8% of our national bills.
Perhaps these may seem only drops in the bucket but forget not that this is merely to pay the interest on existing debt. What happens when debt loads increase as spending continues and as central banks continue their upward interest rates pressures?
~ Unknown To be or not to be. To invest or not to invest. To build or to preserve. Those are the questions faced by professional money managers, digging through the dirt to scout for nuggets of gold. It’s a Herculean task that we gladly hoist on our shoulders every morning for our clients. We’re happy to connect with you and discuss how we can help stabilize your investment portfolio.
All My Best,
Adrian Harasymiw Investment Advisor Pinnacle Sovereign Investments of ACPI
P.S. To review the October market numbers or download a PDF copy of this commentary, check out the Monthly Market Pulse page on our website.
(1.) Mauldin Economics - Thoughts from the Frontline - The Big Cycle - October 6, 2023
(2.) U.S. Treasury (3.) Government of Canada
(4.) Fraser Institute