Highlights from Bryon Wein’s May 2017 Market Commentary
Below are some highlights from Byron Wien’s May 2017 Market Commentary.
The Message of the Bond Market
In 2000, the total interest cost of servicing the federal debt was $360 billion, based on a blended interest rate on government bonds of 6%. Today, the blended interest rate is 2.1% and the total interest cost is $400 billion, only $40 billion more on a debt burden three times the size of its 2000 level. If interest rates on government securities rise 1%, the cost of debt service would increase almost $200 billion, offsetting most of the budget cuts being proposed by the Trump administration.
The economic evidence supports the view that the U.S. economy is continuing to grow. The Economic Cycle Research Institute report, which aggregates a number of indicators, is at a cycle high, and I have found their studies reliable. Unemployment is low and wages continue to rise. The energy industry is reviving. Global leading indicators are rising sharply. The National Federation of Independent Business survey shows this group is optimistic, and they are responsible for creating most jobs. There are some signs of softening in the housing sector and retail sales, but based on current news, the economy seems to be accelerating rather than losing steam, so real GDP growth should be at least 2% in 2017 whether Trump gets his pro-growth agenda implemented or not. A recession would appear to be at least two years in the future.
At the state and local level, there is currently a $1.9 trillion negative obligation gap, about 10% of our present GDP.
Twenty years ago the bottom 90% of the U.S. population held 36% of household wealth and the top one-tenth of 1% held 7%. Today the bottom 90% hold 23% and the top one-tenth of 1% hold 22%.
In 1980, the CEO-to-average worker compensation ratio was 30 times; today it is over 300 times. This increase has roughly tracked the performance of the stock market since 1980. At the same time the real income of the top 1% of the U.S. population has increased 54%, but is flat for the 90th percentile and below.