Quarterly Investment Review – Q2 2024
“Americans prefer strong and wrong to weak and right.” Warren Buffett
The second quarter was an unsettled one. The bond market rose modestly. In April the technology sector fell sharply before rallying strongly over the rest of the quarter. Most of the rest of the market did the exact opposite. In a year full of elections, the Indian result surprised with Prime Minister Modi experiencing a setback. In the European parliamentary elections, the parties with more nationalist tendencies did well, and in France this triggered a further election to take place in early July. As we enter the third quarter the US Presidential elections in November will start to dominate headlines in what looks a close race between two ageing and uninspiring candidates. Political uncertainty looks set to continue.
Election years tend to witness heavy spending because democratically elected Governments choose fiscal misbehaviour over unpopularity every time. There has been a relentless deterioration in western Government finances. US Federal spending increased 22% year over year to May and is up 55% since 2019 while the population has grown only 2%. The Federal debt has risen from 30% of GDP to 120% since the late 1970’s. As interest rates rise the government is being hurt as much as anyone. US Government debt now stands at $34.7 trillion and is increasing at a rate of $1 trillion every 100 days. If it had to pay 4.5% (the current two-year rate) on all of that, then that implies $1.56 trillion of interest payments annually. This sum is equivalent to the GDP of countries like Australia or South Korea. US economic growth has been exceptional over the last five years, adding approximately $6 trillion of GDP, but how much of this growth is due to fiscal spending?
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