- Posted October 18, 2013 by
New York, New York
This iReport is part of an assignment:
Shutdown over: What next?
The Faux Forecast of an Economic Implosion in the United States
By: Todd M. Schoenberger, Managing Partner, LandColt Capital LP
“There’s no such thing as a down market.”
Well, that certainly seems to be the case these days, doesn’t it. The stock market is roaring despite what many believe is an economic volcano about to burst; and realistically, the only losers in this game of finance are the ones remaining on the sidelines waiting for something to bring the bears out of hibernation.
Less than 24 hours after the President signed legislation to remove the risk of a Treasury default and reopen the federal government, the S&P 500 closed at an all-time high. If you’re keeping score, the S&P 500 is +21.5% this year. Think about that for a second the next time a TV talking head plays the role of ‘negative nelly’ and tries to argue a faux forecast for a fiscal implosion in the U.S.
Spoiler alert: It’s not going to happen any time soon.
It’s clear as day the ongoing long-term debt crisis of the United States is going to be devastating if controls and measures are not implemented any time soon. As you know, the country is sitting on a mountain of debt; but the interest we pay each month is paltry when compared to the overall amounts of tax revenue flowing into DC each month.
Currently, the United States pays $18 billion per month in interest to those individuals (and countries) that own our debt. And when I’m speaking of debt, I’m referring to Treasury bills, notes, and bonds. But, the U.S. collects approximately $250 billion in tax revenue each month.
So, you’re probably wondering why we even have to increase our debt limit at all. Well, it’s about spending. Here are some crazy stats for you: In early 2008 (just before the economic debacle began), the United States would spend $1.20 for each $1.00 it received in tax revenue. In other words, the country had to borrow an extra .20 cents to cover its spending ways.
Let’s fast forward to 2013. Right now, the U.S. spends $1.40 for each $1.00 it receives in tax revenue. So, where does the extra .40 cents come from? That’s right: Issuing more Treasury securities (i.e., debt).
If you remove the debt topic, you still have an obvious imbalance. When the President states we have cut our deficit, he is speaking in current linear numbers. The problem is the spending that has been committed in recent years, which causes the United States to find money to pay for prior obligations. And, the country is left with only three solutions: cut spending, raise taxes, or borrow.
If you notice, the word ‘save’ is nowhere to be found. The President has lifted tax revenue this year from three separate tax hikes; but the countless amounts of government contracts still in the procurement process, and yet to be approved, will push spending to higher highs in 2014.
Yes, the volcano is boiling. Yet, the stock market keeps rising.
Investors should note the octane for the current bull market will not be found in fundamental, or even technical, analysis. The king of the bulls can be found in the Federal Open Market Committee (FOMC). And, the gift our inept leaders in Washington gave us is a virtual guarantee the Fed will keep pumping billions upon billions of dollars into the economy. And the end result will be a roaring stock market.
It’s always prudent to remain cautious, but until the hints of a pullback in monetary policy become absolute, you’re best to push forward and enjoy this Gatsby ride for as long as it lasts.
ABOUT LANDCOLT CAPITAL LP & TODD M. SCHOENBERGER
LandColt Capital LP is a private investment firm catering to institutional and accredited investors. The LandColt Onshore and Offshore Fund is based on quantitative and qualitative analysis, and utilizes proprietary investment models and methods developed over decades with a discretionary macro approach, to trade market sentiment. For more information, you are invited to review the firm’s website at www.LandColtCapital.com. For more frequent updates, follow on Twitter @LandColtCapital.
Todd M. Schoenberger is the founder and Managing Partner of LandColt Capital LP, and serves as Portfolio Manager of the LandColt Onshore and Offshore Funds. He is a frequent financial commentator for several national television and radio stations, including CNN, CNBC, BNN, Bloomberg News and Radio, FOX Business and News Channels, and has been a keynote speaker at West Point, the United States Naval Academy, with additional engagements scheduled at a number of top-level financial summit conferences throughout the country and Europe. For more frequent updates, follow on Twitter @TMSchoenberger.