19,918,069,190,213 US Debt

With U.S. debt at $20.0 trillion and counting, a lot of Americans are on edge and rightfully so, when it comes to government spending. This is coupled with a conservative economic orthodoxy that dismisses the notion of a nation spending its way out of debt and that one can see the biggest hurdle for Donald Trump’s budget. Its aim is to prime the pump with a lot of spending (or investment) that allows for the flow of commerce that ultimately increases economic output.

In the process, the debt as a percentage of the Gross Domestic Product (GDP) declines; eventually, there will be room for deep cuts to actually lower the amount of debt on the books.

Initially, however, cuts are coming from all areas that will spark howling and reignite the class debate and politics of envy. The focus is on cutting the growth rate of spending on anti-poverty programs, while sharply increasing our defense spending by $54 billion and lowering taxes for the richest corporations in the world. Critics will say the budget is heartless.

That being said, there is no doubt billions are wasted in government, and every presidential candidate has vowed to find such waste, fraud, and abuse by using the savings as a cornerstone for reform.  It is really heartless for the federal government to make changes to anti-poverty programs that might have actually increased dependence rather than provide a temporary stop-gap for folks down on their luck?

The fact of the matter is cradle-to-grave welfare is a scourge of the west. It has retarded growth and individual contributions to society. There is a thin line on where charity begins to hurt the recipient. By the same token, the richest nation in the world has preached austerity to the world. The notion that the poorest are making the biggest sacrifices isn’t going to play well in a media that already isn’t fond of this administration.

Crazy Checks

I have written and discussed the so-called “crazy check” for years, but now the phenomenon has gotten to the point where it will bankrupt the Social Security Disability Fund any minute now.  Back in 1961, 25.7% of the Social Security Disability Insurance (SSDI) recipients were diagnosed with heart disease and 16% of neurological ailments.

Now 31.5% of the recipients have mental illnesses (14.9% with mood disorders), and back pain has jumped to 30.5% from 8.3% in 1961. 

The bottom line is there is a lot of abuse in the system. It’s hard to deny people’s claims for mental or back problems.  However, there are 11 sub-categories for mental illness: schizophrenia, neurocognitive, depressive, intellectual disorder, anxiety, somatic, personality impulse control, autism, neurodevelopment, eating disorders, and trauma/stress.

There is significant abuse in the system. It would be a shame to not have funds for folks that are truly disabled and to save taxpayers for a program that has become a de facto welfare program.

As we pay attention to the name-calling and hysteria that will follow the unveiling of the Trump budget today, remember that there really is waste, fraud, and abuse; it makes victims out of those abusing the system along with those who are paying into the system, and those who will need the system to be viable in the future.

The Market

The market came out of the gate on Monday with a bit of gusto, but it peaked early as the volume was never enough to break through key resistance points since it never materialized. 

Industrial names were big winners, paced initially by defense contractors in the wake of President Trump’s successful visit to Saudi Arabia. By the end of the session, it was American Airlines (AAL) and rail operator CSX Corporation (CSX). I love this as a long-term investment on the rebirth of the United States economy.

While equities have rallied three consecutive sessions since last Wednesday’s 373- point that swooned investors, they haven’t completely shaken off the drubbing; even after yesterday’s session, the Dow Jones Industrial Average is still 86 points lower. 

Message from Sectors

There was always a cautious tone to the session best reflected in the fact that utilities were the best performing sector. 

That said, crude oil rallied almost one percent, but the only losing sector was energy. Gold also edged slightly higher for the session.

Sector Scoreboard	Decline	Advance
S&P 500 Index		+0.52%
Consumer Discretionary (XLY)		+0.50%
Consumer Staples (XLP)		+0.56%
Energy (XLE)	-0.22%
Financials (XLF)		+0.26%
Health Care (XLV)		+0.27%
Industrials (XLI)		+0.77%
Materials (XLB)		+0.11%
Real Estate (XLRE)		+0.25%
Technology (XLK)		+0.80%
Utilities (XLU)		+0.86

Today’s Session

We begin with prayers for the victims and families of the concert bombing attack in Manchester, England.  

The Trump budget takes center stage even though it’s dead on arrival in its present form. There are ironies to the plan for Republicans that have been put off by Keynesian economics. While the government is asking austerity of others, there are spending increase elsewhere that will create a magnificent spike in deficit spending and overall debt.

Annual debt/surplus in billions:

• 2018 -$440
• 2019 -$526
• 2020 -$488
• 2021 -$456
• 2022 -$442
• 2023 -$319
• 2024 -$209
• 2025 -$176
• 2026 -$110
• 2027 +$16

I love the idea of less abuse of anti-poverty programs, which should always be temporary and uncomfortable.  I don’t like the idea of not tackling the big entitlement issues, which must be tackled for real reform and their very survival. 

Perhaps this budget gets Congress to move quicker on healthcare reform –the first domino in a series that must fall for the economy to move substantially higher.

Critical Observation

Earnings from Toll Brothers is sending that stock to a decade + high, but its observations from the CEO that lends to my belief household formation is improving, and that is the key to long term economic success.

“This was the best spring selling season we have had in over ten years.  The number of contracts in FY 2017’s second quarter was the highest since FY 2005’s third quarter and the number of contracts per community was the highest since FY 2006’s second quarter.

“We believe we are benefiting from the appeal and national recognition of the Toll Brothers brand and a lack of large scale competition in the affordable end of the luxury new home market.  The breadth of products we offer, our beautiful home designs and our ability to appeal to a wide range of demographic groups, including affluent move-up, empty-nester and millennial buyers, are also fueling our advantage. 

“Increasingly, home buyers choose to buy new over used homes, particularly in the luxury market where consumers want, and can afford, to customize their homes.

We think our customization program differentiates us within our segment of the luxury market.  Every Toll Brothers buyer can create their dream home to fit their current and future lifestyle. Our buyers spend an additional $120,000, on average, in structural and designer options to further customize their already well-appointed homes.

 

 

Comments

So, the Labor Secretary has decided NOT to delay the implementation of the DOL Fiduciary Rule. This is tragic. Every time the government tries to fix something they make it worse, increase costs, and reduce access. Trying to apply the fiduciary rule to every single financial transaction is wrong for so many reasons.It was meant to protect those without capacity or ability, not to be applied to every stock, bond, insurance and annuity transaction. Where is ANY personal responsibility for investment choices and the ability to take risk and accept the consequences if things do not go as planned. This is truly attorneys gone wild. I take more than a few clients in order to serve others that the income earned would never merit my work in a desire to help people and give back. Now, I will be hard pressed to continue considering the phenomenal exposure to litigation risk moving forward based on this change. They are telling us we are paid too much so they are reducung our compensation and dramatically increasing the record keeping and paperwork requirements Is there any one in government with just a basic modicum of common sense? Welcome to risk free and virtually return free investing everyone. Ray Weldon on 5/23/2017 10:18:36 AM

Ray, you are correct. Similarly, federal rules and regulations have so over regulated medical care that patients at times lack "care" due to record keeping, paper work, and "reporting". Sad at so many levels and apparently true for small businesses and tax payers. James on 5/23/2017 11:27:45 AM

Ray; the answer is no! The Politicians of today are mostly privileged progressive elitist and they will do anything to protect their status and perks. The Media and Wealthy believe it is their duty to tell everyone else how the World will work. Our youth have been indoctrinated with the Utopian ideology that Socialism is the only fair and just system. Given those constructs we find ourselves as a Nation in dire straights and virtually no one willing to redirect the trajectory. As Charles points out: "The fact of the matter is cradle-to-grave welfare is a scourge of the west. It has retarded growth and individual contributions to society. There is a thin line on where charity begins to hurt the recipient. By the same token, the richest nation in the world has preached austerity to the world. The notion that the poorest are making the biggest sacrifices isn’t going to play well in a media that already isn’t fond of this administration." Fond is too tame a word; THEY HATE TRUMP and would further harm the Nation than work with Republicans ( even RINOs) to find reasonable ways forward to our problems. I try very hard not to be a fatalist and believe that generally people are good but, the group public psyche and cultural value system of the USA currently is making it very hard to think this will turn out well. IMHO. Garro on 5/24/2017 7:43:28 AM

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