May 2023

The economy is not broken, but what can go wrong? This is not a Pollyanna video. There are real threats to talk about, but usually they're not the threats that people are thinking of. In the last video we discussed the extraordinary performance of the United States economy relative to the rest of the world. But there are things that can go wrong, and particularly, there are five things that cause economists and policy wonks the most concern. Current Threats to the Economy Immigration is Good for the Economy Number one, immigration. It is without a doubt the key to American exceptionalism. If you look at the S&P 500, the founders of those companies that make up the S&P 500, 45% were either immigrants or the children of immigrants. Economic migrants come to the United States with an ability to take risks, a sense of adventure, and a willingness to...

Is the Economy Bad or Good? Everybody seems to agree that the economy is broken. Why? And more relevantly, why might they be wrong? As we know, Trump promised to make America great again, and Biden is spending $2 trillion to build back better. Despite the fact that 80% of the population are expressing concern for their or their children's future, what we see when we look at the numbers relative to the rest of the world, is that the United States’ economy is a stunning success. GDP I'll give you an example. America is the world's richest, most productive, and innovative country. Let's look at China. China has grown phenomenally since the 1990s. Back in 1990, the United States was 25% of global GDP. Despite China's phenomenal growth, the United States still is at 25% of GDP. In fact, back in 1990, the G7, supposedly the biggest economies in...

For years, we've preached “stay short-term on your bonds”, but today's the inflection point where the interest rate risk we've worried about is now offset by reinvestment risk. So, what is reinvestment risk? For the past few years, we've preached short-term bonds and inflation-protected bonds. Today, the Vanguard Ultra Short-Term Bond ETF has a forward yield of 5%. That's tough to beat. The Fed is expected to raise interest rates by a quarter percent within the next 24 hours, so by the time you're reading this, it may already have happened. There's an 89% probability. We're going to assume it's going to happen. What is Reinvestment Risk? Yesterday's trap was long maturity bonds with higher yields. A lot of broker dealers sold a lot of elderly people a lot of long bonds, and they got crucified when interest rates went up. Yes, they continued to get that three, 4% yield,...