Increasing Debt Burdens, Geo-Political Risks + Moving Money to Safer Markets | Business Market Insider

Markets have been increasingly worried over the US debt balance in recent months, which partly helped fuel the sell-off in US bonds in October. So-called bond vigilantes have been warning that the US might not be able to find buyers for its bonds if the deficit continues to grow and debt keeps piling up. 

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US Capitol 

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US debt is a 'noose' around the economy and makes a strong case for moving money to safer markets, veteran strategist says

Jennifer Sor 

Nov 15, 2023, 12:05 PM PST

The US's growing debt mountain has the economy in a chokehold – and it makes a strong case for investors to move their money somewhere else, according to veteran market strategist Lyle Stein.

That's largely due to high interest rates relative to economic growth in the US, Stein said. The Fed has hiked interest rates to 5.25%-5.5%, the highest target range since 2001. Economic growth remained slightly below that, with GDP surging 4.9% last quarter. 

"If your interest rates are growing faster than the debt, it's a problem," Stein said inan interview with BNN Bloomberg, adding that if rates are at 5% and growth is at 4%, that debt is a noose around your neck, and that's what's happening to the US today."

• The Forvest Global Wealth Management president pointed to the US's growing debt burden, which is on pace to hit 124% of GDP by the end of the year, according to a projection from the Congressional Budget office. 
• That's a huge difference when compared to the Eurozone, where the general government debt-to-GDP ratio slumped to 90% over the second quarter, according to Eurostat. 

The US also doesn't look poised to rein in its spending anytime soon, and interest expenses on the US debt are rising, with annual interest payments notching $1 trillion last quarter.

Those risks could pose a major headwind for the US dollar, which is currently on its steepest decline so far in 2023. They could also influence investors to take their cash and flee to other nations, Stein warned. 

"When you look at this, it makes a much stronger case for moving assets out of North America into safer jurisdictions," Stein said. 

• He added that, when looking primarily at the ratio of debt-to-GDP, he was surprised at how much more attractive Europe was compared to the US.
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• The US economy is in a noose created by its growing pile of debt, according to Lyle Stein.
• The veteran strategist pointed to rapid spending and growing interest costs on the US debt.
• That could weaken the dollar and incentivize investors to move money out of the country, he warned.

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Warnings from key Wall Street commentators have also risen in that timeframe. 

• Billionaire investor Ray Dalio has raised alarms of a growing conflict between the US and China, while 
• JPMorgan chief Jamie Dimon cautioned about the possibility of the worst crisis since World War II.

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Geopolitics overtake inflation as investors' biggest 'tail risk' concern, survey shows

Filip De Mott 

Nov 14, 2023, 9:08 AM PST

Smoke rises after Israeli airstrike in Gaza Strip on October 09, 2023. 

Mustafa Hassona/Anadolu Agency via Getty Images

Higher inflation is no longer the leading concern for investors surveyed by Bank of America, and worsening geopolitical conflict now sits in the top spot. 

• In September, 40% of participants in a survey from the bank indicated that inflation-induced monetary tightness was the key tail risk facing markets. 
• That number has since dropped to 25% in this month's iteration of the Global Fund Manager survey.  

This comes as the Federal Reserve has already paused further interest rate hikes in two consecutive policy meetings, while Tuesday's consumer price index report for October showed no sign that inflation was at risk of a resurgence. 

• Not only are markets now indicating that the central bank is unlikely to keep raising rates, some projections estimate that interest will come down sharply next year.  

At the far end of rate-cut expectations, UBS predicts the Fed to slash rates by 275 basis points in 2024 in response to a slowdown in the economy. 

• Though not every institution shares this outlook, the possibility of so-called hard landing recession scenario has become the third biggest tail risk among surveyed investors.

Meanwhile, in the past two months, the share of investors who view geopolitics as the leading risk has jumped from 14% to 31%. Geopolitical fallout has only expanded since then, with the Israel-Hamas conflict taking center stage. 

• Geopolitical turmoil is a top concern for markets, a Bank of America survey shows.
• Worries about inflation have dropped as prices cool and the Fed nears the end of rate hikes. 
• Despite worsening geopolitical sentiment, markets have yet to reflect the uneasiness.

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