Francophile Test
Many of us enjoy partaking in good French inspired food and wine and arts and culture. After all, they assisted us extensively 250 years ago and we assisted back in WW II. What we do not desire to emulate is what is going on presently with the nation’s debt and finances.
The debt load in France is continuing to climb, and the annual deficits are increasing. There is an ongoing discussion about how to correct the current course. Attempts were made to raise the retirement age and to trim certain benefits. These efforts have largely failed. What is to be done? In the meantime, spreads on the nation’s outstanding bonds have widened to reflect increased risk.
The current circumstances remind me of the 2010 timeframe with the PIGS (Portugal, Italy. Greece and Spain). Those nations were able to manage their way back to a more stable status.
As for our nation’s status, the debt continues to grow, and the deficit has just been confirmed at an incredible $2 Trillion with rounding. We all conclude that this cannot continue for much longer but the political price for the turnaround measures is still assessed as being too great.
Fortunately, our economy continues to perform well although there are some early signs of a slowdown on the horizon. Mortgage rates are at levels that serve as a damper on housing activity. Commercial loans that also must be renegotiated are likely to encounter some turbulence.
On the positive side, equity markets continue to perform well. Buying the dip is a widespread practice without much risk.
One of the more shocking elements of our GDP growth is that approximately half of the 2% increase is attributable to AI activity. Any attenuation to this activity would have an impact. But if the productivity gains that are being touted continue to be proven out, we should be simply fine.
Assuming interest rates will continue to climb with further tightenings, the levels of hiring and investment will likely be reassessed. We are already in a low hiring environment.
Municipal Matters
Municipal rates have attained new heights along with the rest of the markets. So far, we have not witnessed a real change in activity. But it is early days on the path to higher rates. If we raise just $40 billion per month for the remaining three months of the year the volume should be at least equal to the level of last year. Chances are we will prove to be better than that pace unless rates climb much more sharply than anticipated.
At the same time, the PIGS were being questioned back in 2010, some powers of observation were directed at the states and their respective debt and fiscal balances. New York and California often receive a great deal of attention in this regard, especially from non-traditional tax-exempt buyers.
Some New York City officials have indicated that early readings on income tax receipts are coming in higher than budget estimates due to capital gains activity. We will have a mid-year report from New York State in the days ahead.
The midterm elections are likely to bring more changes to how government is conducted going forward. The real impact will take place next year. But we know that the markets will pass judgments before then.
John Hallacy
John Hallacy Consulting LLC
10/09/26
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