Vorisek Financial Weekly Market Update for August 22, 2018

WMR Logo (002).jpg

Good morning!

The outstanding debt of the United States reached $21.4 trillion as of last Thursday 8/16/18, a record amount.  The debt, up $914 billion since the end of 2017, consists of $15.7 trillion of “debt held by the public” (i.e., investors, both domestic and foreign) and $5.7 trillion of “intergovernmental” debt (i.e., loans from other government departments).  The average interest rate paid by the government on its interest-bearing debt (i.e., the $15.7 trillion owed to investors) was 2.457% as of 7/31/18, 1.9 percentage points lower than the cost of debt a decade earlier in 2008.  The concern is what happens if interest rates retrace their steps back above 4%.  Every 1 percentage point increase in the cost of debt on our nation’s $15.7 trillion of publicly held debt is equal to $157 billion of annual interest expense (source: Treasury Department).

Foreign investors have not backed off from their love of US Treasuries.  From $1 trillion of holdings in 2000, foreign buyers (led by China and Japan) have increased their position of treasuries to more than $6.2 trillion today (source: Treasury Department).            

At the low point for mortgage interest rates (November 2012), homebuyers could borrow $100,000 on a 30-year fixed mortgage at 3.31%, requiring a monthly “principal and interest” payment of just $439.  Borrowing that same $100,000 today at 4.53% (the current national average) requires a monthly “principal and interest” payment of $508.  The goal of every homeowner: to join the 38% of American homeowners that currently own their primary residence free-and-clear of any debt (source: Census Bureau).         

Notable Numbers for the Week:

  1. INCREASING COSTS – Inflation (using the “consumer price index”) advanced +2.95% on a year-over-year basis ending 7/31/18, inflation’s largest annual increase since December 2011The consumer price index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies (source: Department of Labor).    

  2. WHERE THEIR ECONOMY CAN GROW - Personal consumption by American consumers represents 70% of the US economy.  Personal consumption by Chinese consumers represents just 39% of the Chinese economy (source: Business Week).   

  3. GREEN ACRES - The average “farm real estate value” is $3,140 an acre in 2018, including land and buildings, an increase of +3.8% per year over the last 10 years (source: Department of Agriculture).   

  4. SOARING COLLEGE COSTS - 44 million Americans owe $1.41 trillion in student loan debt as of 6/30/18, a +139% increase (up $820 billion) in just the last 10 years (source: Federal Reserve Bank of New York).  

This message and any attachments contain information, which may be confidential and/or privileged, and is intended for use only by the addressee(s) named on this transmission. If you are not the intended recipient, or the employee or agent responsible for delivering the message to the intended recipient, you are notified that any review, copying, distribution or use of this transmission is strictly prohibited. If you have received this transmission in error, please (i) notify the sender immediately by email or by telephone and (ii) destroy all copies of this message. If you do not wish to receive marketing e-mails from this sender, please reply to this email with the word REMOVE in the subject line. By industry regulation, we cannot accept time-sensitive information via e-mail. If you would like to execute a trade or if you have time sensitive information for me, please call my office. We cannot guarantee receipt of, nor the timing of placement, for investment orders received via e-mail.

If you do not want to receive further editions of this weekly newsletter, please contact Jayne Weddington at 614-431-4328 or e-mail us at info@vorfin.com.  You may also write us at 300 W. Wilson Bridge Rd., Suite 320, Worthington, OH 43085. Securities and Investment Advisory Services offered through FSC Securities Corp., a broker/dealer and registered investment advisor. Member FINRA/SIPC. Vorisek Financial Corporation is not affiliated with FSC Securities Corporation or registered as a broker dealer or investment advisor.