The outlook for US debt and deficits isn't pretty; the latest projections from the Congressional Budget Office are for $1 trillion annual budget shortfalls.
On top of that, Treasury debt held by the public will almost double to $27.1tn over the next 10 years as the US steps up its borrowing to finance the deficits. Perhaps the worst part is that there are no recessions built into these numbers, which would have surely shown debt eventually exceeding 100 per cent of GDP.
Here's the important point when it comes to markets: the literacy rate among investors is 100 per cent. Everyone knows these numbers are essentially gamed, but no one seems particularly bothered. It's not as if there's widespread belief that the US government will cut spending and/or dramatically increase taxes to reduce deficits. So we are left with the conclusion that investors believe there is no day of reckoning.
And perhaps that is so. After all, recent history speaks volumes. Adding 200 per cent to the US national debt over the last decade hasn't hurt stocks, with the S&P 500 Index gaining some 88 per cent even when including the big losses during the financial crisis. But what if that complacency is misplaced? And if it is, what would cause investors to start to worry? There are three scenarios to consider.
The first is that rising US sovereign debt levels will begin to hurt stock valuations in the next two to three years as inflation picks up dramatically and the economy cools, likely due to an energy price shock. There is plenty of precedent for that: 1973, 1979 and 1990. The result would be reduced tax revenues and increased long-term interest rates.
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Read more:
Do investors have something to fear?
Huge global debt not necessarily a major headache
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Also, any military expenses needed to address a geopolitical challenge would add to the deficit. Lower tax receipts from a recession would have the same effect. Deficits would rise, as would issuance by Treasury Secretary Steve Mnuchin, possibly resetting longer-term bond risk premiums to higher levels. Higher long-term interest rates would ding equities by increasing the discount rate used to value cash flows.
The second scenario is that rising debt levels will matter, but not for five to 10 years. The idea here is that aging demographics across the US and Western Europe will keep a lid on rates, even as deficits climb. Any recession is mild and can be addressed by Federal Reserve rate reductions rather than requiring fiscal stimulus. Eventually, however, the US will have to offer higher interest interest rates to attract a trillion dollars of capital annually. That's when the "Who is going to buy our debt then?" question comes into play.
The answer: "Everyone, but only at the right price." Those higher rates will push equity valuations down, as in the prior point.
The third scenario is that rising levels of US sovereign debt will simply never matter to stocks. Since this is the current environment, it is easy to sketch out a base case. The fact that 10-year US Treasuries still yield just 3 per cent is testament to the fact that the world remains awash in liquidity in spite of central banks either tightening (the Fed), moving to neutral (the European Central Bank) or running out of assets to buy (the Bank of Japan). Ageing demographics everywhere in the developed world, even China, keep a lid on rates for decades. This cohort is a natural buyer of fixed-income assets and, they don't spend as much as during their working life so economic growth is slower and inflation calmer. It's not like the US is alone in its debt problems. The euro zone, UK and Canadian governments have similar levels of debt to GDP. Even China's debt sits at 48 per cent of GDP at the moment, more than double the levels back in 2000.
It's easy to understand why scenario number three is the crowd favourite. It is hard to even consider factoring risk into a nominally risk-free asset like US Treasuries. Once you start down that rabbit hole the recursive elements are dizzyingly complex. Perhaps most importantly, the demand for Treasuries is inexorably linked to the dollar's global reserve currency status. To see that go by the wayside means something very unexpected has occurred.
In that event, we doubt most people's first thought will be "I wonder where the S&P 500 will close today?"
Bloomberg
COMPANY%20PROFILE%20
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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
Moon Music
Artist: Coldplay
Label: Parlophone/Atlantic
Number of tracks: 10
Rating: 3/5
COMPANY PROFILE
● Company: Bidzi
● Started: 2024
● Founders: Akshay Dosaj and Asif Rashid
● Based: Dubai, UAE
● Industry: M&A
● Funding size: Bootstrapped
● No of employees: Nine
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
Singham Again
Director: Rohit Shetty
Stars: Ajay Devgn, Kareena Kapoor Khan, Ranveer Singh, Akshay Kumar, Tiger Shroff, Deepika Padukone
Rating: 3/5
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
COMPANY%20PROFILE
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The specs
Engine: 77.4kW all-wheel-drive dual motor
Power: 320bhp
Torque: 605Nm
Transmission: Single-speed automatic
Price: From Dh219,000
On sale: Now
The specs
Engine: 2-litre or 3-litre 4Motion all-wheel-drive Power: 250Nm (2-litre); 340 (3-litre) Torque: 450Nm Transmission: 8-speed automatic Starting price: From Dh212,000 On sale: Now
21 Lessons for the 21st Century
Yuval Noah Harari, Jonathan Cape
Jigra
Starring: Alia Bhatt, Vedang Raina, Manoj Pahwa, Harsh Singh
Sholto Byrnes on Myanmar politics
The Farewell
Director: Lulu Wang
Stars: Awkwafina, Zhao Shuzhen, Diana Lin, Tzi Ma
Four stars
Name: Brendalle Belaza
From: Crossing Rubber, Philippines
Arrived in the UAE: 2007
Favourite place in Abu Dhabi: NYUAD campus
Favourite photography style: Street photography
Favourite book: Harry Potter
What She Ate: Six Remarkable Women & the Food That Tells Their Stories
Laura Shapiro
Fourth Estate
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Fanney Khan
Producer: T-Series, Anil Kapoor Productions, ROMP, Prerna Arora
Director: Atul Manjrekar
Cast: Anil Kapoor, Aishwarya Rai, Rajkummar Rao, Pihu Sand
Rating: 2/5
FORSPOKEN
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Diablo%20IV
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The%20Legend%20of%20Zelda%3A%20Tears%20of%20The%20Kingdom
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Assassin's%20Creed%20Mirage
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Starfield
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Sri Lanka-India Test series schedule
- 1st Test India won by 304 runs at Galle
- 2nd Test India won by innings and 53 runs at Colombo
- 3rd Test August 12-16 at Pallekele
Company%20Profile
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Squad: Majed Naser, Abdulaziz Sanqour, Walid Abbas, Khamis Esmail, Habib Fardan, Mohammed Marzouq (Shabab Al Ahli Dubai), Khalid Essa, Muhanad Salem, Mohammed Ahmed, Ismail Ahmed, Ahmed Barman, Amer Abdulrahman, Omar Abdulrahman (Al Ain), Ali Khaseif, Fares Juma, Mohammed Fawzi, Khalfan Mubarak, Mohammed Jamal, Ahmed Al Attas (Al Jazira), Ahmed Rashid, Mohammed Al Akbari (Al Wahda), Tariq Ahmed, Mahmoud Khamis, Khalifa Mubarak, Jassim Yaqoub (Al Nasr), Ali Salmeen (Al Wasl), Yousef Saeed (Sharjah), Suhail Al Nubi (Baniyas)
SPECS
Engine: Two-litre four-cylinder turbo
Power: 235hp
Torque: 350Nm
Transmission: Nine-speed automatic
Price: From Dh167,500 ($45,000)
On sale: Now
RESULTS
Light Flyweight (48kg): Alua Balkibekova (KAZ) beat Gulasal Sultonalieva (UZB) by points 4-1.
Flyweight (51kg): Nazym Kyzaibay (KAZ) beat Mary Kom (IND) 3-2.
Bantamweight (54kg): Dina Zholaman (KAZ) beat Sitora Shogdarova (UZB) 3-2.
Featherweight (57kg): Sitora Turdibekova (UZB) beat Vladislava Kukhta (KAZ) 5-0.
Lightweight (60kg): Rimma Volossenko (KAZ) beat Huswatun Hasanah (INA) KO round-1.
Light Welterweight (64kg): Milana Safronova (KAZ) beat Lalbuatsaihi (IND) 3-2.
Welterweight (69kg): Valentina Khalzova (KAZ) beat Navbakhor Khamidova (UZB) 5-0
Middleweight (75kg): Pooja Rani (IND) beat Mavluda Movlonova (UZB) 5-0.
Light Heavyweight (81kg): Farida Sholtay (KAZ) beat Ruzmetova Sokhiba (UZB) 5-0.
Heavyweight (81 kg): Lazzat Kungeibayeva (KAZ) beat Anupama (IND) 3-2.
if you go
The flights
Air Astana flies direct from Dubai to Almaty from Dh2,440 per person return, and to Astana (via Almaty) from Dh2,930 return, both including taxes.
The hotels
Rooms at the Ritz-Carlton Almaty cost from Dh1,944 per night including taxes; and in Astana the new Ritz-Carlton Astana (www.marriott) costs from Dh1,325; alternatively, the new St Regis Astana costs from Dh1,458 per night including taxes.
When to visit
March-May and September-November
Visas
Citizens of many countries, including the UAE do not need a visa to enter Kazakhstan for up to 30 days. Contact the nearest Kazakhstan embassy or consulate.
A Bad Moms Christmas
Dir: John Lucas and Scott Moore
Starring: Mila Kunis, Kathryn Hahn, Kristen Bell, Susan Sarandon, Christine Baranski, Cheryl Hines
Two stars
Thank You for Banking with Us
Director: Laila Abbas
Starring: Yasmine Al Massri, Clara Khoury, Kamel El Basha, Ashraf Barhoum
Rating: 4/5
The bio
Favourite book: The Alchemist by Paulo Coelho
Favourite travel destination: Maldives and south of France
Favourite pastime: Family and friends, meditation, discovering new cuisines
Favourite Movie: Joker (2019). I didn’t like it while I was watching it but then afterwards I loved it. I loved the psychology behind it.
Favourite Author: My father for sure
Favourite Artist: Damien Hurst
6.30pm: Al Maktoum Challenge Round-3 Group 1 (PA) | US$95,000 | (Dirt) 2,000m
7.05pm: Meydan Classic Listed (TB) ) | $175,000) | (Turf) 1,600m
7.40pm: Handicap (TB) ) | $135,000 ) | (D) 1,600m
8.15pm: Nad Al Sheba Trophy Group 3 (TB) ) | $300,000) | (T) 2,810m
8.50pm: Curlin Handicap Listed (TB)) | $160,000) | (D) 2,000m
9.25pm: Handicap (TB)) | $175,000) | (T) 1,400m
10pm: Handicap (TB) ) | $135,000 ) | (T) 2,000m
