And let’s face it: With interest rates so low on U.S. Treasuries and municipal bonds, we wouldn’t need to break the bank to fund major investments in roads, bridges, airports, mass transit, state universities, water-treatment plants, power-grid upgrades, or any number of other things.
But as a recent Wall Street Journal story points out, infrastructure spending is on ice! Consider the following stats:
Cities and states sold only $140 billion in new project bonds in 2015. That’s the lowest level in the past two decades.
If you inflation-adjust the figures, they look even more striking. Infrastructure-related financing is down 53% in real terms from a decade ago and 21% from two decades ago.
The Commerce Department now estimates that non-federal governments are investing the least on infrastructure projects since the early 1980s, at least as a percentage of the overall economy.
The average muni bond yield just sank to 1.6%, the lowest in 20 years. So why aren’t governments borrowing like mad? According to the Journal, voters won’t back many new projects by agreeing to pay more in taxes. Pensions are in such dire shape that policymakers have to shore those up rather than spend money on infrastructure. And overall tax revenue isn’t rising at a fast enough clip to justify heady new spending.
|Non-federal governments are investing the least on infrastructure projects since the early 1980s.|
It’s tough to say what will change this state of affairs. Maybe a true surge in economic growth that boosts tax revenue, or an increase in consumer confidence that encourages voters to sign on to capital projects?
But it’s worth pointing out that corporations aren’t investing much on plant, property, or equipment, either, judging from the latest government figures. So it looks like we’ll be stuck with substandard airports, roads full of potholes, second-rate transportation networks, and rundown schools for the foreseeable future. It also means “infrastructure plays” in the stock market – including construction companies, materials suppliers, engineering firms, and the like — may not be the best bets for your money.
In any event, what’s your take? Would you be willing to pay more in taxes in exchange for better infrastructure? Or do you think the money would be poorly spent? Will governments beef up their borrowing soon? Or will they continue to tighten their purse strings despite record-low borrowing rates? Let me hear about it in the comment section.
Until next time,
The global markets – and investors like you – have had a few days now to digest Friday’s jobs figures. So what was really behind the strength, will it persist, and what does it mean for stocks going forward?
Reader Frebon said: “The jobs number was great, if you believe anything this administration says. Remember they falsified the unemployment number just before Obama’s election. There is still no demand in our economy and until the common sense-lacking Fed realizes that it needs to put money into the hands of the middle class who will spend it, not corporations and banks, we will have the same stagnant economy as Japan has had over the last decade.”
Reader Fabian also sounded a skeptical note, saying: “Unemployment is always a lagging indicator, in retrospect. That’s the problem. But effectively, it doesn’t really add up with other economic data, as mentioned. Anyway, this credit expansion will reach its end sooner than later.”
But Reader Tommr struck an optimistic note: “It’s beginning to look like the U.S. GDP is picking up quite a bit and the labor market is strengthening, too. I have been seeing ‘Help Wanted’ signs all over the place. It’s almost like everyone who is willing to work is already working and that just leaves those who don’t want to work anyway!
“The stock markets are set up for a strong advance from a technical and charted standpoint. The major indexes are trading way above their 200- and 50-day moving averages after treading water for an extended period of time (414 days). I am very confident in the future rise in stock prices.”
Reader Solly R. also suggested more upside is coming: “As I stated in a discourse a few months ago, the stock market is not logical. It must be realized that the market is driven primarily by its participants. While most Americans, economists, fund managers, etc., are holding cash, this is the only game in town (in the world). So foreign money and shrewd investors and those desperate for yield are investing and making money. The short positions are getting called and stock buybacks slowly continue.”
On the other hand, Reader Chuck B. said: “No market goes up indefinitely without corrections. Usually, there will be something like a 50% correction, even in a rising market.
“We have gone about seven years since the last correction of note. This rising market is getting a bit long in the tooth, and it’s overdue for at least a sharp pause or consolidation. With central banks violating all rules of logic in the management of money, this coming correction could turn into a collapse like 1929 – at least.”
I appreciate everyone weighing in. I remain somewhat skeptical about the economic and market outlook at this point in the credit/growth cycle. My read is that valuations of many assets, including stocks, are dangerously elevated relative to the underlying fundamentals.
What’s more, tightening lending standards and anemic GDP growth typically don’t go hand-in-hand with healthy, powerful bull markets. But as always, I’ll continue to analyze data coming in the door and let you know if and when my views change.
Have any other thoughts to share? Then be sure to do so in the comment section below.
If you’re a bond market wonk like I am, you’ll find this Bloomberg story pretty fascinating. It talks about how U.S. Treasury yields are still higher than yields on government bonds in many other parts of the world. But the cost of hedging out dollar exposure for foreign bond buyers has gone up, too. The net effect? U.S. Treasuries no longer offer any “real” pick up in yield, something that dampens demand for our bonds among traditional foreign buyers overseas.
Computer systems at Delta Air Lines (DAL) failed in the early morning hours today, stranding thousands of passengers and resulting in canceled flights all over the world. The outages come on the heels of similar problems at Southwest Airlines (LUV) a few weeks ago.
Donald Trump tried to get his campaign back on track over the weekend and today by refocusing on the economy. His approach is to take a harder line on trade negotiations with foreign partners and to use tax policy to boost growth here at home.
The Rio Olympics are offering up plenty of drama and excitement for fans of international sports. But Comcast Corp.’s (CMCSA) NBC network failed to score gold on its broadcast of the opening ceremonies. Nielsen estimated viewership at around 26.5 million for Friday’s event, a 35% plunge from the 2012 Olympics in London and the lowest since the 2004 ceremony in Athens. NBC forked over $1.2 billion to air the Rio games as part of an Olympics deal stretching through 2032.
So what do you think about bonds here? Are Treasury prices going to head back up, or is the dip over the past few weeks the start of a much deeper selloff? Will Delta’s latest struggles deter you from flying? Have you been watching the Olympics, and what do you think of NBC’s coverage? Share your comments in the feedback section below.
Until next time,