Level of US Government Debt
This post is about the level of US federal debt, but the level of debt globally is not restricted to the US. In addition to the US these countries all have a Debt to Gross Domestic Product (GDP) ratio over 100%: Japan, Singapore, Italy, France, Spain, and Canada among many other countries. What is astonishing about the level of US debt though is how quickly the level of debt rose, and the US went from being one of the most fiscally responsible governments to being dependent on debt to close its budget gaps.
High Yield Spread and VIX
Investors can use the high yield spread and VIX to assess investor sentiment and stock market expectations. Both have proven to be reliable indicators, but no indicator is 100% accurate so investors could use these indicators as part of their overall investment analysis and strategy.
Funding a Company and Capital Structure
Investors need to understand not only how a company funds its operations but also the makeup of its capital structure, since both are critical to successful companies and investment returns. Borrowing from banks is just one way a company can fund its operations and investments, and several different classes of capital are available to firms throughout their corporate life cycle.
The Federal Reserve and Monetary Policy
Central banks, including the Federal Reserve, are responsible for monetary policy, which refers to the actions taken by central banks to manage the money supply, and, consequently, interest rates. These activities work toward achieving macroeconomic goals like stable prices, low unemployment, and economic growth. In contrast, fiscal policy is under the purview of the government, which uses taxation and government spending to influence a country’s economy, with the objective of promoting sustainable economic growth, manage inflation and stabilize business cycles. In a free market economy, interest rates along the entire yield curve are a function of market factors, and the Federal Reserve uses monetary policy tools to influence interest rates.
Tariff Considerations for Investors
Tariffs are taxes, sometimes called duties, to be paid on a specific class of imports, and function like a tax on imported goods. Historically their purpose was to protect domestic producers, and often are compared to value-added-taxes (VAT). However, whereas a tariff is applied only to specific imports, a VAT is a broad consumption tax on both domestic and imported goods, and for imported goods you could have both. For example, tariffs are applied to the customs value of goods, and then a VAT is applied to the total value. What tariffs and taxes have in common is the government receives the proceeds, but where they differ is who pays.
Financial Account Framework
Investment objective, liquidity, and time horizon are three variables that can be used as a basis for a financial account framework. Financial accounts are considered those that comprise financial assets and includes bank, brokerage, retirement, education accounts, and others based on personal circumstances.
Personal Financial Statements
Investors use financial statements to assess the financial condition and performance of companies. However, equally important is for investors to assess their own financial position through the use of personal financial statements, in particular a Balance Sheet and Income Statement.
Investment Objectives
Perhaps the single most important question an investor can ask himself or herself is “what is my investment objective”. The answer to that question serves as the basis underpinning investment decisions and investment objectives can change over time. Let’s take a look at investment objectives for a specific individual’s 401K and over time.
Accounting and Financial Statements
Accounting is the language of business, and financial statements summarize the various underlying accounting entries. Accounting, especially through financial statements, allows us to understand a business and make better investment decisions, but it also allows us to improve our personal financial lives.