Bull markets normally signify optimism about stock prices and the nation’s economic outlook, but many investors today are running scared, according to a speaker at the Insured Retirement Institute’s IRI Marketing Forum, held on Wednesday in New York City.
The presenter, Trish Regan, an anchor of Bloomberg Television, explored during the one-hour talk legislative priorities that will impact the insured retirement market, prospects for the global economy and implications of the nation’s growing debt burden.
“Stock prices are destined to go higher in the near-term, driven in part by the Federal Reserve’s easy monetary policy,” Regan said. “But many investors don’t want to believe that stock prices will continue to rise. This is the most hated bull market in recent history.”
The reasons for investor skepticism, Regan added, are varied. Many are concerned about economies globally, most notably Europe, where several countries—Spain, Greece, Italy and, most recently, France—are sinking back into recession.
There is concern, too, about whether emerging markets can sustain their current growth rates. China, which now boasts the world’s second largest economy, faces the prospects of rising wages, slowing growth and the bursting of a real estate bubble.
On the domestic front, Regan said, investors are alarmed about the rising budget deficits and gridlock in Washington, as a highly polarized Congress seems unable to make the tough political decisions needed to reign in run-away spending.
“Until we get the debt issue resolved, investors won’t have more confidence in the U.S. economy,” said Regan. “The big question now is how long can we continue to run deficits, given national debt that now exceeds $16 trillion and a public entitlement system that is ballooning out of control.”
The national debt on a per capita basis, she added, has risen from $13,000 in 2008 to $42,000 currently. And since 2010, the federal debt has risen to $16 trillion from $9 trillion. Given a current gross domestic product of $15 trillion, the debt-to-GDP ratio now stands at 93 percent; and, Regan said, it’s estimated to rise to 135 percent of GDP by 2030.
By 2025, the interest on entitlement spending, including Medicare, Medicaid and Social Security, will exceed tax receipts. Regan described the growth trajectory of the nation’s debt as “unsustainable.”
Citing Peru and Venezuela as examples, she noted that the fiscal situations of the many poorer, third world nations are superior to that of the U.S.
Regan added that greater fiscal discipline will be difficult to achieve if federal appropriations continue to be laden with pork barrel spending. Among the more grievous outlays she cited was $25 million spent to upgrade snow-making equipment in Vermont.
Should the U.S. fail to address its debt problems, then the country faces the prospect of rising interest rates, and thus a rise in the cost of servicing the debt, as jittery holders of U.S. Treasuries move their bond holdings to safer havens. Foreign investors, Regan said, now hold about 50 percent of U.S. Treasuries; China alone accounts for 20 percent of the total.
While warning of the dangers of red ink, Regan also cautioned against instituting severe austerity measures akin to those being applied in Europe, as the belt-tightening could force the fragile U.S. economy back into recession.
Regan also observed the paradox of a still high unemployment rate at a time when organizations in many sectors—including the information technology, healthcare and education fields—are unable to fill positions because of the lack of qualified candidates.
To close the talent gap, Regan advocated for immigration reform that would increase the number of H-1B visas, which allows U.S. companies to temporarily employ foreign workers in specialty occupations. Current law limits to 65,000 the number of foreign nationals who may be issued a visa or otherwise provided H-1B status each fiscal year. Laws exempt up to 20,000 foreign nationals holding a master’s or higher degree from U.S. universities from the cap on H-1B visas.
“More than 700,000 students have come to U.S. to be educated, only to return to their home countries to reap the benefits of that education,” said Regan. “If they could stay by acquiring an H-1B visas, then we could reap the rewards.”