More Than $1 Million per Taxpayer Owed – and Climbing

It seemed tragic back in October 1981 when the federal debt reached $1 trillion. How would we ever pay back $1 trillion?

The real tragedy, though, is what’s happened since then

In early December, the federal debt is expected to exceed $20 trillion. More troubling, though, other unfunded U.S. government debt obligations now total $107 trillion, according to the U.S. Debt Clock.

The cost of unfunded liabilities is difficult to estimate. Unknowns such as future interest rates, inflation, population growth and mortality rates must all be considered, so estimates range from around $80 trillion to more than $200 trillion. These unfunded liabilities come from programs we’re written about in recent weeks – Medicare, Medicaid, Social Security and government pensions.

Economics professor Antony Davies and James R. Harrigan, CEO of Freedom Trust, noted recently in U.S. News & World Report that total U.S. government debt exceeds even the approximately $120 trillion in debt you get by adding the federal debt to the cost of unfunded liabilities. They estimate the total at $135 trillion.

“U.S. state and local governments officially owe $3 trillion and have another $5 trillion in unfunded liabilities themselves,” according to U.S. News & World Report. “Federal agencies and government sponsored enterprises owe another $8 trillion, which is not included in the federal government’s numbers.”

To paraphrase the late Senator Everett Dirksen, a trillion dollars here, a trillion dollars there, and pretty soon you’re talking about real money.

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September Is the Cruelest Month

Oh, it’s a long, long while from May to December
But the days grow short when you reach September.

                                                                  September Song

T.S. Eliot was wrong about April being the cruelest month.  For investment managers, it’s September.

It’s bad enough that September marks the end of summer, shorter days, cooler weather, the beginning of school and the almost annual Red Sox meltdown.  It’s also the worst month, by far, for stock market performance.

Since 1955, the Dow Jones Industrials Average (DJIA) cumulatively has lost just under 50% during September, according to “Jay on the Markets.”  In contrast, the DJIA has gained 200% in April over the same period.  So, in spite of Mr. Eliot’s claims, April is the kindest month, not the cruelest.

May (-10.6%), June (-20.9%) and August (-11.6%) have also registered net losses over that period, as the chart shows, but September losses (-49.1%) total more than those three market-declining months added together.  In other words, September is a big loser.  Take September out of the calendar and the market would historically be flying high.

Read On, Before You Sell

So should you sell all of your stock holdings on August 30, the last trading day before September?

Before you do, keep in mind that “past performance is no guarantee of future performance,” like those folks in compliance like us to say.  That holds whether past performance was good or bad.  Note, too, that the DJIA has had a positive performance in six of the past e

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High-Speed Casinos

A tweet – 12 words, 140 characters – caused a selling frenzy last week, as the stock market dumped $134 billion in stocks in a minute and a half and the Dow Jones Industrial Average dropped 1 percent of its value, or 143 points.

The market recovered quickly, as the Associated Press announced that someone had hacked into its computer system and posted a fake tweet about two explosions in the White House.

But the hoax served as a frightening fire drill.  If it had been real, the average investor would have been burned alive.

We’ve warned readers about the dangers of high-frequency trading before.  This is an example of why we’re concerned.  If the White House explosions had been real, the algorithms that make decisions for high-speed traders would have continued selling, leaving the average investor behind as stock values tumbled.

Rick Santelli, on-air editor for CNBC Business News, said high-frequency trading has turned the markets into “high-speed casinos.”

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