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WHERE ARE THE ADULTS?

By: Tony Minopoli

Having spent more than 30 years in the investment industry, there are several investment professionals that I hold in high regard. Three of them are bond/credit guys, perhaps because my lineage comes from the bond world, and include Howard Marks, Jeffrey Gundlach, and Dan Fuss. Throughout my consulting days, I got to know all three of these men, having learned quite a bit from Jeffrey and Dan over the years. On the equity side, Stan Druckenmiller has always resonated with me.

I am in Rome at the moment and will be attending and speaking at a conference on Mensuram Bonam, which is Latin for “Good Measure”. This conference is focused on calling Catholics to invest financial assets, whether institutional or personal, in a manner that is aligned with Catholic Social Teaching, and I will be writing about this topic in more detail next week.

In any event, I was reading morning research and saw an article on CNBC’s website quoting Druckenmiller from his appearance this morning on CNBC’s Squawk Box, as he said the  Federal Government needs to stop spending like drunken sailors. He quoted that pre-COVID, the Federal Government was 20% of GDP in spending and now that figure is closer to 25%. The U.S. Bureau of Economic Analysis states that the U.S. GDP, as of September 30, 2023, is $27.6 trillion on an annualized basis. That’s a big number, and 5% of that is nearly $1.4 trillion. Even by Washington standards, that’s a big number. Those who know me well know that I love a great analogy or phrase to capture a moment. Druckenmiller went on to say that his father told him, “Stan, when you are in a hole…stop digging”. I never met the original Mr. Druckenmiller nor his son Stan, but that, my friends, is pure common sense.

In the last fiscal year, we had a budget deficit of $1.7 trillion. Druckenmiller wants to go after entitlements and leave current seniors alone while causing future seniors to receive 85-90% of their projected benefits. The White House is looking for $56 billion in current emergency funding and over $100 billion to help Ukraine and Israel. This post is too short to take all of that on and I do think we need to support our allies. However, someone needs to step up and say we need to stop kicking the proverbial can down the road. Perhaps a first step would be to simply return to pre-COVID spending levels and start from there. If that incremental 5% or $1.4 trillion in spending had not taken place in the last fiscal year, we would have “only” been a mere $300 billion in the hole. We cannot remain in a prime position globally if we cannot get our fiscal house in order. Getting control of spending and perhaps simply moving back to pre-COVID spending might be a fine place to start. Mr. Druckenmiller was right: we are in the hole…we need to stop digging.

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

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