Rates Drop Rapidly Amid Inverted Yield Curve – Fixed Income Update

Markets tend to look at the yield curve in order to find clues as to what the expectations are about future economic growth and inflation. The yield curve is essentially the current yield on government Treasury bonds from 3-month maturities to 30-year maturities. At the end of May, the 1, 2, 3, 6 month and 1-year notes all yielded more than the benchmark 10-year bond. When shorter term bonds are yielding more than longer term bonds, it is known as an inversion or inverted yield curve.

Economically sensitive copper and oil prices fell in May, perhaps signaling weaker global growth activity. Such dynamics in the commodities market tends to push yields lower internationally. Some analysts believe that a continued escalation of trade disputes with countries in addition to China will crimp global economic growth and force the Federal Reserve to lower interest rates.

Total global debt as of the end of 2017 was $184 trillion, as monitored by the International Monetary Fund (IMF). Global bond yields fell in May with an estimated $10.6 trillion worth of debt now in negative yielding territory, the highest since 2016.

Some fixed income analysts are projecting lower yields later this year due to slowing economic expansion, continued demand for U.S. government debt, and an increasing probability that the Fed will eventually lower rates. (Sources: IMF, Treasury Dept., Federal Reserve)

Equities Give Up Early Gains – Equity Market Update

In stark contrast to the strong performance during the first four months of 2019, U.S. equities faltered in May as continued trade disputes hindered economic growth expectations. All sectors of the S&P 500 Index fell in May, with the exception of Real Estate. Technology and financial stocks experienced the brunt of the pullback in May.

May was the worst month since December 2018, when markets reacted to heightening trade fears and a possible rate hike by the Federal Reserve. Ironically, some analysts are expecting a reduction in rates by the Fed later this year in response to tariff reverberations and slowing economic global growth. A rate decrease by the Fed might lure equities higher as loan costs and capital remain inexpensive, thus buffering profit margins for U.S. companies.

Should a continued drop in rates persist, economists note that the U.S. dollar may weaken, thus boosting U.S. multi-national company earnings, which primarily operate internationally.

Global inflation expectations have eased considerably over the past month, prompting central banks in various countries to consider lowering rates, also known as growth stimulus efforts. (Sources: S&P, Bloomberg, Federal Reserve)

Down Trash – Environmental Fact

As an abundance of trash is generated every day, more of an effort is being made to collect and recycle as much trash as possible. Several nations worldwide have had growing success in collecting and recycling their trash over the past few years.

Switzerland currently recycles over 50% of its trash with Austria, Germany, Netherlands and Norway recycling over 40% of their trash. In the United States, the Environmental Protection Agency (EPA) has been monitoring and collecting data on U.S. trash for over 30 years. In its most recent figures, Americans generated about 262 million tons of trash in 2015 and recycled 91 million tons of it, equivalent to a 35% recycling rate. The EPA estimates that Americans produce an average of 4.48 pounds of trash individually every day. That equates to roughly 1635 pounds of trash each year for every American. The EPA’s objective is to try to find new ways to efficiently and effectively recycle as much of this trash as possible.

The challenges with recycling trash is the multitude of components found in everyday trash and how best to separate them. Known in the trash industry as municipal solid waste (MSW), common everyday trash is comprised of food, waste, grass clippings, sofas, computers, tires and refrigerators. Fortunately, more and more of these items are being broken down for selective recycling of internal components, both hazardous and non-hazardous.

Most individuals and every type of entity in the country contributes to the trash pile, including individual homes, apartments, businesses, hospitals, and schools. Optimistically, current data from the EPA is telling us that both individuals and businesses are producing less trash than we were 10 years ago.

So where does so much trash go? Most of it ends up in landfills. The number of landfills in the United States has declined over the past few years, yet the average landfill size has increased. On a national basis, landfill capacity is sufficient for current levels of garbage, but it is limited in certain regions of the country  (Source: Environmental Protection Agency)

The Cost of Raising Kids – Financial Planning

Since 1960, the U.S. Department of Agriculture (USDA) has provided estimates of expenditures related to raising a child from birth to age 17. Related expenses range from food and housing to education and medical care. The USDA closely follows and identifies the various incomes for families, as well as the number of children in families. What it has determined over the past 55 years of collecting data is that families with different incomes spend differently on their children. In addition, single parent families spend less than dual parent families who have the ability to afford greater expenses in raising children. Certain expenses rise as children grow older no matter what income group a family might be part of. These expenses include food, transportation, clothing, and health care expenses. As children grow, they tend to eat more as well as spend more on transportation once they start commuting to more activities at ages 15-17. Childcare and medical expenses were generally higher for children under the age of 6.

The USDA estimates that a child born in 2015 will cost a dual parent family $349,380 from birth until high school graduation in 2032. (Source: USDA)