Coming almost on the exact 50th anniversary of the Yom Kippur War, the attack on Israel by Hamas conjures comparisons with a half-century ago. The consensus view is that it is different this time, and for once the Wall Street cliché is right.
But then came the gasoline lines, a symbol of the economic malaise that came to be known as stagflation. In the wake of the oil shock, the U.S. economy contracted 3%, adjusted for inflation, sending unemployment up to 9%, while inflation topped 12% in 1974. What didn’t inflate was stock prices: The Dow Jones Industrial Average shed 45% in the brutal bear market of 1973-74.
There is a different deficit now—that of the budget. Given the geopolitical challenges that the U.S. faces, this arguably is more important. Given the global stresses, however, the deficit might have to be subordinated to security interests, according to an insightful analysis from Daleep Singh, chief global economist and head of macroeconomic research at PGIM Fixed Income, the asset-management arm of Prudential Financial.
Massive budget deficits are now a permanent fixture and increasingly intractable owing to rising interest expenses, Trennert and Grabinski point out. Treasury auction sizes are slated to ramp up by 24% in 2024, John Brady, managing director of global institutional sales at institutional broker R.J. O’Brien points out in a client note.