Breakfast on Wall Street: The Earlier, the Better

Better late than never

Seeking Alpha wishes our subscribers a happy holiday and a happy 4th of July! Wall Street Breakfast will not be published on Thursday as markets are closed, but check back on Friday.

Debt levels are a major concern, with both presidential candidates adding trillions of dollars to the national deficit during their first terms. That’s a problem because measures like tax hikes and spending cuts aren’t popular with candidates who only look four years at a time, while it can take a while to feel the higher costs of servicing debt. In fact, the United States is projected to spend $892 billion on interest payments this fiscal year, more than the amount projected for defense spending, and that figure is projected to surpass $1 trillion in 2025, which is close to the entire Medicare budget.

Quote: “Fiscal policy is an elected official’s business. We’re not elected officials, so we don’t comment on it, especially before a presidential election,” Powell said at an ECB conference in Portugal. “But I would say more generally that the United States is running a very large deficit at a time of full employment. Our debt level is not unsustainable, but the trajectory that we’re on is unsustainable, and that’s not controversial at all. That should be a top priority. You can’t keep deficits like that for very long, even in good economic times. In the longer term, we’re going to have to do something sooner or later, and sooner rather than later.”

Rising deficits could also exacerbate the inflation problem for the central bank, which uses monetary policy to keep prices stable but has little say in what happens on the fiscal front, where profligate spending is the norm for both parties. Ratings agencies are taking notice, with Moody’s cutting its credit outlook on the U.S. in November, citing greater downside risks to the country’s fiscal strength. Fitch also downgraded the U.S. after last summer’s debt ceiling drama, while S&P was the first to downgrade U.S. government debt in 2011.

Going global: Government bond yields are used to price many other types of debt and can hurt economic growth if levels remain high. Pushing back the deadline in good times can be devastating in a crisis, and many other developed countries around the world (such as Japan, France, Canada and the United Kingdom) are also struggling to manage their debt-to-GDP ratios. “Markets could at some point question fiscal sustainability,” said Claudio Borio, director of the Bank for International Settlements’ economics department. “Our experience is that things look sustainable until suddenly they’re not.”

Non-compete clause

Legendary gastronomic gladiator Joey Chestnut won’t be choking on soggy hot dogs at this year’s Nathan’s Famous Hot Dog Eating Contest on July 4. According to ESPN, the 16-time champ has agreed to a sponsorship deal with Impossible Foods (IMPF), which makes plant-based alternatives to meat and fish, including plant-based hot dogs, making him ineligible to compete. Nathan’s hot dogs are made by Smithfield, a subsidiary of Chinese meat and food processor WH Group (OTCPK:WHGLY), but the Nathan’s Famous Hot Dog Eating Contest site is still privately owned by founder Nathan Handwerker’s family. (2 comments)

New treatment

The FDA has approved Eli Lilly’s (NYSE: LLY) Kisunla (donanemab) as a treatment for early-stage Alzheimer’s disease. The treatment, given as a once-monthly infusion, will cost $12,522 for six months or $32,000 for a longer course of treatment over a year. Kisunla will compete with Biogen’s (BIIB) and Eisai’s (OTCPK: ESAIY) Leqembi (lecanemab), which has been available in the U.S. since last year. Eli Lilly’s stock hasn’t been boosted by the latest news, with President Biden and Sen. Bernie Sanders urging the pharmaceutical giant to slash prices and stop “robbing the American people.” (12 comments)

The Power of Sleep

The Federal Trade Commission (FTC) has filed a lawsuit seeking to block Tempur Sealy’s (NYSE: TPX) $4 billion acquisition of retailer Mattress Firm. As the world’s largest mattress supplier and manufacturer, Tempur Sealy will have the ability and incentive to “suppress competition” and raise mattress prices for millions of consumers, the FTC said. The company responded that “the outlook does not reflect all relevant facts and law,” noting that the bedding industry is highly competitive. Other M&A deals are under scrutiny in the wake of the ruling, such as Walmart’s (WMT) deal to acquire TV maker Vizio (VZIO). (2 comments)