Warning From a Federal Reserve Governor
Federal Reserve Board Governor Jerome Powell said at a monetary-policy conference in New York on Friday that the federal government's large increase in debt "to around 75% at the end of this fiscal year" was "consistent with other increases in sovereign debt for advanced economies after severe financial crises during the post-World War II period." Powell went on to say that "history and common sense suggest that the federal government should again run primary surpluses sufficient over time to reduce debt to pre-crisis levels of perhaps 35% to 40% of GDP. That would leave fiscal space to address the coming wave of health and pension costs, as well as unexpected new shocks." Unfortunately, even if the if recent federal tax increases and spending cuts are not reversed, it would be "reasonable" to project that "the ratio of debt to GDP will be roughly stable at around 75% through about 2020," according to Powell. "After that, under current policy, health-care costs and, to a much lesser extent, pension costs will produce a sharp, sustained increase in the ratio of debt to GDP."
Shares of Morgan Stanley have returned 24% this year, following a 28% return during 2012. The shares trade for 0.9 times their reported Dec. 31 tangible book value of $26.81, and for 9.3 times the consensus 2014 earnings estimate of $2.53, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.10.