US Treasury Debt

A VERY short TGIF 2 Minutes today.

Recent news features the danger of the United States defaulting on its Treasury debt. Longer story short, the US Treasury is very, very, very, very unlikely to default, and “cooler minds” would be educating the American public about why this is the case. The explanation is beyond the scope of TGIF 2 Minutes. (Please note that none of the following is a political statement or meant to be.)

Of course, there are plenty of reasons why the US finds itself, once again, in this position. The last time it was this serious was in 2011 when Barack Obama was President. Then came the coronavirus in 2019 and responses by Presidents Trump and Biden. Entitlements and social program spending, along with eventually replenishing US defense spending, became and are still beyond expensive. As The Wall Street Journal notes, “…U.S. debt held by the public is now about 100% of GDP, up from 39.2% as recently as 2008 and 77.6% in 2018” and “…The cost of financing that debt is rising fast along with interest rates, and interest on the debt will take up an increasingly large share of federal revenue. Priorities… will be squeezed.”*

The country is witnessing a high stakes political fight that will likely play out over the next five months and feature the Republicans and Democrats in the US House of Representatives negotiating and attempting to call “chicken” on who gives in first, with trillions of dollars in the offing. The primary matters at hand are the government’s overdue and needed discipline on its spending cap – and determining how much debt is manageable for the country over the short- and long-term. The next generation of Americans, among others,is who should be watching most closely.

*WSJ.com, Editorial Board; 1/16/2023.

Recession or Soft Landing?

From the recent archives of TGIF 2 Minutes – especially worth a second look as the year 2023 unfolds. Inflation recently came in at a still very high 6.5%… which seems “low” only because several months ago inflation was at 9.1%. Shelter and services (including daycare) remain the areas with highest inflation; gas, autos, computers, and sporting goods saw slower rises in still high prices. Employment remains an oddly strong component of the economy – leaving the likelihood of a “soft landing” type of economic slowdown a possibility.

Sept 2022: It is fairly safe to say that the US has entered a recession, even if the backwards looking, narrowly focused, official “National Bureau of Economics Research”, or NBER, has not declared it yet. The NBER is a private, non-profit organization founded in 1920 that somehow came to possess the distinct “responsibility” of declaring recessions in the US. Seriously?

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Stay Tuned for Year-End Commentary

As Christmas and Year-End 2022 approach there is a long list of topics to consider, including:

  • How to quantify the first truly down year for the markets since 2009
  • What inflation and higher interest rates mean going forward in 2023
  • How to approach higher taxes for those still working and those receiving Social Security
  • The timeless investing paradigms that have not changed
  • How much to diversify a portfolio while still paying attention to risk and liquidity
  • How to approach Long-Term Care decisions, both present and future
  • Changes made to gifting limits for 2023 (limits increased)
  • Changes made to IRA and 401k contribution limits in 2023 (limits increased)
  • What is next for cryptocurrency trading and valuation
  • What to serve for the Holiday meal (perhaps the most urgent item on the list).

What topics might be on your mind? Stay tuned for a Year-End commentary!

Thank you for reading, enjoy last minute shopping and TGIF!

Financial Advice & Family

The subject of family can apply to various aspects of financial planning. And although sensitive, there could be an entire TGIF 2 Minutes series on family and personal finance. On a positive note, and more specifically for this week’s edition: I hear often from financially comfortable – and confident – clients and friends about basic, treasured personal financial advice they received from a family member – most going back 20, 30, even 40 or more years ago!

Mixing family and money can get sensitive quickly. But over years of observing, there have been far more positives than negatives for those who were willing to step back, look at the bigger picture and accept solid, basic advice. Humility was involved. Patience is necessary. These are not my opinions but rather real pieces of feedback from people who are grateful they took certain, basic advice from a wise family member at some point earlier in life.

Financial advice from a wise Mom, Dad, Grandma, “Uncle Pete” or “Aunt Claire” can make a lifetime of difference.

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Making the Best of Down Markets

There is no sugar-coating it: investors in 2022 have experienced the biggest – and longest – down year for stock and bond markets since the 2007-2008 financial crisis. One of the only consolations is that over the past 13 years there have been tremendous gains overall, still with a few bumps along the way. Below I outline a few more consolations, or ways to make the best of down markets.

First a quick note: For newer, younger investors it may be difficult to not yet see long-term gains having accumulated in portfolios. Know that time horizon and future earnings potential are two huge positives working in your favor.

Here are a handful of ways to make the best of down markets – and to take advantage of higher interest rates (hint: there are more positives around higher interest rates than the media lets on).

For savers with healthy balances in pre-tax 401k and IRA accounts, use the opportunity to convert pre-tax IRA monies to Roth IRA monies.

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How Long Will It Take To Tame Inflation?

A question that may be on a number of people’s minds is: How long will it take to tame inflation? Unfortunately, there is very little telling how long it will take the US Federal Reserve, or any other entity or force, to tame inflation especially with respect to the short-term. Part of the reason is because inflation is always part of a complicated economy – an economy with diverse people, businesses, and governmental/fiscal forces in action. Making timing (and hard landing/soft-landing) predictions about inflation is nearly impossible.

To add to the confusion, believe it or not emotions – specifically people’s expectations of inflation – are part of what keeps inflation around. In this inflationary cycle, inflation has stuck around longer than at almost any time in US history; long enough to increase people’s expectations that inflation will not go away quickly. The US Fed had stated one of its original intentions was to lower consumers’ inflationary expectations (but the Fed may have missed this boat due to forces out of its control, namely, the pandemic aftermath).

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Crypto Quarterly – Vol. 3, Oct 2022

In this issue of TGIF 2 Minutes – Crypto Quarterly, a less rosy update with the bright spot being that fees to trade crypto have gone to “free” in some cases. Binance, a world leader in Bitcoin trading volume, introduced zero-fee trading back in June. (Note that as recently as July 2022, the “CEO” of Binance still says there is no headquarters for the company, as it is “decentralized”.)

Value-wise, in a year that has been unkind to stocks AND bonds, Crypto stands out as an even bigger loser relative to traditional asset classes – by over double in a number of cases. Take for example the price of Bitcoin which started the year at approximately $46,310 as measured in US Dollars. Most recent prices of Bitcoin are around $20,098, or down over 55%. Coinbase, not a cryptocurrency but a crypto trading marketplace (among other technology functions), went public in April 2021 and is down around 78% since then. Compare these crypto-related price declines to the painful year-to-date performance of -21% in the S&P 500, -29% in the Nasdaq and -21.5% in the Russell 2000 which tracks small company stocks.

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Hard Landing Recession or Soft Landing?

It is fairly safe to say that the US has entered a recession, even if the backwards looking, narrowly focused, official “National Bureau of Economics Research”, or NBER, has not declared it yet. The NBER is a private, non-profit organization founded in 1920 that somehow came to possess the distinct “responsibility” of declaring recessions in the US. Seriously?

In the case that the US has entered a recession (not yet “declared” by the NBER) then what does that mean for savers and investors? A quick bit of background: typically, economic cool-downs come in two varieties: hard landings and soft landings.

  • The hard landing ends a period of economic expansion in recession,
  • The soft landing ends a period of expansion with a smoother period of mere economic slow-down.

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What’s Important NOW?

Lately it seems that reaching Friday is a goal in itself. In markets like these it is not easy to “keep calm and carry on” as if there is nothing different going on. There are, in fact, multiple very different things going on. The coming weeks and months may bring even more different events and uneasiness – with a bit of good mixed in.

So, then the question becomes, What is important NOW? It may be tempting to answer:

  • Federal Reserve policy on interest rates
  • the coming November elections
  • mortgage rates
  • the level of inflation
  • energy prices
  • the US and world economies.
Photo by Kathy Jones on Pexels.com

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Looking Back On… Money & Therapy

Money and Therapy: two things that people may love or hate thinking about. However, among other things in life, money and therapy help. 

About five years ago I read a must-read book for young and old, wealthy, or building wealth, married or single. Anyone who wants to have a “life” someday… or even have a life NOW. The book is called The Number* and was written by Lee Eisenberg nearly 15 years ago but reads like he wrote it yesterday.

Here are several of the chapters:

  • “Welcome To Numberland”
  • “Debt Warp”
  • “Alone At Sea”
  • “Covering Your Assets” (nice play on words)
  • “Night Sweats”
  • “Deep Breathing”
  • “Bottom Lines”

All of these topics could be covered in conversations with friends, or by reading The Number, explored in a therapy session… or all 3! I recommend all three (and the therapy session could be with your financial adviser – because a real financial adviser makes this conversation mandatory.)

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