“Government Debt is at the tipping point”

Government Debt is at the Tipping Point

The last two Administrations, Republican and Democrat, doubled government debt during their time in office.  George W. Bush increased the national debt from $5 trillion to $10 trillion.  Barack Obama doubled it from $10 trillion to $20 trillion.  Obama did have the 2008 financial crisis to clean up, but the crisis had abated by the end of 2009, and deficits ran over $1 trillion five times during his two terms.

The public has largely been conditioned to not be concerned about deficits and debt.  Former Vice President, Dick Cheney, famously was quoted as saying “Deficits don’t matter!”  (Cheney was taken out of context, he was referring to the fact that the public doesn’t believe they matter, as opposed to whether they actually do or don’t).

It is important to note that these figures above are merely a drop in the bucket as to the true nature of our debt liabilities.  Unfunded liabilities and state and local debts dwarf the size of the officially reported federal government’s public debt.  Just consider some of the numbers:

1)            ALL State Debt:  $1.2 trillion

2)            ALL local municipal debt:  $1.8 trillion

3)            Social Security unfunded liabilities:  $20 trillion

4)            Medicare unfunded liabilities:  $30 trillion

5)            Unfunded pension liabilities:  $6 trillion

The personal household debt for each individual household is currently $19 trillion (consumer debts, credit cards, auto loans) and this does not include mortgages and student loans – which the Federal Government has guaranteed.  The total debt per household if we were just to pay our federal liabilities is $997,000 dollars.  It may exceed $1 million per household by the time this blog goes to print.

How can we create so much debt?  Ironically, a US balance sheet would look pretty good.  Assets total $149 trillion, debts total $122 trillion, combined with annual revenue of $3.5 trillion……for now, on paper, we are a safe bet for lending purposes.

There is also the matter of the currency – the dollar remains the global reserve currency.  Used in over 60% of all transactions and over 80% in all banking transactions on the planet, the reserve currency status allows us to borrow cheaply and to print money easily.  But This may not last forever – for the last decade adversaries such as China and Russia have been attempting to move global finance towards different currency options or a global currency.  For the first time, allies such as Europe are now helping in this regard.  The world will change, and so will your retirement portfolio, in ways we cannot imagine if they are successful in replacing the dollar’s reserve currency status.

But being credit worthy to borrow is not the same as being able to pay.  Current budget projections do not show us managing, or paying down debt, but increasing it.  Ominous headlines include notes in your annual social security statements which read:

“…by 2034, payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.”

Fixing the debt will require sacrifice and hard work, and it needs to be done now before it is too late.  Spending restraint, entitlement reform, and additional tax reform could go a long way towards reducing deficits, but that is just the starting point.  And that assumes a political will that our leaders have not exhibited in some time.

You should not risk your retirement future on unreliable government promises.  Make sure to contact our office and ask for a financial review from one of our agents…..let’s make sure you are protected from market loss – and government incompetence.

Call now! (877) 912-1919

Top Five Market Worries for 2019

Top Five Market Worries for 2019

The Dow Jones finished down -6% for 2018, logging a loss of 1496.55 points for the year.  It was the worst performance in the stock market since the financial crisis of 2008.

Unlike 2008, other indices are showing great strength, or at a minimum, resiliency, such as wage growth, employment, and consumer spending.  If we remain in correction or bear market territory, and losses continue to mount, there still does not seem to be the same conditions for Main Street that would be the same cause for concern as ‘08 presented.  In other words, the stock market’s decoupling from Main Street, as we have said so many times before, should lessen the impact on the consumer.

A traditional business cycle downturn in the market is a normal function for stocks, but a lot of the market’s growth pre-Trump was driven by money printing, zero interest rate policy, and quantitative easing.  Such massive intervention created artificial growth in your portfolio, fueled by monetary debt.  That will have to be unwound.

The “un-winding” could keep markets depressed for some time, as we have been expecting for several years.  The natural business cycle growth we have seen over the last couple of years, fueled by tax reduction, regulatory reduction, profits, and job and wage growth, has been a more sustainable, traditional free market expansion of stock prices.  That’s good, that’s healthy, but it may not be enough to stave off the needed selling of the artificial excess.

The biggest fears for analysts are the major headwinds we see evident in the market’s decline over the last several months, and that should give you pause when managing your portfolio for 2019.

What are the Top 5 Market Worries for 2019?

  1. “Falling profits”: Much of the stock market appreciation prior to the Trump Administration was built upon artificial sweeteners from the government.  The last two years have been built on the mother’s milk for stock prices – profits and earnings.  Apple’s most recent 4th quarter reports of slowing sales in China, and reduced expectations in their forward guidance was reflected across the tech sector and helped drive a market sell-off over the last week.  Wages are increasing, we are at full employment, and overseas sales for US multi-nationals are slowing … that is a recipe for reduced profit and therefore – reduced stock prices.
  2. “China slowdown”: Manufacturing reports showed a decline in China for the first time in 18 months – by itself, no big deal.  But the data did not show a slow-down, but an actual contraction, within the manufacturing data.  The data has been unprecedented, year-over-year:  factory profits contract; steel productions contracts; consumer spending contracts; car sales contract … the Chinese Shanghai Stock Exchange is trading at 27% lower than the previous year – an equivalent drop in the US market would be a 6000+ point decline.   China’s growth has ebbed and flowed but always followed an upward trajectory.  That has not been the case over the last year, and the warning signs are far more ominous than previous slow-downs.
  3. “Euro crisis 2.0”: No Brexit deal … another Greek debt crisis … a burgeoning Italian debt default … German politics in disarray … France enduring a revolutionary rejection of the Macron economic policies  … Eastern Europe refusing instruction from the EU bureaucracy … social media and the mainstream media may make it feel like things are polarizing in the US, but in Europe, they are actually are, and to very dangerous levels.
  4.  US Treasuries pull dollars out of markets”: As markets decline, dollars chase return, that will drive investors to US Treasures and the greenback itself.  Great for servicing debt, but that takes money out of the private economy.  Dollar appreciation shows where the ultimate “flight to safety” ends up, but rapid dollar appreciation can destroy emerging foreign markets and create ancillary problems such as increased migration and strained supply chains.  Flights to safety mean Treasuries … and gold.  Gold is the ultimate hedge against inflation and a safe investment, but you can’t eat it, and you can’t shoot it.  While stock markets may get punished, your portfolio does not have to if you reallocate to principal protection vehicles such as index annuities.  As world-renowned trader and analyst Jeffrey Gundlach reported this week:  “This is a capital-preservation environment.”  Best preserve your “capital” now.
  5. “Wars and rumors of war”: As the Bible has said, the potential for conflict has never been greater.   Wars rage throughout Africa …. China’s leading Admiral has threatened to blow up two US aircraft carriers … Chaos reigns in Venezuela … Russia remains in eastern Ukraine and has annexed Crimea … The Sunni-Shia cauldron in the Middle East could spark the fire of great power conflict between Russia and the US, or a regional war between Iran and basically everyone.  The idea that global energy supplies are safe from these events, or that terrorism could not manifest itself within the safe havens of conflict zones, is wishful thinking.  War and regional conflict pose direct and immediate risks to how stock markets will perform around the globe.

To repeat Gundlach’s advisory:  “This is a capital-preservation environment.”

 The market has real worries.  Main street may keep its job, and may keep its income, but the overwhelming evidence suggests prices are going down – stocks, real estate, you name it.  Your portfolio will face intense down-side pressure.  The best course of action is calling your Ty J. Young Wealth Management Advisor now!  (877) 912-1919

Saying Goodbye to 2018, and Hello 2019!

Saying Goodbye to 2018, and Hello 2019!

As we got to print, 2019 is rapidly approaching and 2018 is coming to a close.  It was an eventful year with daily headlines that seemed to grip the financial world – and therefore your portfolio.  Here are five of the top money stories of 2018:

  • The Bull Market raged on before entering correction territory over the last months of the year.
  • US unemployment hit a 49-year low … and has remained there.
  • Goodbye NAFTA, hello USMCA – the US-Mexico-Canada Agreement.
  • The economy saw the strongest GDP growth since 2014, and the strongest 8 quarters of growth in over a decade.
  • The Fed raises rates four times. After a November pause, the benchmark Fed funds rate reached 2.25% in December. Many attribute market volatility and declines to these interest rate hikes.

Plus, implementation of the tax cut bill, the housing boom may be slowing … there are other big stories from 2018, which is what made it such an eventful year in finance.

The year 2019 promises to be just as eventful – Democrats in Congress will attempt to defeat Trump’s policies … the stock market gave back most of its gains and remains a volatile question mark in the New Year … a trade war may break out between the US and China.  That may benefit the US over the long term but will have unknown consequences for the near term … 2019 has the look of a very wild ride in money and finance, so buckle up for the ride!

What can you do to prepare yourself for the unknown that awaits in 2019?  We suggest the following because safety and security utilize the same consistent methods and planning every year:

  • Increase your 401K contributions”: At a minimum, increase your contribution to the rate of inflation.
  • Make a budget, keep a budget”: Most of us can create a budget, but few seem to stick to it.  If you are in the back half of your work years, it is critical to not miss on savings and retirement contributions.  Live within your means.
  • “Create an emergency fund”: It is best to have 3 months wages saved in a separate emergency fund. But at a minimum, you should have or create an emergency fund now and add what you can to whatever is there.
  • “Save where you can!”: Search for cheaper prescriptions – there are online tools that can help.  Refinance your home if you can get a lower interest rate.  Consolidate debt … reduce debt.  Pay off high interest rate credit card and cut them up.  Take one item a month that you can remove or reduce from your monthly expenses – tackle it, and pay it off.
  • “Have your money protected in the first place”: If you haven’t already, you should have your money in principal protection products, only going up with the market, and not down due to market fluctuations.  Keep your investments safe, simple, and with a reasonable rate of return.  Then, market volatility has no impact on that part of your portfolio.

Principal protection has been our specialty for years. Start 2019 with a call to your Ty J. Young advisor … don’t wait to get your money protected! (877) 912-1919