The Weekly Update 8/30/2024
How About The Federal Debt Level, Jim?
In last weeks issue of The Weekly Update (Read it Here), I mentioned that we could hit a few “air pockets” as we approach the Presidential election on November 5th, 2024. That reminded me of a few “air pockets” from the past.
It was May 1982 when I sat down in front of my office Quotron for the first time. Not one client and as green as they come!
Of course, the grizzled veterans came by to say “Hi” and offer their sage advice. Advice like this:
- Jim, all you need to do is buy gold. It is a great inflation hedge and inflation will never come down.
- Jim, make your money now because social security will not last past 1990.
- Jim, as you know from your training, the U.S. dollar will soon be worthless.
- Jim, these clowns in the White House are going to ruin the country with these massive Federal deficits. No way we will ever be able to pay this much debt off.
It turns out the 1980’s were unbelievably good for investors in Corporate America, but then came the 1990’s and for 9 months on The New York Times “Best Sellers List” came this.
Sound familiar? All of my 1980’s advice given above and this monster are all alive and well today. Note to self: The Dow Jones Industrial Average (DJIA) was 777 back when I started out and today, well, we are resting once again at an all-time high DJIA of 41,500+!
The chart below is from Calafia, and it clearly shows the percentage of our interest payments on the U.S. debt as a percentage of Gross Domestic Product (GDP), all the goods and services we produce as a country.
Back in the go-go 1980s the debt burden was 25%-30% higher. Yes, today the burden to carry could go up if interest rates rise. But the Fed has already said they intend to reduce interest rates at the September 18th,2024 meeting. The only question is by how much.
This debt burden is likely to decrease as interest rates drop and our economy continues to tick up over $29 trillion in a few months. Also, that $29 trillion is up from “only” $20 trillion in 2020, i.e. a near +50% expansion.
I would suggest, as I have forever, that our debt and deficit are close to normal percentages of GDP for the foreseeable future. Please do your future self a favor and stop believing the garbage our business news spews. To me, almost 100% of all I hear, read and am told, is complete nonsense used to hold your eyeballs long enough to sell you whatever they are selling.
Yes, the world has always been a scary place. Get over that and focus on key facts like this one!
I did not say market valuations go straight up, and I did not say without volatility, yet the data flow suggests the good old USA is just waking up from the post Covid hangover. The outlook is that this could be a 10 ticket ride up the net worth curve.
Don’t fret, panic or worry if the “normal” back and fill comes knocking. It will not be as scary as the business news will tell you. Instead, I think the knocking will be an opportunity and here at TWSG, we will pounce on that, for now just pray that it comes!
At TWSG, we are well allocated for this and have our well thought out Investment Selection Matrix™, investment menu working in our collective TWSG family’s asset allocations.
I’m interested in your thoughts, comments and observations. Feel welcome to call, email, or stop by the office and say Hi.
Respectfully,
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
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