Government Shutdown Has Been Avoided. For Two Weeks.

The Appropriations Bill that was passed last night by the Senate and the House, and signed by the President today, funds the U.S. government for two weeks, through December 22. All assumptions are that Congress will raise the debt limit again. That action should avert a credit downgrade for now. However, in a press release, Fitch Ratings notes that, while not raising the debt limit is the most significant short-term risk to the U.S. AAA Rating, “debt dynamics are also negative, which could put pressure on sovereign creditworthiness over the medium to long term.” (Translation: the astronomical U.S. debt could result in a credit downgrade soon, unless the debt limit shenanigans force a downgrade sooner.)
 
Headlines and the Administration are all pointing to stocks reaching all time highs, 4.1% unemployment and 3.3% GDP growth rate in the 3rd quarter as signs of a healthy economy. In fact, Fitch has raised GDP growth expectations for 2018 to 2.5%. However, touting those gains leaves out a lot of other relevant facts.

• 2.5% GDP growth is well below the 3.0% GDP growth projections that the Treasury Department is using to justify cutting taxes when the U.S. desperately needs the revenue to pay down debt.
• The Tax Bill that was passed by the House and Senate will add another trillion to the debt over the next decade.
• Public debt is already $20.5 trillion. Total debt and loans are an eye-popping $67 trillion.
  
• Consumer debt is higher than it has ever been.
• Housing prices are higher than they have ever been.
• Warren Buffett and Nobel Prize winning economist Robert Shiller both warn that the stock market is overvalued. (Warren also warns about bonds and Treasury Bills.)
• General Electric just laid off 12,000 employees, which amounts to 4% of its work force. GE used buybacks and dividends to prop up its stock for years. In 2017, GE slashed the dividend in half, and the share price has dropped by half. I warned that the “Higher the Dividend, the Higher the Risk,” in my 2012 book, The ABCs of Money. This continues to be very relevant today.

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• Low interest rates create bubbles. Today’s bubble is financial engineering. Corporations borrow cheap money to buy back their own stock and pay high dividends. This pushes up share prices and makes the stock look like a better bargain than it really is.
• This “Gig” economy has squeezed the Middle and Lower Classes, while increasing the wealth of the richest Americans. The unemployment numbers are misleading because many people have given up looking for a job, while others amass two or three different income sources to try and make ends meet.
• Meanwhile, cryptocurrency continues to roar to new highs, reflecting the sentiment of people who have lost faith in the banks.

 
Investor sentiment is positive. Everyone is happy with the Wall Street gains. However, this reminds me of the focus groups studies in 2002 that confirmed everyone liked mini vans and Hummers. Once gas prices jumped, all of the sudden everyone loved fuel efficiency. Once a Wall Street correction begins, and corrections happen in relatively predictable patterns, sentiment is likely return to where it was when the Occupy Wall Street movement began, in the wake of the Great Recession.
 
If you are trading on headlines, you’ll always be late to the party and one of the worst casualties of the crash. Vision and foresight are valuable commodities.
 
If you would like to protect your assets now, to reduce debt, adopt a thrive budget, save thousands of dollars every year in your annual budget, live a richer life, and have more money for bucket list vacations, while providing far better for your future, then it is important to learn the ABC’s of Money that we all should’ve received in high school. Our team offers free blogs, free monthly teleconferences, free budgeting and investing web apps, three bestselling books, private prosperity coaching, a second opinion on your current budgeting and investing strategy, and a three day Investor Educational Retreat where you can learn and implement all of this wisdom here and now, before the next downturn.
 
Call 310.430.2397 to get answers to your money questions and to learn real solutions that will transform your life. Receive the best price for the Valentine’s Retreat in the beautiful beach town of Santa Monica, California when you register by Dec. 15, 2017 (during the Early Bird pricing period). Only a few seats remain available, so secure your place now, while you can.
 
Happy holy days.