I don’t know if this will cause the NEXT market crash, but… it’s definitely gonna
shake things up at some point and I would not be surprised if, when it does, it turns
out to be a worse crash than we’ve ever experienced before…
My concerns… coming up!
Welcome back, everybody.
Real quick, if this is your first time here, my name is Stephen Spicer; it’s my goal
to help you invest smarter.
Now, if you’ve been here before or read my book, you probably know that I’m not
a fan of the buy-and-hold, stock-and-bond-only approach that you hear almost everyone else
out there regurgitating…
I think it’s a potentially-ruinous posture to assume, and here’s one of the reasons
- it starts with the ever-unfolding story of the United States’s out-of-control debt
load.
The US national debt is currently racing toward $27T. And this figure here, on USDebtClock.org,
is not even accounting for our unfunded liabilities - like, a corporate balance sheet would have
to in order to meet generally acceptable accounting standards - I’m talking about the promises
the government has already made for future social security payments, medicare, medicaid,
etc - the estimates for those obligations range from an additional $100-200T...
Without all that, this is the US National Debt.
$26.7T. That comes out to more than $81,000 per citizen, and more relevantly (to the government,
at least), that’s almost $215,000 per taxpayer!
You can see that historically this figure has understandably jumped during times of
crisis.
Take 2008, for example.
The stimulus expended there made a noticeable difference.
But, look at the changes in 2020 - the leap dwarfs that one caused by the Great Recession
- the trajectory has almost turned parabolic (going straight up)!
But, of course, it’s never fair to look at just a single datapoint…
For example, if you just look at the debt side of my balance sheet as I continue to
expand my real estate empire, well… that would look bad.
But, when you see the full picture - when you compare the debt to ...the value of my
total assets over time, or… a better comparison in this case would be to the amount of income
I’m able to generate - (anyway) only then can you truly, fairly evaluate whether or
not that debt growth is sustainable or worrisome…
So, let’s compare the nation’s debt to it’s Gross Domestic Product (GDP - the value
of all the goods and services produced and provided within the country over a year).
Here’s a look from the mid-1960s through today.
So, around 1980, for example, the United States federal debt load was just over 30% of what
we produced.
We’ve maintained a pretty solid trajectory upward since that time… and in this case,
up is bad… up is more unsustainable...
In fact, the only other time we’ve seen this ratio higher than 100% - meaning the
country’s debt is higher than all of its citizens and COMPANIES are able to produce
over an entire year… (companies…
apple, microsoft, facebook, google…)
let that sink in… - the only other time we’ve been that high was during World War
II.
...understandable.
And, you can see the seemingly obvious effort to get that back under control once we were
out of that mess.
But… zoom in on this last decade…
Obviously, as we started here we were still recovering from the Great Recession… but
even well after that… there really haven’t been any signs of anyone taking their foot
off the gas.
And, this data - that we’re looking at right here - is by year… so, it’s only through
the end of 2019...
Guess what?
It’s much worse today...
Worse, in fact, than ever before.
Worse even than WWII!
With a GDP of around $20T and a debt of $27T, things aren’t looking so good.
You could point to unique circumstances.
You could point to stimulus.
You could make whatever excuse, but that won’t change the fact of how precarious and unprecedented
this situation really is…
But, even with those unique circumstances aside, it’s not like the government hasn’t
been consistently increasing its spending over the years.
Here, we can see the US Government’s spendings over the last 3 years.
We can see the consistent pattern and direction - only once in the last 3 years has it dipped
even just a little bit.
But of course, just looking at 3 years could be misleading, so let’s zoom out even further.
Again, the trajectory here is clear.
And with all of this stuff, it’s really hard to rein it all back in - worse than putting
toothpaste back in the tube… can you imagine?!
A precedent has been set.
To cut back would require breaking some painful, likely unpopular, news to some group… many
groups… not a skill politicians are particularly known for...
But here we are once again only looking at a single variable.
Not totally fair.
Fine.
So, we should look at the other side of government spending… the revenue… taxes…
The comparison of a given year’s revenues to spending provides us with the metric known
as the US Government’s Deficit - the amount they spent above what they brought in…
Here’s a year-by-year breakdown of the last decade...
As we noted earlier, even in the “good” years, we’re still running up the ol’
national debt tab by running a fiscal budget deficit.
The range over the previous 9 years was between -$400B and -$1.3T. Even when things are going
relatively well, we’re not paying off any of our old debt...
So far in 2020 (the government’s fiscal year ends on September 30th), the deficit
is more than $3T…
That’s right around what we’re bringing in… and that’s the deficit!
That means the government is spending twice what it’s making!
This is effectively borrowing against the future - against hopes of (INSANE) future
growth…
But, as we’ve seen, even when we’re in years without a pandemic, a global recession,
or a world war…the government still finds ways to dig the hole for future generations
deeper and deeper...
How long will it take before this finally catches up to us?
Who knows.
Will it take 500 years?
I think most will agree that it’ll need to be rectified sometime before then…
Fair enough?
At the same time, that number is probably just about as arbitrary as any other guess…
500 years.
5 years.
5 days… who really knows.
(No matter when it does catch up to us - whatever calamity it brings with it - 5 days before
that point… nobody would have really expected it to happen that quickly…)
Whatever the case may be, I suspect the longer we kick the can down the road, the more painful
that moment will be.
And maybe there is some magical, peaceful way to gradually ease ourselves out of this
mess… although (maybe) possible, that seems far less likely a scenario than a more panicked
and chaotic economic crash...
At some point (and I get the impression that just about everyone agrees…), we’re gonna
have this “Come to Jesus” moment, when it feels like all hell is breaking loose.
When it feels like the “unpredictable” is happening.
When pundits and advisors will just fall back on their same platitudes as they always do,
that “No one could have seen this coming; it’s never happened before… unprecedented!”
Will the market take a massive hit as a result?
How low will it go?
How long will it be suppressed?
Will it ever recover?
Probably.
Maybe.
But, I don’t know for sure.
...no one really can know.
And that’s the point!
Bottom line: We haven’t been here before.
Things are obviously different.
When conditions (variables) are different, it’s nonsensical to definitively draw the
same conclusions.
Right?
Can we agree on that?
If you’re performing a scientific experiment and you change the variables, the inputs,
you’re not going to bet on the same outcome each and every time… are you?
Yet, that’s fundamental to the mainstream’s stock-and-bond-only, buy-and-hold approach.
They’ll say, the market has always bounced back from bad situations in the past—world
wars, global depressions, you name it, the market has raged back every time.
And when you say, well yes, but the conditions are very different this time around than they
ever have been before...
They’ll say, well yeah, but they’ve always been different—every one of those scenarios
was different, with thousands of unique unlying variables, and the market still always bounced
back.
That is true.
In the past, it has always bounced back.
But don’t be misled.
This argument that that fact implies that the same will hold true forever into the future
relies on a logical fallacy known as an Appeal to Ignorance.
(I’m writing about it in the rewrite I’m doing of my book, Stop Investing Like They
Tell You, and you’ll definitely see it come up again here on this channel as I help you
flesh out the truth and ultimately find better solutions than just the stock-and-bond, buy-and-hold,
cross-your-fingers-and-pray, roll-of-the-dice approach…)
The Oxford University Press explains the Appeal to Ignorance, “in this fallacy, someone
argues that a proposition is true simply on the grounds that it has not been proven false
(or that a proposition must be false because it has not been proven true).”
You see, you can prove that it’s possible for something to happen, just by one occurrence.
(It happened, therefore it’s possible that it can happen!)
But, unfortunately, you can’t do the opposite—you can’t prove that something will never happen
...no matter how much time passes without occurrence.
Like Warren Buffett tried to claim about the unstoppable US economy and our national debt…
(I hate disagreeing with him - it happens so infrequently…)
Don’t be misled by mainstream advisors, pundits, YouTube ‘gurus,’ and even sadly
at times Buffett, all repeating that same Appeal to Ignorance.
I know for many unable to see it any other way, this will fall on deaf ears.
But for those of you who are open-minded (and concerned) enough to listen, I want you to
know that...
There are better ways to design your financial plan to protect and grow your hard-earned
assets.
We’ll be exploring everything here on this channel and in the coming rewrite of my book
(you’ll find links to everything in the detailed description below).
Wherever you stand, I sincerely appreciate you sticking around here til the end.
It says a lot about you!
As such, I look forward to getting to know you better and helping however I can.
Let me know who you are by commenting “Stop Investing Like They Tell You!” in the comments
- just by itself - and then, you can leave a separate comment with your thoughts.
We’ll pick up the conversation there!
Take care!