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The Growing Federal Debt Problem | Market Vizion Thumbnail

The Growing Federal Debt Problem | Market Vizion

Today, I'm coming to you from gorgeous Huntington Beach, California. I'm at the Future Proof Conference 2023, which has been one of the most valuable and informative conferences I've attended this year. We've been discussing the state of the markets, the state of the economy, and where things are headed for our clients.

Refinancing Federal Debt at Higher Rates

In late 2021, we became more conservative in the markets and have maintained that bias. Over the past two years, the stock market has flattened.

We are facing several areas of uncertainty. Earnings on the S&P 500 are down year over year. Interest rates have gone up, presenting a substantial headwind. Additionally, there is a significant amount of corporate and government debt that needs to be renewed within the next twelve to 24 months. Approximately 30% of all federal debt, amounting to $38 trillion, needs to be refinanced in the next twelve to 18 months.

The question arises: What happens to the federal government's budget deficits and spending when they have to refinance $10 trillion worth of debt when rates have gone up by three to five percent?

Effects on the Private Markets

The same situation applies to the corporate bond environment. Companies are facing the need to roll over hundreds of billions of dollars in loans over the next couple of years.

If a company is floating a billion dollars of debt in the marketplace and interest rates have increased by 5%, the bank will require more collateral and may not be willing to lend as much money. Furthermore, the company would face an additional $50 million per year in interest costs for every billion dollars of debt that needs to be refinanced.

Added to these challenges are the decaying inner cities and record-high vacancies in office spaces of our largest cities. All of these factors point to potential economic challenges within the next twelve to 24 months. Given these circumstances, we continue to maintain our bias, aiming to protect and advance.

Catching the Right Wave

To use an analogy, it's like surfing. You have to be in the water, past the crashing waves, and wait for the right swell. You need to be patient, watch out for obstacles, and seize the next opportunity.

At Vizionary Wealth Management, we're always here to help you envision more for your portfolio, lifestyle, and legacy. If you have any questions about these or any other issues, please feel free to give us a call. Have a great week!