Update - May 23, 2023

What to Do as the Debt Ceiling Fight Heats Up

All eyes are on Washington this week… again.

The nation’s capital – and the nearsighted vote counters who run it – remains the single-biggest threat to an investor’s portfolio.

With well-telegraphed negotiations over the debt ceiling taking place, the market is finding its fault lines. Near-term Treasurys have been shaken the most. One-month bills now come with a yield of 5.6%… far above the 30-year’s 3.99%.

Thanks to these shenanigans, the yield curve remains inverted, and it gets more crooked with each day the debt can is kicked down the litter-strewn Beltway.

It’s quite clear the market doesn’t expect this fight to make the nation’s economic situation any better, as it could if we had genuine leaders in power. Instead, the collective is treating it as yet another setback for an economy plagued by negativity.

While bonds have lost value, stocks have held their ground. They’re up over the last month… and up 10% on the year. As we’ve said, the economic news will be painful, but stocks (beckoned higher by the allure of lower interest rates) will rise through it.

But we do have a word of caution.

We’re quickly approaching the point where stocks will suffer. If word of a compromise – or even a half-cocked temporary solution – doesn’t quell the debt debate soon, stocks will retreat.

It could happen very quickly.

There are two ways to protect yourself.

You could sell all your stocks and hope to buy them back cheaper… a dumb idea…

Or you could hold through the fiasco and use it to bolster your portfolio… a very smart idea.

Smoke and Mirrors

Indeed, if the United States government failed to pay any of its obligations, it’d be trouble. Imagine if hospitals didn’t get their Medicare payments… or if retirees didn’t get their Social Security checks… or if government workers didn’t get paid… or, dare we say it, if Zelensky didn’t get his latest cache of proxy bullets.

It’d be bad. But it would certainly be temporary.

That’s why markets haven’t sold off. We’ve been here before. We know the smoke will clear and the politicians will eventually step out from behind the mirrors.

In the short term, there’s little to be concerned about. Any dips are buying opportunities.

Long term, though… that’s a different story.

There’s an old saying that we gain trust in drips and lose it in buckets. That’s true for most things, but almost the exact opposite is true for the world’s most powerful government.

It gains trust in buckets… often at the end of a gun. It takes it.

But it loses trust in drips – one disappointing headline at a time.

Given enough time, the bucket runs dry and somebody else replaces it with one of their own. If we’re lucky, they don’t use a gun.

That’s the scary part of all this. America is losing her credibility… and her credit ability.

It’s not good. But it’s nothing new.

We’ve been using the theory behind our Modern Asset Portfolio to prepare for and cushion ourselves against all of this.

We’ve got inflation-resistant commodity plays. We’ve got interest-rate counterbalances with our insurances stocks. And we’ve got exposure to gold… crypto… real estate… and technology.

All of these plays were designed to counter our greatest threat.

When stocks get cheap, don’t panic. Buy more.

It’s your only hope. And it works.

You don’t think Uncle Sam will support you, do you?