- Debt ceiling 2023: “Here we go again”
- How the debt ceiling shattered stocks in 2011
- Two major asset classes to defend against a debt crisis
- Environmentalists thwart Biden’s green agenda (NIMBY)
- Revenge served on TikTok… ChatGPT: GIGO… Shakespeare’s reputation is safe (for now)… And more!
“Here we go again,” says our income-and-retirement specialist Zach Scheidt. “The United States is facing another budget crisis.
“With $31.4 trillion in debt, our government can’t legally borrow any more money,” he says, referring, in part, to what’s commonly referred to as the “debt ceiling.”
#BurnItAllDown
“But without adding more debt, we don’t have enough money to pay for all of the government programs,” Zach adds.
“As we watch the embarrassing dysfunction in Washington” — indeed, moving the country toward default — “I want to make sure you understand the implications.
“More importantly, I want to help you avoid calamity while our inept lawmakers drive our country in a dangerous direction…
“The last major debt problem like this was in 2011 when the U.S. came within 48 hours of defaulting on debt payments,” Zach notes.
“Here’s what happened to the stock market…
“The SPDR S&P 500 ETF fell from $135 to $110 in a matter of weeks, representing a 22.7% decline,” he says.
“While the COVID crash may technically be the fastest bear market in history, the debt ceiling crisis wasn’t far behind.
“It’s sad to think that in just over a decade, our country seems to have forgotten the lesson from the last debt crisis,” Zach adds.
This time? “It may take a lot longer for Congress to reach an agreement. Unfortunately, there may be a lot more pain in the market before we get there.
“But there’s one major asset class that could help you avoid losing money as lawmakers negotiate the debt ceiling,” says Zach.
“What I’m about to say next might sound counterintuitive,” he says, “but stick with me for a minute…
“The debt ceiling has the potential to keep the U.S. government from repaying some short-term Treasury bonds.
“However, long-term Treasury bonds are some of the best hedges to help you avoid losses during the debt crisis.
“Take a look at how the iShares 20+ Year Treasury ETF (TLT) performed during the last debt crisis:
“While stocks were falling, long-term Treasury bonds traded much higher. The ETF gained over 30%, more than offsetting the pullback in the overall market.
“Bonds moved sharply higher because investors were looking for long-term safety,” Zach says.
“And while they were worried about the government’s ability to pay short-term bills, investors knew that eventually the government could print money to cover Treasury bond payments.
“In other words, they were sure to get a nominal return, so capital flooded into long-term Treasury bonds.
“So what can we expect this year as our lawmakers play chicken with our country’s finances?” Zach questions.
“Knowing that history rarely repeats itself, but, as they say, it often rhymes…
- “My guess is we’ll see a similar rally for long-term Treasury bonds, which means you can buy shares of TLT as a hedge against a worsening debt crisis
- You may want to consider lightening up on some of your stock positions while keeping the high-quality names that generate reliable profits and pay healthy dividends.
“If we avoid a debt crisis, your stocks will likely continue higher,” Zach says. “But your bond positions should hold their ground because the U.S. will still repay its debts over time.
“So your bonds are in a relatively safe position even in this time of uncertainty,” he says, while mentioning: “Of course, there are other ways to protect your wealth, including precious metals…
“The U.S. debt crisis could cause gold to finally push definitively above its $2,000 ceiling,” Zach asserts. “Here’s how I see it playing out…
“Higher long-term Treasury bonds naturally cause interest rates to plummet,” he explains. “That’s because when you pay more for a bond, you’re getting less yield for every dollar you invest. So when bond prices surge, market interest rates automatically fall.
“If interest rates in the U.S. move lower, investors have an incentive to put that capital to work elsewhere… We can expect foreign capital to flow out of U.S. dollar-denominated assets.
“When this happens, the U.S. dollar will naturally trend lower,” he says. “At which point, it takes more dollars to buy stuff like gold when the dollar is weak, which means the price of gold moves higher.
“If we follow the ripples from the U.S. debt crisis through international markets and back around to a weak dollar, we see a strong catalyst to drive gold well above $2,000 per ounce.
“If I’m right, the surge in gold is just getting started,” Zach says. “In fact, gold could trade as high as $3,000 per ounce in the next 12–18 months.”
“That means there’s still time for you to invest in physical gold, gold ETFs, gold mining stocks and other plays that benefit from rising precious metal prices,” he closes. “Make sure you’re positioned to protect your wealth as we move into a historic period for the U.S. debt crisis.”
Checking on the market today, all the major U.S. stock indexes are in the red…
The staid Dow is the biggest loser — down 1% to 33,755. Meanwhile, the tech-heavy Nasdaq has lost the least (-0.20%), settling at 11,560. And the S&P 500 splits the difference, down 0.45% to 4,055.
As for commodities, the biggest outlier today is oil: Down 3.4% to $76.15 for a barrel of WTI, this after OPEC+ agreed today to keep its October 2 million bpd cut in place. In other commodities news, gold is gapping lower, down 0.20% to $1,941 per ounce, and silver’s down 1% to $23.55.
The crypto market is also absorbing some negative sentiment with Bitcoin below $23,000 and Ethereum down 1% to $1,570.
The only data point worth mentioning today is the ISM Manufacturing Index, sub-50 for the third month in a row and well below expectations.
Of course, it almost goes without saying that the market is holding its breath, waiting for the Fed’s pronouncement later this afternoon. We’ll have a follow-up tomorrow
Did the EPA and environmentalists just thwart Biden’s green agenda? If you rightly understand the metals required to manufacture all things “green” — in particular, copper — the answer is yes.
“The U.S. Environmental Protection Agency took an unusually strong step Tuesday and blocked a proposed mine heralded by backers as the most significant undeveloped copper and gold resource in the world because of concerns about its environmental impact on a rich Alaska aquatic ecosystem that supports the world’s largest sockeye salmon fishery,” The Associated Press reports.
The decision is only the 14th time in the Clean Water Act’s 51-year history that the EPA has barred U.S. mining activity because of the impact on water and fish.
So it’s a “heavy blow to the proposed Pebble Mine,” the article continues. “The intended site is in a remote area of southwest Alaska’s Bristol Bay region, about 200 miles (322 kilometers) southwest of Anchorage.” The Pebble Limited Partnership, owned by Canada-based Northern Dynasty Minerals Ltd., had requested a permit to mine an estimated 73 million tons a year.
“Alarmingly, it lays the foundation to stop any development project, mining or non-mining, in any area of Alaska with wetlands and fish-bearing streams,” says Gov. Mike Dunleavy.
Meanwhile, Pebble’s CEO John Shively “has cast the project as key to the Biden administration’s push to reach green energy goals and make the U.S. less dependent on foreign nations for such minerals,” the AP notes.
It bears repeating, then, what Paradigm’s mining expert Byron King said at The 5 almost two weeks ago: “In terms of the global opinion on the mining industry, people want the materials… They just don’t want the mining that makes those materials available.”
Word.
Proving revenge is a dish best served on TikTok, a sacked “marketing strategist” aired his grievances against his former employer. And a New Jersey city…
In September 2022, Graham Colligan was hired as a social media manager for nonprofit Summit Downtown. His role? To boost Summit, New Jersey’s events and local businesses. But by December, Summit Downtown decided, euphemistically speaking, to go in a different direction.
Thing is, the nonprofit forgot to change credentials for its social media account for an entire month — meaning, Mr. Colligan had free rein to tell us how he really feels…
“Alright time to start some Nj drama,” he posted @summitdowntown, while gleefully criticizing Summit malls (“mega capitalist corporate America type sh-t”) and his former employer who, according to Colligan, fired him “for going on vacation that [they] OK’d with three months in advance.”
Once Summit Downtown realized its mistake, the organization deleted all social media content from their “recalcitrant former employee” and threatened legal action.
But since the internet’s such a vast place — worldwide, come to think of it — it’s nigh impossible to believe Mr. Colligan “will never work in this town again.” Summit, New Jersey? Probably.
“I advise you to ask ChatGPT this list of questions,” says a first-time contributor.
- Ten arguments for continuing to use fossil fuels.
- Summarize mRNA vaccine side effects.
- List arguments against human-caused global warming.
“In computer science there’s a saying: GIGO, garbage in, garbage out.
“Highly applicable to the data set for ChatGPT.”
“I hope you get your ChatGPT questions in early: Toward the middle and end of the day, so many people are trying it out that the system says it’s at capacity,” writes a reader who’s tried out the AI-powered software.
His request? “Please write a verse in the style of Shakespeare describing Dave Gonigam’s 5 Min. Forecast.”
Here goes…
With lightning speed and insights rare,
Dave Gonigam doth make it clear,
What lies ahead in markets’ fate,
In his 5 Min. Forecast great.
Each day he gives a lucid view,
Of what the future holds in store,
A wealth of wisdom, fresh and new,
To help his listeners, more and more.
Sure, the sentiment is accurate… But where’s the, ya know, sentiment?
With that, have a good one! We’ll be back tomorrow with another episode of The 5.
Best regards,
Emily Clancy
The 5 Min. Forecast
