By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Welcome
You know the drill. You are alone in the elevator and see a group of people approach from down the hall with bags in tow. Frantically you press the door-close button and… nothing.
They are getting closer, so you press again. Boom, finally the door starts to close as one of them begins to enter. So you now reach for the door-open button to show that you are trying to help.
They know what you were doing, as they have done it also. They aren’t buying that fake look of concern on your face either.
Now begins your awkward ride to the lobby from the eighth floor. You just stare ahead at the buttons as you feel them staring at you and hear them mocking you.
Don’t feel bad: in a YouGov American survey, 31% of respondents have hit the ‘close’ button when someone was trying to get on (the other 69% are lying). The survey also found that a quarter of respondents believed the close button does not work.
They were right.
According to the New York Times, the close button has not been active since the introduction of the Americans with Disabilities Act back in 1990.
This law requires elevator doors to stay open long enough for those that may need extra time to get on board.
So if the close door button doesn’t work, why is it still included on the button panel? According to a Harvard psychology professor, the button “gives us a sense of perceived control, which is important for reducing stress and promoting well-being.”
What is causing a bit of stress now?
The upcoming debt ceiling showdown. I hope the button works for a fast close on the debt ceiling negotiations.
The debt ceiling was created during World War 1 to keep the federal government in check. Over time it has been raised, but we have been held hostage a few times by political showdowns. Namely, in 2011 when the bickering led to Standard & Poor’s downgrading our AAA rating.
As the credit default swap (CDS) chart shows, the chance of default is real (albeit small) and the price in CDS has spiked. Why would you buy a CDS? Basically, it is insurance against default. The premium for this insurance, $83 to insure $10,000 worth of Treasury bonds. Which, by the way is higher than the $82 in 2011.
Stress Test
Our economy is contending with inflation, higher borrowing rates, credit card debt approaching $1 trillion, and political disconnection. To say that it is fragile may be an understatement.
That makes the debt ceiling issue a concern. The base case of a default is terrible. Markets would not respond too well. For context, according to Axios, the US government spends roughly $10 trillion per year. Turning off that spigot would have enormous repercussions.
We do not believe this scenario will play out, but the bond market is pricing it in the short run as 3-month T bill rates have moved up. US Treasury securities are, in financial parlance, considered risk-free assets.
Having “risk-free” attached to your debt is golden. I am all for fiscal prudence, but this is not the way to get there. Most of the investing public is unaware of this issue, but the investment world does, hence recent volatility.
We hit the $31.4 trillion debt limit in January, but the government has funds to pay bills for a bit. By a bit, current thinking is the June – August time frame.
There should be some compromise and this episode will pass, but hopefully it does not stain our credibility. The economy does not need extra stress, so wrangling is unwelcome.
Investing can be a contact sport at times, but the alternative to saving and investing is not pretty.
We are happy to report our clients are not average (see median retirement savings chart). You have all been dedicated to saving and creating your financial freedom.
During the great resignation of 2021, nearly 70 million workers left their jobs, most voluntarily.
According to CNBC’s 2022 All-American Workforce Survey, roughly 68% of recent retirees are considering un-retiring. The majority said it was quality of life reasons, i.e. lack of capital.
What Now?
We will continue to be your hall lantern in these interesting times. As the poet Keith Douglas once said, “Life is like an elevator. Up and down, just make sure you get off on the right floor.”
Your team at Spinnaker is here to assist you in getting off on the right floor.
We look forward to speaking with you and we thank you for your continued support.
DISCLOSURES
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