Answering Your Questions About the Debt Ceiling, Bank Closures, and the Market Outlook
Matt Wilson's latest Market Update webinar touched on some important topics that you've probably seen in the headlines lately: interest rates, inflation, bank closures, the debt ceiling debate, and economic growth forecasts for the rest of the year. But if you're just getting your info on these things from social media or cable news, Matt's approach was likely a breath of fresh air. At Keen Wealth, we try to provide clear-eyed analysis without the hype so that folks can understand the practical effects that hot-button issues could have on their financial plans and their retirement.
On today's show, we recap some of the bullet points from Matt's Q2 Market Update and answer a few follow-up questions from folks who attended the webinar.
1. What's happening in the economy right now?
According to the latest report from the U.S. Bureau of Economic Analysis, the U.S. economy grew by 1.1% in the first quarter of 2023. While positive growth is always better than negative, this report does suggest that the economy is probably slowing down. And, ultimately, slowing down the economy to curb inflation was most likely the Federal Reserve's plan with all the recent interest rate hikes.
When Matt and I attended The Barron’s Advisor Independent Summit in March, many of our colleagues thought the Fed had raised interest rates too quickly after keeping them low for too long. And while rate hikes may have contributed to the regional bank collapses we've seen lately, the more we're learning about those banks, the more likely it is that they had mismanaged their bond portfolios.
It's also worth noting that the most recent jobs report beat expectations on Wall Street, if only slightly: 253,000 new jobs, and a 3.4% unemployment rate. Those figures represent unemployed people who are looking for a job, as determined by surveys conducted by the U.S. Bureau of Labor Statistics.
So, despite a slowing economy and a couple runs on smaller banks, we're in a much more positive place than 2008-2009, when systemic issues in our financial system helped push us into the Great Recession. We are probably going to have to live with higher inflation and higher interest rates in the near term. But that might give some folks an opportunity to work with their advisors and shop around for online savings accounts, CDs, and money market accounts that are offering higher interest rates than your savings and checking accounts.
2. What happens if Congress doesn't agree to raise the debt ceiling?
Let me answer that question ... with a question!
How many times has Congress raised the debt ceiling?
Answer: 78. 49 times under Republican presidents and 29 times under Democratic presidents since 1960.
The likelihood is that history will repeat itself. Once our leaders have had a chance to make their cases for the cameras, they'll sit down and do what every other U.S. Congress and President has done with the debt ceiling: find a compromise. The numbers on Wall Street might jump around a bit as negotiations drag on, but the debt ceiling "crisis" shouldn't have a long-term influence on the markets.
3. Should we be worried about the BRIC countries (Brazil, Russia, India, China) moving to the Chinese yuan or creating their own reserve currency?
"Reserve currency" refers to the currency used in most international trade. Right now, that's the U.S. dollar, which is used in 57% of transactions. The Euro is used for 20%, and all other countries are under 10%.
According to the International Monetary Fund, a global reserve currency needs to meet some very specific criteria, including:
· Stable and safe currency
· Stable political system issuing the currency
· Sufficient size and prospects of the issuer's economy
· Global integration of the issuer's markets and economy
· Transparent and open financial system
· Credible legal system
· Quality of issuer’s sovereign debt
· Ability to bear cost associated with the reserve currency
· Size, depth, and liquidity of issuer’s financial markets
The U.S. is the only country in the world that checks all those boxes; the BRICs certainly don't check many. You could make an argument for the EU, but Brexit and rumblings of other countries leaving the euro dent the stability requirement.
As always, a big thank you to Matt Wilson for another outstanding and informative webinar, which you can rewatch here. If you want to be notified when Matt is preparing for his Q3 Market Update, and whenever we publish new educational content to our site, click here to subscribe.
I'd also like to invite our clients, friends, and neighbors in the Kansas City area to attend our annual Barbecue Bash on May 24th, from 4-8 at our new headquarters. No market talk here, just food, music, games, family fun, and a special appearance by KC Wolf. Click here to RSVP.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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