National Debt And Stocks
National Debt And Stocks
Question:
Are you concerned that with the national debt that the value of our stocks could drop dramatically, and what can be done to safeguard such a drop?
*Response was given in January of 2021.
Response:
The bill for the COVID 19 response is going to have to be paid for by someone. The US national debt per working individual at the end of next year could be approaching $100,000. Thus far the financial authorities such as the federal reserve and the US Central Bank have decided to fund these debts with the newly printed money but at some point, the amount of money that is going to be required to fund these debts could become significantly inflationary.
So yes, I am concerned that the debt levels within the US economy, particularly public debt, could approach a level where we would have to really aggressively inflate the economy. At that point, we would start to see measures of inflation beginning to rise materially. It would be difficult for the central bank to be able to get control of inflation measures, which could double within a year or two. That could be a real problem for the central banks.
The debt is going to be an issue, but we’ve been able to “kick the can down the road,” so to speak, so far. As far as how individual clients might respond to the debt problem — The debt issue will have really become a problem for the markets if inflation becomes a policy to respond to it. A significant rise in inflation would be a possible outcome of the debt problem.
The way Fort Pitt Capital Group has chosen to respond with our portfolios is to steer the portfolios a little bit more towards cyclical businesses. This means business is that respond better with stronger economic growth ahead of any inflation. Cyclical businesses are companies like industrial businesses and materials companies. Companies that are responsive to a stronger economy should do better as a precursor to any inflation. And that’s exactly the way Fort Pitt Capital Group has positioned our individual securities portfolios.
Written by:
Charlie Smith
Fort Pitt Capital Group, LLC
Founding Partner & Chief Investment Officer
Email: csmith@fortpittcapital.com 1-800-471-5827
