Transcript

Hello, this is our weekly market alert video for the week ended January 22, and if you’re wondering why my eyes are all puffed up like this, no, it is not because I went on an alcoholic bender last night and got no sleep. I’m actually allergic to nothing that I know of, but apparently, I am having an allergic reaction to something, so forgive my appearance. This week I want to talk with you about a question that I have been asked I want to say by the last five clients in a row, and that is with President Biden proposing a $1.9 trillion additional stimulus package, we’re going to borrow. We’re going to print more money. When does this end, and how long can we keep going like this before we have to pay it back or before there is any repercussions from it, and so I thought that would be a good topic for us to visit about here on our video.

There is a program that I would encourage you to watch if you’re interested in learning about how money works and all of that. It’s called the Ascent of Money. Ascent is spelled Ascent. It’s a PBS program. It was actually produced in 2008. I watched it with my youngest daughter, Aspen. It was assigned to her. It’s a four-part series, 45 minutes per segment, so it’s not a big commitment, but I watched it with her since she had to watch it. It was assigned to her, and I thought wow, this is actually quite good, and so it’s the history of money, and I would encourage you to watch it if you’re so inclined. It’s free on YouTube, or you can subscribe to PBS and watch it there, but one of the things that it talks about is King Louie of France essentially invented the government bond. Before that, the Medeches, the Italians, invented debt where you could borrow money, but the idea that government would actually borrow money from its citizens had never been done before King Louie of France, and his theory behind it is I am anointed appointed by God, so I am the safest person in the world to lend money to because I am backed by God. I mean, if you’re going to get repaid by anybody, it’s somebody who has God backing him up, and so he invented or his reign, his kingdom, invented the government bond, and they started borrowing money so that he could build all of his palaces and buy all of his art and build Versailles and everything else and finance all of his wars and all of that. Well, it was great. Money just poured in. Why not? You’re lending money to a guy who is backed up by God. Well, eventually what happened was that he borrowed so much money that he had to raise taxes so high that he got a revolution, and it did not end well for him, and other great economies have fallen into the same trap.

You look at the Germans. You look at the English. You look at other great economies that have borrowed money to finance what they were doing, and eventually what happened was that they got to the point where they could not raise taxes any more on their citizens to pay the interest on the debt, so after watching that, my view of it is that it is the interest on the debt that you got to keep your eye on, and does the government have to tax us, the citizens, to pay for that, and there will be a point, and you think about the English. They eventually got to the point where they raised taxes so high at we had a tea party, so people don’t like to be taxed to death to pay back the debt of their government. It eventually does not end well for the government and for that economy, so where are we with that? Well, right now if you look at the cost of the interest on the debt, it is remarkably low. I mean, right now money is practically free. If you think back President Obama and the $700 billion TARP plan, he borrowed that money, or the administration at that time, our government at that time borrowed that money at 4 percent interest rates, 4 or 5. That is way, way more expensive than today’s interest rates where are down around 1 percent or thereabouts, so that $700 billion was four times more expensive because it was that 4 percent interest rate versus 1 percent today, so the answer to the question is when we borrow enough money that our government has to raise taxes so high that we won’t allow it anymore or when they can’t tax their citizens anymore to pay the interest on the debt, then what will happen is people will not want to lend money to the United States because you can’t pay it back.

You can’t tax your people, we, the citizens, will be saying no. We resist. We will not pay all these taxes. We’ll start fighting against that, and the next thing you know, is the economy will collapse. So, when will this happen? Right now, with interest rates so low, the ability for us to repay the interest on the debt, we can do it, and they don’t have to raise taxes on us to 70 or 90 percent like they did before. If you go back to World War II, we financed that with debt, and we actually after World War II had taxes at 90 percent. We had a 90 percent tax bracket in our country, and this is until Ronald Reagan when he changed taxes and dropped it down to the 28 percent tax bracket, but before that, we had a 90 percent tax bracket in our country to pay the debt that we borrowed in World War II, so higher taxes are probably coming in the future, if not this year, and so watch for that, but until we get to the point where we can’t tax our citizens anymore to pay the interest on the debt, we haven’t reached that tipping point, and in our view, we’re not there at this time. We’re not even close to that. So, what does that all mean? Again, we believe that this year is going to be a very good year in the markets. We believe there is a lot of pent-up demand.

People have been not spending, and they have been the highest savings rate in the history of our country right now, so people have been saving up. There is hundreds of billions of dollars in cash. There is a massive amount of pent-up demand, and once everybody is vaccinated, and they have confidence that they can go out and start spending like they did before, we anticipate a big spike in spending. Big spikes in spending result usually in high profits, and profits drive prices on the stock market, and so because of all that, we think it’ll be a virtuous circle that’ll drive the markets higher later on this year. Now, will it be a smooth ride? Absolutely not. Will we get corrections along the way? Most likely, yes, but overall, we think the trend this year should be nicely in a positive direction. Now, as I said, things can turn on a dime. Some news could come along to change everything, and we could see the markets go down way, way fast, and that’s why we have our invest and protect strategy ready to be implemented the money and the time we see that it’s necessary, so we don’t want you to worry about all this stuff. Let us do it.

I hope this video was informative and put your mind at ease about how we are maybe at the point right now of all this debt hurting us. Not yet, but we’re headed there, and in the meantime, thanks for letting us worry about this so that you don’t have to. We’re very grateful, we thankful that you allow us the privilege to be your retirement planner, and we will talk soon.

MMWKM Advisors, LLC (d/b/a Retirement Planners of America ) (“Retirement Planners of America”) is an SEC registered investment adviser with a primary business location in Plano, Texas. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. References to the “invest and protect strategy” (the “Strategy”) and recommendations made under the Strategy from 2007 through 2009 refer to strategies collectively employed and recommendations collectively made by Retirement Planners of America’s principals while employed at Eagle Strategies, LLC., and also at Cambridge Investment Research Advisors, Inc. Four of the five principals remain as principals today, including the Retirement Planners of America’s founder, Ken Moraif, and Chief Investment Officer, Eli Dragon. Retirement Planners of America has been employing the Strategy since its inception in 2011. Therefore, any references to Retirement Planners of America’s performance or its investment advisory recommendations predating 2011 generally refer to recommendations made by Retirement Planners of America’s principals at the respective other firms described above. Like all investment strategies, the Strategy is not guaranteed. It is possible that it can incorrectly predict a bear market (generally accepted as a 20% drop in a market index), which has, in-fact, happened before at Retirement Planners of America and affected its clients accordingly. When the sell / “protect” portion of the Strategy is implemented, affected investors will incur transaction costs and taxable accounts will incur tax consequences. However, when implementing that portion of the Strategy, Retirement Planners of America generally believes that the benefit of avoiding bear markets outweighs the burden of these transaction costs and tax consequences.