Hello, and welcome to the Life by Design podcast, brought to you by Strategic. This podcast is all about helping you live your great life.

Each episode will feature insights from our Chief Investment Officer, Doug Walters. Jay.

How are you doing? Join So- Yeah, I'm, I'm hoping you can clarify this.

Uh, so, so basically, this past week, your written insights on our blog- Yep. uh, was titled Debt and Stocks: A Tale of 2 Timelines.

Right. And the things that really triggered this was that Moody's downgraded the United States' c- credit.

Is that correct? Yes.

The credit rating. Yeah, credit, credit rating, yep.

And then the House bill passed that is going to put the United States in more debt. Right.

Yeah, that- As estimated. estimated to increase the, the debt over time.

Right. Yeah.

And it still has to go to the Senate, and there's news that, like, they're gonna change it anyways. But the House passed it.

It would add, what, 3, $3.8 trillion in debt- Right. That's- to- Yeah, that's the current estimate.

Uh, already 36.9 national debt. Yes.

Yeah. Uh, so, like, 10%.

Yeah. So, so, uh, yeah, what does that all mean?

Yeah. Good.

Well, let's get into it. Yeah.

So, so the Moody's downgrade is, in a way, could argue they're late to the game. S&P downgraded the US a while ago.

And this is a downgrade from, you know, triple A to double A, um, plus, in the case of S&P, and with a stable outlook. So not a, you know, not a horrendous, uh, credit rating- Mm-hmm.

but it's a downgrade, and it is a, you know, it's a reflection of the increasing national debt and the impact that that would have on the US over time to be able to pay its bills. And this is my own ignorance.

Were we the only triple A rating, or are other countries at, at a triple A rating as well? Uh, well, you're not the only one ignorant on that.

It's- Okay. I have no idea.

Yeah, yeah. All right.

Sorry. No, that's okay.

And so- Yeah. And the reason it, it kind of, you know, it's, it's news, but not really big news, is that because, uh, we're still kind of, like, our dollar's still, still the value that everyone bases their dollars on as well?

Yeah, it's called the reserve currency. Okay.

Right? The US is the go-to currency for, for transacting across the world, and it remains so, even at a, a downgraded credit rating.

So literally, it, that meant nothing? Not to say it means nothing.

Okay. So a, a looming debt burden is a serious thing.

Yes. Right?

And there is, you know, something at some point has to be done. Mm-hmm.

So either austerity measures, like they've done in, in the UK, really trying to, to budget- Mm-hmm. for the future and bring that debt down over time.

Or they don't, and eventually, you know, the market loses confidence in the US's ability to pay its debt, and sort of a, uh, worst case scenario. But this is a reflection of the fact there is a problem to solve, and it is looming- Right.

and it is there- Mm-hmm. and it is real, and it needs to be solved.

And though, and, and, uh, again, another, uh, ignorant question here. But, uh, several years ago during the Clinton administration, if I'm re- remembering correctly, they actually pulled us out of debt and put us into a surplus during that time.

And so, it seems to me, and I understand the dollar amount is far greater at this point, but, uh, we've done it before and pulled out of debt, and so we could potentially do it again. It is, it is possible.

Yeah. Uh, the burden is, is higher now- Yeah, mm-hmm.

than it was then. But we have been here before.

Mm-hmm. So we've been at these levels before in times of real economic strain, and balance sheet strain.

And as you mentioned, yeah, there was a point back in the '90s where you had, um, a, an administration who arguably is hand was being, arm was being twisted a bit by, you know, a very, um, conservative House. Mm-hmm.

And yeah, they managed to, to balance the budget. And, uh, we also, if you remember that time period, this is pre dot-com bust.

Yeah. So this is dot-com, you know, the good part of the dot-com.

And so things were really humming along from an economic perspective as well. Mm-hmm.

Okay. Um, yeah.

So with, with all that news, um, how does this relate into the stocks and the market? Yeah, and that's really the point of, uh, that we wanted to make here.

So I don't have any sort of crystal ball on how this debt burden is going to, um, play out in the future. But what I, I do want to warn is, investors from imply- you know, from seeing this and being concerned that it is a near-term issue for their stocks.

Not to say that stocks are gonna go up. Again, we have, have no crystal ball here.

Yeah. But it is not a death knell for stocks- Mm-hmm.

in the near term. And I'll give you an example in, you know, sort of the evidence that we look at.

Real world example, Japan. So Japan, if we go back 25 years- had similar debt levels to what the US has right now.

Okay. Roughly, you know, 130% of GDP plus, um, so that we're going back 25 years.

Since then, it's only gotten worse. For the last 15 years, their debt to GDP has been over 200%, peaking around 260%.

Okay. So much worse than the US.

The yen is not the world's reserve currency, so they have fewer tools at their disposal in terms of, uh, getting themselves out of this. Yet the Japanese stock market is up 400% over the last 15 years.

So, but still- Yeah. a pretty good return and just a sign that, hey, this isn't necessarily, uh, a near-term indicator that your stocks are going down.

Mm. Uh, again, that burden real, needs to be solved, but does that mean you need to exit US equities?

No, that is not the message that I would take away from this. Yeah, and I Just from hearing what you're saying here, it just reminds me of other podcasts that we've had in the past where we've talked about the news of today from a long-term standpoint- doesn't necessarily affect the stock market long term.

And it might, for the day, it might, the stocks might go down or up or whatever th- whatever they end up doing, but this is a perfect example of, hey, Japan's been in debt for all these years at a high rate and they're up 400% over 15 years, right? So like, it, it seemed to have no effect, quote unquote.

Yeah. Yeah.

Yeah. And I wouldn't say no effect.

Yeah. Certainly no one would want to be in the position that Japan is in.

Right. And their stock market has had historical challenges.

But again, the point being this isn't necessarily a near-term indicator. Mm-hmm.

So we have, you know, we have, as you say, the near term, almost the day-to-day reaction to the headlines. Yeah.

Okay? And then we have the long term, the really long-term potential impact if we don't solve this.

That is going to be bad for US stocks if this doesn't get resolved. But in this medium term, you know, 5, 10 years, you know, uh, y- your guess is as good as mine.

There's no reason- Mm-hmm. why US companies can't continue to produce profits and ultimately, w- as an investor, that's what you're, you're buying into is their cash flow, their earnings, and there's no reason why they can't continue to be successful in the coming decade despite this looming debt burden.

And just to put one more note on that- Yeah. there are, you know, there's multiple dynamics at play here.

The, the spending bill that's coming through Congress, for example, bad news potentially for debt. Yet there are things in there that could be stimulative to the, the economy.

Cutting, cutting taxes, increasing, um, you know, benefits to certain industries- Mm-hmm. right?

These things can be stimulative to stocks in the short to medium term- Right. So if - For those of you listening, I just shook my head- Yeah.

in bewilderment. Uh- Well, think about it-.

like this. Hey, we're- Yeah.

you know, I'm gonna spend more as a country, I'm gonna, I'm gonna cut your taxes, right? Yeah.

So that means the debt goes up, but also means Jay can spend more at the store. He can- Right.

buy more toys and, and electronics and this and that. Yeah.

That makes is good for the makers of those. So near term, they're selling more, their profits are up, investors are enjoying those returns.

Long term, that's, again, not resolving the issue of this debt, which is, you know, a longer term issue that needs to be resolved. Okay.

Uh, it kinda makes sense. Yeah, it kinda makes sense?

Yeah. And again, the, the message is not, you know, crystal ball.

There's no- Right. crystal ball here, but we, we want to avoid market timing around these headlines- Yeah.

And s- but we do also want to acknowledge, you, you and we talk about it a lot, but diversification. Yeah.

Right? You shouldn't have all of your assets in US stocks to begin with.

They should be a part of a well-diversified portfolio that includes international stocks, emerging markets, uh, bonds, gold. so we, we want to make sure we have that well-diversified portfolio that allows us to work around these issues.

Okay, Doug. And so, yeah, I think I'm somewhat more clear on that, though it's It seems like a lot of this stuff we talk about is, is still a fog after we're done talking, so I, I may have questions- Yeah.

in the future. Uh, but, uh, with that being said, what are we, what are we looking at for the week ahead?

Yeah, it's really It's Today, I think, is, is sort of the day as we look at- Oh, yeah. this, this week.

Today is the day. Yeah.

we have, um, the Fed coming out with their meeting notes. There's always, always an interesting read to s- get the, sort of color behind their last non-move to see, um- Mm-hmm.

So we'll be looking out for that today, as well as NVIDIA results today. Obviously, one of the biggest companies in the world, so we want to see what they're saying about AI, tariffs, all of that.

Okay. All right.

Well, uh, thanks so much, Doug. Appreciate it.

All right. You're welcome.

Thanks, Jay. This podcast is for educational and informational purposes only.

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