Is The National Debt A Problem Or Isn't It? Financial Advisors' Daily Digest

Jul. 13, 2017 12:17 PM ET149 Comments
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SA For FAs


  • Charlie Bilello asks how the national debt figures as a risk for stocks.
  • Douglas Tengdin, CFA: The pursuit of safety can make you more vulnerable.
  • Institute for Innovation Development: Advisors are ceding FinTech to banks.

Debt hawks see doomsday at every new milestone in America’s steady ascent up the debt ladder. Yet, in the eyes of many sophisticated stock market participants, the debt warnings are a distraction, keeping these uncouth worrywarts from making money. (Though the two groups do not line up perfectly, it would seem that debt hawks are disproportionately represented among those who have been uneager to invest in the stock market since the last big crisis.)

Enter Charlie Bilello, who asks on today’s Seeking Alpha how the national debt figures as a risk for stocks. If you’re a debt hawk, most of Bilello’s article will provide cold comfort. He systematically goes through various markets during which the debt has risen and finds the market climbing at an even higher rate. He doesn’t argue that debt and stock market gains are inversely related, i.e., he’s not saying debt is a good thing; to the contrary, he warns against confusing correlation with causality.

In the end, he offers the warm comfort of a conclusion with which everyone should agree:

The stock market is not the economy and it certainly isn’t the national debt. Your best protection against the risk of a debt crisis in the future? Diversification, diversification, diversification.”

I admit to being allergic to high debt. I don’t advise people to avoid investing – as regular readers of my article know. Rather, my usual message is pretty much the same as Bilello’s: diversification, diversification, diversification.

And yet, I do see America’s $20 trillion debt, now equal to 104% of nominal GDP, as reason for profound concern. (To be clear, Bilello does not say that is he is unconcerned, only that mounting debt has not been a barrier to stock market outperformance.) Indulge me please, as I step out of the realm of quantitative economics to put this in perspective. I once read a book

This article was written by

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GIL WEINREICH - Author of "The Mentor," a unique parable for financial advisors and those who aspire to become one. I have worked in the FA arena since 1997, and during that time, the New York State Society of CPAs twice awarded its prestigious Excellence in Financial Journalism award to me for a monthly column I wrote on business ethics. Previously, I reported on international news for Voice of America (where I was awarded a newsroom writing award) and prior to that worked as an editorial assistant at U.S. News and World Report. I live with my wife and children amidst the verdant and vibrant hills and dales of Jerusalem.

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