I am unafraid…
We have incredible investing opportunities right now in U.S. stocks… U.S. real estate… commodities… emerging markets… You name it, I'm probably bullish on it.
How can we have so many great opportunities?
The short answer is FEAR. We are seven years into a great bull market in stocks… But investors are not at all acting "giddy" like you see at a market top.
At a market peak, investors have no fear. Based on that fact alone, we are not at the peak yet.
I am not afraid of the next 12-18 months in the financial markets. Our investing upside potential is far greater than people believe, in my opinion.
So what am I afraid of? Let me tell you…
I'm not afraid of the short run. It's the long run that has me worried.
You see, our government is on an unsustainable path.
Two charts tell the story…
The first is a chart of the U.S. debt-to-GDP ratio.
Debt in the U.S. has been at manageable levels throughout history… with the exception of World War II. That was an extraordinary moment of borrowing – and we borrowed in excess of 100% of GDP. Take a look:
Today, the Congressional Budget Office projects that by 2032, our debt-to-GDP ratio will exceed that of World War II (under its "Alternative Fiscal Scenario"). Our debt-to-GDP ratio will hit 250% of GDP in less than 40 years.
Where is this increase in government borrowing coming from?
It isn't from defense spending like it was during World War II. The increase in government spending is almost all on entitlements and the interest on the national debt.
In about 20 years, spending on entitlements (that's Social Security and government health care programs) plus the interest on the national debt will eat up ALL government revenues.
It is truly shocking. Take a look:
That leaves no money to pay any government employees… no money for Homeland Security… no money to run the U.S. government.
In 15 years, our national debt (as a percent of GDP) will be worse than it was at its peak during World War II. And in 20 years, entitlements and the interest on the debt will eat up all government revenue.
Something has to change. But what politician is bold enough to stand up and make these changes? Nobody, so far…
Our politicians are like the proverbial boiling frog. (If water is heated slowly enough, a frog won't jump out of a pot – and it will be boiled to death.)
As long as our debts rise slowly, nobody will do anything… until it's too late.
THAT'S what I'm afraid of.
Fortunately, you and I can make a lot of money in our investments before that day arrives. We have some incredible upside potential in the near term, before the long-term problems start to become a problem.
In short, we have time before the water starts to boil…