We hope you all had a wonderful 4th of July holiday! We have a lot to be grateful for, and the freedoms we enjoy here in the USA should be high on that list.
While we were all having BBQs and blowing stuff up, President Trump signed the One Big Beautiful Bill Act (OBBBA) on Independence Day, making certain “temporary” parts of the current tax code permanent while adding many other changes. In the next couple weeks, we will write about those changes in more detail. For now, we will just say that it’s now official (like it or not!).
The one thing that I will comment on now is the hope that the CBO (Congressional Budget Office) is wrong about how much this will add to the National Debt over the next 10 years. That number is currently estimated to be around $2.7 trillion (remember when that was once considered to be a lot of money!). Traditionally speaking, the CBO doesn’t do a good job with projecting growth in the economy. Then again, it doesn’t project a recession in the next 10 years either.
Like most things, we won’t know the total cost of the OBBBA until after the fact. The National Debt stands at $37 Trillion today. It’s expected to grow by at least $20 trillion over the next decade. Here’s a chart from the CBO.
This chart is in terms of GDP. You can see that this surpasses the WWII peak by 2029 and continues to go up from there.
Further, here is a chart that breaks down the spending per category. There are two important things to note here. The first is debt held by the public (so inter-governmental agencies don’t count), and it too is shown both as a percentage of GDP and in raw numbers.
You can see that the estimate of debt held by the public is $52 trillion in 2035. Add another $7 trillion that is not accounted for in this table and you are close to $60 trillion. If we assume a reasonable interest rate of 4%, that is nearly $2.5 trillion a year just in interest (~$16,000 per individual taxpayer). More than what they show in their estimates in the table above.
I think it’s safe to say that the number will be higher than their estimates right now. Let’s hope I’m wrong and that the current administration is able to get the budget under control. I have my doubts. And so does Elon Musk…
Switching gears a bit, our model is once again getting closer to “flipping” to a risk-on stance. We saw that happen in May/June, only to reverse and remain in a risk-off posture.
Will it flip this time? Only time will tell. At some point it will, and we will be ready for it. For now, it is still negative (conservative) and we will continue to wait for our signals. This is extremely important as the numbers I showed you earlier from the CBO do not paint a great picture. Nor does the upcoming “Fourth Turning” I have referenced before. For us to be able to “hunker down” when needed will help get all of us through any upcoming turmoil (while keeping an eye on the long-term, as is wise for most investors).
Much like going off the gold standard, or Bretton Woods, Bretton Woods II, we will (my opinion) see a new monetary system put in place when this is all done. I don’t know what it looks like or who will be around to put it in place, but the world is massively in debt and something major will have to happen to get the world out of that. It’s gotten to the point where traditional solutions are becoming impractical to utilize.
Here’s a total from May 6th, likely higher today!
That’s it for this week. I hope you have a good week and enjoy the nice weather. As always, please let us know if you have any questions about this or any other topic. We will be happy to have a conversation.