Debt ceiling strategy

[donheff]

Is it possible to talk about this without partisan rants and sniping? It is a real issue for all of us and worth discussing how or if we should prepare. I usually don’t keep much cash on hand but I am moving a bit more than a year’s expenses to money markets now because I worry that we could go over the cliff this time. I can’t imagine an actual extended default but I can easily imagine a temporary situation provoking a serious financial debacle.

Without any who is to blame thread shutting comments are many of us worried enough to take defensive actions? I have never market timed since I can’t reasonably foresee the future. But, while that remains true now, I do think there is a much higher likelihood now than in past standoffs. And, in stark contrast to the well tested shutdown process we have have kicked off many times, a debt default is untrod territory and widely believed to be devastating even if brief.

For the first time ever I am tempted to take about half of our tax protected assets into cash until it’s clear we can get through this one. Anybody else thinking that way?

 

[OldShooter]

I expect them to settle at some point. Histrionics notwithstanding, I don't expect the issue to affect me one way or the other. Zzzz ...

 

[COcheesehead]

I listened to an interview with one Congressman. In summary here is what he said. We are willing to negotiate, but we are not giving anything up. LOL

 

[njhowie]

The debt ceiling will be raised, there will be no default. Most everyone is aware of the message it sends if the government were to default. Most of the gamesmanship is just for show...just like lots of lawsuits. Lots of noise made all during discovery leading up to trial, possibly for years. Day before the trial begins and magically the parties settle. Will be the same here. When that final deadline is upon us, an agreement will be reached.

At the end of the day, you gotta do what you need to as far as protecting your interests. If that means moving things around, then go for it, don't second guess yourself. It's the right decision for you under the circumstances. Maybe your concerns turn out to be justified and things work out in your favor. Maybe you are reading things wrong, and you lose money versus just doing nothing. Maybe it's all a big nothing burger.

I wouldn't be asking for advice, I'd just do it. You've done your analysis, looked at the tradeoffs, and reached a logical conclusion for you. It will help you sleep better at night, so again, just do it.

 

[jim584672]

Countdown to Porky 3, 2, 1....

 

[donheff]

I expect them to settle at some point. Histrionics notwithstanding, I don't expect the issue to affect me one way or the other. Zzzz ...

I suspect many of us feel that way but some of us think “this time it’s different.” I don’t want to discuss why I think it’s different and I ask others not to do so since that will quickly cause the thread to be closed. But I am interested to know if many others are more concerned now than in past years and, if so, will you sit tight and wait for a rebound or take some chips off the table.

 

[Car-Guy]

It's a good topic but no matter where you put/have your money, a default could be disastrous, IMO. Personally I don't think it will happen since it's just a matter of congress saying they approve the US can spend even more money that we don't have. What's another few trillion. Not trying to be flippant, I'm serious!

Maybe buy gold/silver if you really think we might default?

 

[FloridaJim57]

when all is said and done, much is said and little is done. Politicians live by this rule.

 

[donheff]

I wouldn't be asking for advice, I'd just do it. You've done your analysis, looked at the tradeoffs, and reached a logical conclusion for you. It will help you sleep better at night, so again, just do it.

Yeah, that’s probably the answer. I doubt we can get much shared thinking on this without provoking Porky. I guess I’m just expressing my angst. I am generally an optimist but not this time. I hope I’m wrong.

 

[pb4uski]

While I also think that there will be an extension of the debt limit before the government defaults on any debt, I'm not sure what I could do even if I thought that there was oing to be a default. I don't currently have any equities or US Treasuries. My investments are mostly CDs (47%), GSE bonds (30%), corporate bonds (14%) and i-bonds (8%). Depending on the financial calamity, the issuers of the CDs, GSE bonds nd corporate bonds may or may not be able to make interest and maturity payments. I would not try to cash in any i-bonds until October 2023 at the earliest. I also have a year or so of cash in an online savigns account or money market funds, but would a default impact money market funds and if so, how?

 

[MichaelB]

Is it possible to talk about this without partisan rants and sniping?

Of course it is. The way to accomplish that is to focus on questions such as “what should we be doing to protect our portfolios” or even “should we forum members be doing anything different” and avoid discussions about the legislative process, who says what or who did what. And please, no more snark.

 

[pb4uski]

It's a good topic but no matter where you put/have your money, a default could be disastrous, IMO. Personally I don't think it will happen since it's just a matter of congress saying they approve the US can spend even more money that we don't have. What's another few trillion. Not trying to be flippant, I'm serious!

Maybe buy gold/silver if you really think we might default?

On the first part, I agree... if there is a default there will not be any good places to hide or invest.

On the second part, just a nit, but the debt limit relates to money that has already been spent, not current or future spending. IIRC, the debt doesn't even include unexpended appropriations.

IOW, conceptually, the debt limit is the total that we have spent since the beginning of time including what we have paid in interestover what we have taken in in taxes, fees, etc.

I just don't understand why they don't just get rid of the debt limit... there is really no need for it other than to create financial and political angst every so often and we operated for over 120 years without a debt limit.

 

[Jerry1]

I think gold is about the only safe haven and I’m not sure that will even work. Seems like gold should have performed much better with all the inflation, but it didn’t. It didn’t because the dollar stayed strong. I doubt if we go into default that the dollar will stay strong. So, gold might be a good bet, but I don’t expect it to happen. It would be in no one’s self interest to let this happen.

 

[FI_RElater]

I'd already moved more into CD's (at 4.x - 5.4%, depending on when purchased), while letting our treasuries mature (all now gone) and left a bit smaller allocation of equities. In today's environment getting up to 5.4% with no potential losses is better than trying to eek out additional... we've already had the 8.x% inflation hit (COLAs are always backward looking, in reality you've already lost that buying power between when inflation occurred and when you get your COLA) and current inflation estimates are 5% or lower.... so to us it's better to take what the market gives in CDs (effectively zero real) than risk more potential losses in equities than we set in IPS allocation.

As we have one pension, and was lower PIA so started SS at FRA (prior years doing Roth conversions) to bring up stable income flow and not have to further decrease equities. As our wr is lower (2 - 2.5% generally), we get enough pushed out by dividends and CD interest in addition to the SS/pension to cover needs; as these CDs mature the basis will slowly be added into equities to drive up the allocation to 50/50 or 55/45 from the (now under) 45/55. [ we're well beyond 30x, and once second SS starts will be (well) over 100k just in stable/secure income.... the portfolio income would easily add over another... all with no debt. Just trying to keep below the second IRMAA tier for as long as possible.]

 

[Beststash]

IMO, the debt ceiling statute should be abolished. It serves no useful purpose and only serves as a political weapon. This issue is NONPARTISAN. Just some more old legislation that once enacted never ever goes away.

We have enough issues without adding more that is totally meaningless.

 

[audreyh1]

I always have plenty in various savings accounts, money markets and very short-term CDs, so my strategy is to sleep through it.

I’m quite sick of the topic but thought I’d share my “strategy”.

 

[Car-Guy]

Me too... There's nothing I can do anyway except diversify.

 

[audreyh1]

Me too... There's nothing I can do anyway except diversify.

Exactly!

 

[Katsmeow]

Yes, I have thought about this. And I do think this is a riskier proposition than usually. Our equities are either in an SP 500 fund or in Wellesley. I don't think I will change those. Middle of last year I moved the money we had in bond funds to buying treasury bills which I bought mostly for 3 months at a time.

Well, they just matured in April and thinking about the debt ceiling I decided to only reinvest them in treasury bills for 30 days. We should soon get an official statement as to when the US will run out of the accounting measures they use to delay hitting the debt limit. As I understand it, depending on tax receipts this could be a date in June or July. If at the end of may it looks like the date is July then I may re-upp for another 30 days. If it is looking like June then I may just keep this sitting there at until I find out what happens. Obviously I can't do that forever but doing it for 30 days or so seems reasonable.

 

[Alan]

I always have plenty in various savings accounts, money markets and very short-term CDs, so my strategy is to sleep through it.

Same here. I only have 20 months before my planned start of receiving SS and don’t need to make any withdrawals other than from cash before then.

 

[Freedom56]

Your debt ceiling strategy should be to keep some "dry powder" ready for buying opportunities. The market will create drama but in the end the debt ceiling will be raised. However, unless there is a serious move to balance the budget at some point in the future, there will be a debt downgrade of treasury notes/bonds which will cause a spike in yields.

 

[mpeirce]

IMO, the debt ceiling statute should be abolished. It serves no useful purpose and only serves as a political weapon. This issue is NONPARTISAN.

Of course it serves a useful purpose and you said it. It’s a political weapon. And it is also non-partisan as you said as it’s used by both sides in turn.

It even serves another more useful purpose, which is to focus attention on the growth of the debt each time it comes around.

As to the question should “we” be doing something concerning investing because of it. That’s simple too: nope.

 

[jebmke]

I'm not doing anything different

 

[Sojourner]

I'm not changing my asset allocation at all, since I can't know in advance how this will play out. Also, the majority of my investments are not in tax-advantaged accounts, so I can't change my AA in a meaningful way without triggering lots of capital gains.

What I might very well do is shift my options selling strategy for the puts I'll be selling later this month with June expirations. I may be more conservative this month with strike prices, thinking that a BIG drop in equities is more likely in the June time frame. This would result in smaller premiums (i.e. less income from selling puts), but that's fine. Given the uncertainty, I'd prefer to err on the side of caution in this particular case.

 

[donheff]

Ironically, probably the safest place to be if they do go over the cliff would be the TSP G Fund. You wouldn't make money for a while but you can't lose principle. And, as concerned as I am, I rest assured that we will ultimately honor our obligations so the TSP folks have safe cash.

What about money markets and CDs. If we have an huge mess in the financial markets do those likely survive? If not, I may as well stay in equities. My biggest worry there is that if things blow up as badly as the eggheads predict, we could face a long recovery.

As to my pessimism, it is just the nature of the debt ceiling. We have created a bipartisan nuke that will explode absent a bipartisan agreement in times like the present with split chambers. But, unlike the normal budget process, it isn't a slow process with minor early impacts that slowly ramp up to real pressure forcing compromise. We have seen that budget process unfold numerous times > continuing resolutions working up to agreement > occasionally someone calls the other side's bluff and we go into a shutdown. But the law governing shutdowns limits the fallout. Some people get hurt but most are not even aware of the impacts as long as the Treasury can keep issuing treasuries. The problems build up slowly and eventually the pressure is enough to force compromise.

The debt ceiling, on the other hand, blows up on a day certain and stops the checks entirely (or close). So there is no slow ramp up of consequences to push resolution. If Congress slips up the problem blows up. Or so the economists say. And I think I can safely say, without provoking Porkie, that I have never seen a worse political environment for compromise. I really worry they will hold tight too long.

Historians will point out that before our life times there were worse political situations. So that is some consolation.