Debt ceiling strategy

[WannabeRetired]

I was just looking at my Vangard sweep account. They use VMFXX which a Federal Securities MMF paying pretty well . . . I am not sure of how these accounts will work in a crisis. I'm not worried about getting my money out in the short term. I would just like to be able to exchange to equity index ETF's after a big drop off - if one occurs.

I had this same question about the VMFXX fund at Vanguard. Hoping someone will weigh in on this. Thanks.

 

[aaronc879]

Is anyone else here wondering how they respond if their health insurers are not paid their advanced premium subsidies through the ACA? For me, that's about $500 per month I would be unable to invest elsewhere, or would have to withdraw from somewhere in my portfolio (as I don't have that much extra cash per month for some months laying around). Would the ICs be unable to pay claims, causing the providers to pursue the insureds (if it is legal), or would the ICs pursue us for the unpaid subsidies (if it is legal)?

I thought about that a few weeks back. I am in the position that I should be able to make myself qualify for Medicaid if needed. I hope none of you find out what happens if the government doesn't pay the subsidies. My best guess is the insured person would be responsible for any unpaid premium. Any unpaid subsidy would be reconciled at tax time assuming the debt ceiling issue is resolved by then. Just like people would get back pay for any SS or VA benefits. I assume that is how it would work for ACA subsidies.

 

[SecondCor521]

Is anyone else here wondering how they respond if their health insurers are not paid their advanced premium subsidies through the ACA? For me, that's about $500 per month I would be unable to invest elsewhere, or would have to withdraw from somewhere in my portfolio (as I don't have that much extra cash per month for some months laying around). Would the ICs be unable to pay claims, causing the providers to pursue the insureds (if it is legal), or would the ICs pursue us for the unpaid subsidies (if it is legal)?

FWIW, in 2022 the government spent approximately $69B (yes, B, not T) on the ACA. It is a rounding error in the federal budget.

If the government didn't pay the subsidy to your IC, you would be on the hook to pay the IC the full premium, because you're the one who signed up with the insurance company. Or you could probably be dropped for non-payment and go uninsured. Presumably you could reconcile it all at tax time next year.

The ICs might have trouble paying claims if subsidies were suspended and enough individual insureds weren't able to pony up.

It is certainly legal for the providers to pursue the insured. They provided you with a service and you agreed to pay them. Although if the provider were in network, their contract with the insurance company might limit how much they could pursue you for (probably just the copay or co-insurance).

My guess from what I know, anyway.

 

[eyenitnoy]

I think this time is different. The politics is much more complex than 2011. I think the US will default.

I'm moving to cash and buy SPY and QQQ puts. I never do this, but, as I said, I think this time is different.

Trouble ahead.

 

[lawman]

I think this time is different. The politics is much more complex than 2011. I think the US will default.

I'm moving to cash and buy SPY and QQQ puts. I never do this, but, as I said, I think this time is different.

Trouble ahead.

I too expect we will reach a point where we will not be able to meet all our financial obligations. However, I think we will survive in tact. I remember the hysteria around Y2K and it turned out to be a nothing burger..

Y2K - The fear was that when clocks struck midnight on January 1, 2000, affected computer systems, unsure of the year, would fail to operate and cause massive power outages, transportation systems to shut down, and banks to close. Widespread chaos would ensue.

There are too many of those lawmakers that stand to lose a lot of money for them to send us completely down the toilet. There will be damage but we'll survive.

 

[lawman]

I'm moving to cash and buy SPY and QQQ puts. I never do this, but, as I said, I think this time is different.

Trouble ahead.

I'm interested in knowing more about this. When will you do this and how big of a bet will you make?

 

[copyright1997reloaded]

I too expect we will reach a point where we will not be able to meet all our financial obligations. However, I think we will survive in tact. I remember the hysteria around Y2K and it turned out to be a nothing burger..

Y2K - The fear was that when clocks struck midnight on January 1, 2000, affected computer systems, unsure of the year, would fail to operate and cause massive power outages, transportation systems to shut down, and banks to close. Widespread chaos would ensue.

There are too many of those lawmakers that stand to lose a lot of money for them to send us completely down the toilet. There will be damage but we'll survive.

Do you know how much work was done ahead of 1/1/2000 to PREVENT issues? How much software updated and replaced? It was a massive effort.

Fast forward, how much work is being done to prevent our debt from spiraling out of control?

 

[joedila]

This is a buying opportunity

I have long viewed this as a buying opportunity. At some point in the next few weeks, the economy will be pushed to the brink, plummeting the Dow/Stock Market by quite a bit. The uproar will then lead those in Congress to re-consider their strategy and then they will raise the debt limit. Whether they accomplish anything in terms of cuts, remains to be seen.

But I agree with a few of the posters that this time it may be a little different. Many in Congress will not care that they push the economy to the brink.

After yesterday's huge gains, I moved about 15% of my Roth and Regular IRA's into cash. If the market goes up again, I will probably move another similar percentage. But at some point, in the next few weeks, the market will plunge dramatically; then I will move my money back into stocks/funds.

 

[jimm100]

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.

No country can continue to increase debt forever, not even the USA. That’s not a political statement, it’s just a fact. At some point, those who are buying the debt will decide the risk of not being paid back exceeds the promised return.

The debt ceiling is a requirement for those representatives who are not concerned about the debt to negotiate with those who are. Citizens have varying understanding of the situation as do our representatives. The debt ceiling is supposed to be a periodic catalyst to achieve a compromise that all parties can agree to. It’s a point at which the issue has to be reassessed and readdressed instead of mindlessly continuing on the same course. We can choose to continue on the same course, but not mindlessly.

Because increased borrowing cannot continue forever, the situation is constantly evolving towards the “this time is different “ point. Will it be a specific point in time? Or gradual? Hard to say. The 2008 financial crisis seemed like a “this time is different” point. When US debt was downgraded, that was a specific, meaningful event that seemed like an inflection point. And we’ve had the debt ceiling issue multiple times. In all cases so far, investors shook it off and everything seems to have returned to normal, so those that took drastic action on their portfolios likely paid a price.

This time may be different. $31.5T is an incomprehensible number and our representatives have different reactions to it. If the “no negotiations” cohort and the “no further without commitment to budget cuts” cohorts both dig in, we will have a crisis of unknown duration. Or it may not different, the choice may be made to kick the can farther down the road.

We all need to ride it out. Which means we all need to estimate the duration and potential lasting effects. My crystal ball is cloudier than ever. Currently, I have taken no action because I don’t need any of my investments soon and if the wheels really come off, there is no safe place.

It causes some anxiety because of the consequences, but it’s out of my control. I’ve tried to influence it by writing to my Senators and Representative and encouraging others to do the same (very easy: web search for “contact {state} congressman “). Some day, the endless increase in deficit spending will have to come to an end. Is that day close? Take your best guess.

 

[Aerides]

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.

^^
Ahem

Final Mod Reminder:
Let's keep this thread on track to discuss your personal approaches, vs. dancing on the political edge as several posts have tried to do.

Final Final: One more time for the folks who are just joining this thread. This is the place to talk about your personal plans, not congress.

 

[OldShooter]

... At some point, those who are buying the debt will decide the risk of not being paid back exceeds the promised return. ... Some day, the endless increase in deficit spending will have to come to an end. ...

Well, not with a bang but with a whimper. National debt is sold at auction and in almost all cases a nation can borrow at some interest rate. Even Argentina can borrow. Not sure about Zimbabwe.

 

[pacergal]

Hasn't the motto for many here to have a diversified portfolio that lets you sleep, no matter how the market moves?
The age old question of when to get out and when to get back in is frequently asked when a forum member states they are "going to cash out", and a majority of members advise to maintain a "set and forget".

I am doing nothing. Sure, the debt ceiling fight makes me nervous, it may be different this time, but I am hedging my bets that long term, I will do just fine.

 

[donheff]

Hasn't the motto for many here to have a diversified portfolio that lets you sleep, no matter how the market moves?.

OP here. I’m one of them. I have consistently stuck with my AA thru thick and thin. But if I was one of the epidemiologists at CDC who knew how bad the Coronavirus pandemic had a good chance of becoming in Feb of 2020 before the markets tanked, I would have considered moving a substantial portion of my portfolio to cash in anticipation of a probable buying opportunity. The impending deadline has some of those features. Thus the question of strategy. Stick with your AA is a good one. I'm going to speculate this time and already put some equities into the game. Now I have to decide whether to add more and when and how I will buy back in. That’s the hard part.

 

[scrabbler1]

Aaron and SecondCor, what kind of agreement was made between the ICs and the state/federal exchanges in order to allow the ICs to offer and sell policies even though the insureds would not necessarily be paying the full premium amount? Might the risk (of nonpayment of the APTCs) be taken by the ICs and not the insureds?

I can see, from actual experience, when the insured (and perhaps the exchange itself) has not done everything proper to secure the full APTC, so the insured has to pay the full amount for a few months (or longer) until that gets sorted out; then it all gets resolved at tax time. But here, the insured has done everything properly to secure the full APTC. It would seem pretty perverse to have the insured on the hook for paying the APTC because those who would owe the most would theoretically be the poorest and least able to pay it.

 

[SecondCor521]

Aaron and SecondCor, what kind of agreement was made between the ICs and the state/federal exchanges in order to allow the ICs to offer and sell policies even though the insureds would not necessarily be paying the full premium amount? Might the risk (of nonpayment of the APTCs) be taken by the ICs and not the insureds?

I can see, from actual experience, when the insured (and perhaps the exchange itself) has not done everything proper to secure the full APTC, so the insured has to pay the full amount for a few months (or longer) until that gets sorted out; then it all gets resolved at tax time. But here, the insured has done everything properly to secure the full APTC. It would seem pretty perverse to have the insured on the hook for paying the APTC because those who would owe the most would theoretically be the poorest and least able to pay it.

The agreement is largely outlined by the PPACA, as adjusted over the years. The broad outlines were that "everyone" "had to" buy health insurance, the ICs have to provide policies which meet certain requirements, the ICs rates would be regulated to some degree by the exchanges, the insureds "had to" buy policies through the marketplace, and the government would provide subsidies on a sliding income scale.

Whether and to what degree the ICs evaluated the risk of non-payment of premiums due to the debt ceiling is unclear to me. My guess would be that some may have given it some thought, any that did probably thought it would be a small, temporary problem.

ICs do, of course, have the option of not participating in the ACA, and they have some freedom in terms of plans and pricing. They also can adjust from year to year. My state has been relatively stable AFAICT - same insurers, similar plans, similar pricing, similar market shares. I think we actually had a new insurance company join our marketplace for 2023.

I'm fairly sure that if the premium isn't paid via some combination of subsidies and by the insured, that the coverage will cease. If it happened en masse and over time, then I could imagine some ICs going bankrupt. But this would just be one rather small effect of the debt ceiling situation. Other effects would be far larger and more consequential.

To get this subthread back on topic, my plans regarding my ACA coverage are to do nothing based on this time being no different. (I still haven't received any messages saying what's different this time - I'm still interested.) Virtually all of my premium is paid via APTC. If we go over the waterfall then I, like everyone else, will watch and adjust as needed.

 

[Popeye]

Pre-ACA, 30-day grace periods were the norm. But the text of the ACA includes a requirement (see Section 1412(c)(2)(B)(iv)(II)) that insurers offer a 90-day grace period if a person is receiving premium tax credits.

https://www.verywellhealth.com/lost-my-health-insurance-1738466

I’m sure this contemplated lack of payment by the insured not the govt, but I doubt the ICs would want to challenge this. In any case I can’t imagine this dragging out for three months.

 

[copyright1997reloaded]

OP here. I’m one of them. I have consistently stuck with my AA thru thick and thin. But if I was one of the epidemiologists at CDC who knew how bad the Coronavirus pandemic had a good chance of becoming in Feb of 2020 before the markets tanked, I would have considered moving a substantial portion of my portfolio to cash in anticipation of a probable buying opportunity. The impending deadline has some of those features. Thus the question of strategy. Stick with your AA is a good one. I'm going to speculate this time and already put some equities into the game. Now I have to decide whether to add more and when and how I will buy back in. That’s the hard part.

"Some" of the risk is baked, i.e. people know of the upcoming (but nebulous) date and some have already sold (i.e. reflected in price). Same for bond prices (even more obvious looking at the June maturities).

So the question becomes "How much" is baked in. That's the game. If on Monday morning an agreement had been reached, would you expect the June/July maturity yields to fall (for sure they would). What about equity prices - we might have a rally (at least short term) on the news.

What if the agreement was to punt until September budgeting time? What would that do both to immediate (June treasuries), to equities. What about October issues.

In the meantime, there are teams of people around the financial district(s) gaming this out...in much more depth than we are and with much more sophisticated models....and likely most of them will be wrong.

 

[Montecfo]

I'm interested in knowing more about this. When will you do this and how big of a bet will you make?

I would do it yesterday.

I do like the strategy. I think we are poised for a decline either way.

But beware the relief rally when I deal is struck!

 

[SecondCor521]

But beware the relief rally when I deal is struck!

It would seem that a relief rally would be hard to buy back into fast enough. I suppose an alternate strategy would be to assume that any relief rally is a sucker's rally and buy back in on the second dip. I have no idea of how anyone might tell what was about to happen though.

I'm going to channel Mr. Morgan again and say that it will fluctuate.

 

[jebmke]

I would do it yesterday.

I do like the strategy. I think we are poised for a decline either way.

But beware the relief rally when I deal is struck!

heh; I'm reminded by something i overheard one of my young controllers saying to another at lunch one day. "The nice thing about stocks (meaning, not options) is that the most you can lose is all your money."

 

[arcyallen]

OP here. I’m one of them. I have consistently stuck with my AA thru thick and thin. But if I was one of the epidemiologists at CDC who knew how bad the Coronavirus pandemic had a good chance of becoming in Feb of 2020 before the markets tanked, I would have considered moving a substantial portion of my portfolio to cash in anticipation of a probable buying opportunity. The impending deadline has some of those features. Thus the question of strategy. Stick with your AA is a good one. I'm going to speculate this time and already put some equities into the game. Now I have to decide whether to add more and when and how I will buy back in. That’s the hard part.

This analogy proves an EXCELLENT point, but not the point I think you're trying to make. The market bottomed in March 2020, when Covid was in its infancy. It was super duper doom and gloom. Never mind businesses - whole COUNTRIES were shutting down! Most people were NOT buying, and if you reflect back on your personal attitude back then when the market was plummeting 1000+ points a day, I think you'll find "buying opportunity" was very likely not the message you were thinking. That's the catch with finding true buying opportunities in dire situations - they rarely feel like buying opportunities. If anything, I was trying to talk very "smart" people off the selling cliff. But most sold anyway.

For the record at that time I sold some of my mutual funds and bought BRK thinking Buffet would have a buying spree during that time. How could he not, right? But I was wrong. It wasn't a horrible reallocation, but not one that was very beneficial, either.

 

[donheff]

This analogy proves an EXCELLENT point, but not the point I think you're trying to make.

It does make the point. In fact, I moved a bit of funds into equities when prices were depressed in 2020 but I didn't pick the bottom and I didn't have much powder dry. If I had actually moved a bunch of equities to cash in anticipation of that drop I would have done well but I still would have missed the bottom. If this one materializes it will be just as hard to catch the bottom. Things could turn around in a heart beat. Or we could reach an agreement at tomorrow's meeting and the "opportunity" could turn into a routine nothing burger or a bit of a loss.

Claims of "it's different this time" are always suspect.

 

[Fermion]

I would do it yesterday.

I do like the strategy. I think we are poised for a decline either way.

But beware the relief rally when I deal is struck!

I did this during COVID, could have made millions but I sold them two weeks too early. Timing puts is a roulette wheel play.

 

[tulak]

I did this during COVID, could have made millions but I sold them two weeks too early. Timing puts is a roulette wheel play.

Same, except I sold them too late. And I didn’t have enough for millions, but a sizable six figures.

So yeah, timing puts is not easy.

 

[Fermion]

Same, except I sold them too late. And I didn’t have enough for millions, but a sizable six figures.

So yeah, timing puts is not easy.

I didn't have that much money in them, maybe $30,000. My purchase timing was near perfect but I sold them for a $10,000 gain or so (would have go go back and look up exactly what it was). Two weeks later the ones I had were selling for $1,400,000.