Ep. 189: The Debt Ceiling - More Knowledge, More Wealth

  📍 Good day. This is Gabriel Shane, certified financial planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance. My goal is to give you the knowledge you need to increase your wealth Now to the listener, you can always reach out to myself or any one of our colleagues here at Falcon Wealth Planning.

Our phone number is eight five five nine six three twenty five. 26. That's 8 5 5 96. Falcon like the bird, or visit our website@falconwealthplanning.com. That's falcon wp.com. For sure. Now I'm the principal of Falcon Wealth Planning. We are a fee only non-commissioned, true fiduciary folks, and we help anything that involves a dollar sign.

Folks, that doesn't matter what's going on in your financial situation, that's where you are today, how retirement looks like. Talk about taxes, investments, is state planning. Insurance folks, you name it. Anything that involves a dollar sign, we would love to help. And we are offering a free financial assessment where we're giving you one to two meetings of our time, one to two hours of our time.

Folks at no cost. Folks, give us a call. We got offices all across, scattered through multiple states, and we are here in southern California with our headquarters. We would love to help you. Our phone number is eight five five nine six three twenty five. 26. That's 8 5 5 96. Falcon like the bird. And feel free, if you have a question you want us to play it on the show, send an email to radio falcon wp.com.

That's radio falcon wp.com. Folks, lots to go over with you today. I'd like to go over just kind of a post that I recently had on Twitter. Talking about the debt ceiling and people are freaking out about it, and I'll let you know what are realistic situations that could happen from the dead ceiling. But at the end of the day, I mean, at the end of the day, I don't wanna say this as, uh, as cavalier or maybe as insensitive as possible, but who cares?

This has happened so many times throughout US history. I mean, this is the 78th time it has happened and where they've increased. The debt ceiling. It's a very normal situation, and quite frankly, when you start looking at some of the data, as I have pulled up over here, when you start taking a look at it, when you look at what happens after a debt ceiling, and normally historically three months prior to a debt ceiling, the US stock market drops about 5%.

Okay, would you look historically? One year later, the market goes up almost 10%. Okay. That's what happened in 2011. When you look in 2013, the debt standoff. Three months prior, the market was up 3%. One year later was up 20%. And this has just consistently been the case. And when you take a look at just in general, what's going on in the markets and when you look since 1976, How many times we've had, that's it.

We've had it in 1976, SE 1977. We had it in September 30th, October 31st, November 30th, we had. Three times. Just in, uh, 1977, we had, again, in 1978, again, in 1979, we had in 81, 82 again in 82, 3 months later, 83, 84 again in 84, just a few days later. And then you have 86, 87, 19 90, 19 95 happened twice, 2013. 2018 happened three times with the longest recorded, uh, for 35 days it lasted.

Okay. Now what does that mean for 35 days? Does that mean that it's taking where they us can't print checks? Does that mean there people are missing social security payments? That's not the case. Now, there are certain things where yes, the federal government does in fact shut down, but does that mean the world truly, or excuse me, the US truly stops And that's just not the case.

You, you have some people furloughed, you have some people unemployed. There's talks at the unemployment rate will go from 3% to 5%. I hope it does. They can finally say we're in a recession at that point, but the point is simple. To think that, that this is the end of everything. This has happened so many times, so to freak out on something like this is not that big of a deal.

Now, I will tell you one thing that does and may get affected depending on how long this were to go on and keep in mind during the Trump administration, it went on for quite some time. It was the longest history over a month. Now, what could happen now? Now, during the July 1st, uh, or excuse me, June 1st, they're looking for the shutdown, which is quite frankly, right around the corner.

Hello, happy Memorial Day. But the idea is, is what will that do? Now, the payments, for example, on US treasuries does stop. Okay? That's why they say will us default. Now, if you have money in US treasuries that are come and due, or you wanna liquidate, that could cause some issues. In addition to that, money markets right now are fantastic rates.

You can get money market rates, four, 4.5% rates, money market, some of these F D I C insured. But with that being said, how are they being able to get you that for, excuse me, four and a half percent. The way they're able to get that is by truly investing your money in other things, cuz you're too scared to do it.

They'll invest it on your behalf. This is some of the issues that happened at Silicon Valley Bank. Might I add, by the way folks, if you're just joining me, you're listening to Gabriel Shaneen, certified financial planner and you're host of more knowledge, more wealthy on every weekend, talking about all important topics of personal finance.

I'm gonna talk to you right now about the consequences of a potential debt, uh, having a debt ceiling graze, and more importantly, The government shut down. Now what I'm, where I'm going with this is financial institutions right now, they're a way they're able to pay four to four and a 5% on your savings account right now is they're taking your money and they're investing the US treasuries that are paying over 5%.

Now, here's the thing. The $1 that you deposit with them, they can lend up to $10. In this case, they can take 10 times your money. So let's do the math here, okay? Because I know what you're thinking. If you have a million dollars and they're paying you the banks 4%. Okay, they're paying you 40,000 a year.

That's pretty good. Now, if they're now getting us treasury at 5%, that's 50,000 a year on your million. So they're netting the banks 10, 10 times, or excuse me, $10,000. But here's the thing, the banks can leverage your money. They're not making just the 10,000. The banks can leverage your money depending on the time.

We'll look at a time like now, 10 times, so your million dollar deposit can be leveraged. Right. How much. 10 times to 10 million at a 5% US Treasury, they can make $500,000 annually based on your million dollar deposit. Holy smokes folks. That is why you're seeing significant pushes for savings accounts and higher rates and why banks are competing.

Some banks are doing three and a half, others raised up to four others, four and a quarter, others four and a half, because they are understanding the concept of needing your money to make more money. Not many people are lending anymore, but they are smart. They can finally earn more than zero point nothing, and they are taking your money and reinvesting it.

This is the issue that could happen with the government shutdown, is those payments will not be made. Because the US Treasury will not be fulfilled. The default will take an effect. Now, default doesn't mean that's it. It's over. It's not like a car that gets repossessed. It's over No more car because you missed your payment.

No, no, no. What that means is it will continue to accumulate and they will pay you out once this agreement is settled. Once they raise the death ceiling, the government's saying they have an allowance. They need a higher allowance, they need to print more money. And so you have to know the impact. Your savings account, your money market account may be impacted where you may not able to get your money out.

And if you do try to get your money out. These money market accounts, money markets specifically, they say they break a dollar. Well, what do you mean? Well, you have a million dollars in there. It's trading at a dollar share. Well, they might give you 99 point $98 a share. Or 98 cents a share, which means you won't have a million dollars, you'll have $990,000, you'll have $980,000.

This is what happened in 2008. So be careful of your money. Understand when do you need your money? How much access do you need? Because it is possible, you may not be able to get access to it folks. If you have any questions with this, if what I'm sound talking like sounds like it may relate to you, if you need some help of where you can put your money, where it can be saved, where it can be secured, understanding your financial institution and where you having your money, making sure they're big, they're strong, they're liquid, and what you're putting your money in is actually truly liquid.

Give us a call. We would love to help. Our phone number is nine six three twenty five twenty six. That's 8 55. 96 Falcon like the bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for sure. Now, I wasn't able to do a show for the past couple weeks, so thank you for bearing with me here.

Uh, I actually had laryngitis. Imagine I wasn't able to talk for five days. Then the infectious spread to my ears. I went. Borderline deaf in one ear, still even waiting for some of the ear to, uh, hearing to come back. It's kind of crazy when you start looking at your specific situation, your specific livelihood, your day-to-day operation, and how just like that it can be affected and not just from a disability and accident, a situation that can disable you, but something as we've all far too known as something as simple as covid, how we've seen people that truly died.

Now it's unfortunate that the government made these crazy. Benefits to hospitals where it's everybody who died. They just said it was through covid related reasons, but there are true people that in actually got seriously affected and some truly that passed away from Covid. Now, COVID is gone. It's over with now.

P uh, flu is back, influenza is back, and now people are pa passing away from that. I'm like, oh, by the way, they always have, could range from 30,000 deaths up to a hundred thousand deaths on an annual basis, legitimately of the flu. The reason I bring this up to you, He's taking a look at your situation and maybe your situation, you're saying, Hey, when I pass, who cares?

But there may be some people dependent on you. This is where you have to start to look at what benefits are available. What is the financial situation like of the people that you care to take care of when you're no longer here. This could be kids, family members, spouses, whoever. Understanding your situation is important.

And so we are offering a free financial assessment truly to help relate this show to your specific situation to answer those questions. And it was a really big kind of situation myself now for myself to really reflect on. Now, luckily for me, I own the company, right? We have a large firm, we have staff over 50 people, we have over a dozen advisors.

We serve multiple states. So it's a blessing on my end, but it really had me focusing. On our clients and making sure that they're protected. Number one, pro disability reasons. Number two, death reasons, and number three, just end of life reasons. I've had more and more situation where sadly people have needed maybe skilled nursing.

People have needed specific care, and it starts as simple. Something as simple as meals and wheels, maybe it goes to just people coming and helping out around the house for chore services. Then it comes to actually people coming out a couple hours to help. Then it comes to true skilled nursing. Then it can come to 24 hour care.

So multiple things can make this effect. And so my point to you is make sure you're properly protected if you need help, that we can reach out. And for us, it's fantastic to get advice from us. Why? Because remember, We are not commission based. So it's fantastic for a firm like ours because insurance is one of the few products that you have to pay the commission to, which is why we don't do insurance at Falcon Wealth Planning because we're not allowed to receive commissions of any time, of any type.

And what I don't like is for you to get advice from the person selling you the insurance that, oh, by the way, only gets paid when you buy. Don't you see that as the problem here? So we're able to help. We'd love to do it. Give us a call. Our phone number is eight five five. 9 6 3 25 26. That's 8 5 5 96.

Falcon like the bird folks who are gonna go on a quick break. We'll be right back after a few 📍 words.

📍 Welcome back folks. This is Gabriel Sheen, certified financial planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance. And today I wanted to go over with you just some updates, just what's going on end of May, right around the corner here.

We wanted to go over what has happened so far this year, and what I'd like to talk about is the lows of October of last year where a lot of people were freaking out. And I was saying, just calm down. I could argue this is a fantastic time to. Bye. And people were completely worried. And I wanna talk about the, since October 13th, 2022, since the lows of last October, the international stock market, that's the international non-US, is up almost 32.

Percent. Okay, now that's actually towards the end of April. And then you have the US stock market that's up almost 18%. Like even bonds that people are freaking out about are up 6%. So can't where I'm going with this. People freak. Out folks, you want to be able to stay diversified and disciplined. This is more times than not when people hire advisors, not only cuz of the value they add, the advice that they give, the tax savings that they offer, the additional services that they provide, but also to keep your emotions in check.

And we see more than times than not, the people freak out. They get emotional. These are the mistakes you make of your personal life is due to emotion. Part of the reason why an attorney, why he doesn't represent himself. In the courtroom, what they do is they repre, they get another attorney to represent them because of the emotional stake, why a surgeon doesn't operate on their child.

You get what I'm saying? It's too emotional. Now I do like to also discuss the potential fed rate hike. Okay. The Fed interest rate, hike. Pause. Okay, so the Fed said they're probably gonna raise rates just one more time before the end of the year. Okay. When you look at the average 12 months following the last interest rate hike, now that's coming up here.

Okay, so 12 months after large value companies, historically speaking since 1994. Has done 27% overall stock market, 24% small caps, 24% large cap growth, about 20% value outperformance growth over long periods of time. It's really those low interest rate environments is where large cap growth does really well.

In addition to that, You have to look at the, uh, international and emerging markets as well that does 13 and 12%. So during these periods of times, it's crucial to make sure you stay diversified and. When you look at just the core of how the performance does, just as a whole, the US over 12 months since 1994 does average 12%.

Just the US in general. High yields actually do well as well. Non-traditional investments does fine municipals, 8% short-term, about seven and a half percent, just in general. They do well now, when you also look at what's going on as money markets, the assets has reached the peak, the historic peak. It there is so much money in there.

Part of the reason is because, yet again, there used to be something called Tina. Now, what does Tina stand for? Tina stands for, there is no other option. Part of the reason in 2000, 2001, a lot of money was going into the stock market. People talked about the, it was the stimulus, but the, in my opinion, the reality was there was no other place to put your money.

So a lot of people are putting it in these proctors and Gambles and Johnson and Johnson and McDonald, and these investments that were paying dividends. And they were putting their monies into apples and the Googles and the Microsofts with growth focused investments that were growing at 10, 20, 30, 40% a year.

There was nothing else to do with your money, but now you can have a secure place to put your money market money in, and that's why we're having historical inflows and asset values in money market right now because you're able to get that four to 4.5% rate. Risk free. If you think about it now, everything has a risk associated with it.

We talked about political risks earlier with potentially the defaulting of the United States treasuries with our government shutdown. So the idea with this is, That the performance on this historically speaking is just not sustainable. The feds have done a great job to build our interest rates to a level where if there is any tariff issues, any political issues, any recessions, anything that happens a war, they're able to now lower rates.

To stimulate the economy, to help the economy so we don't go into a deep recession. So the government has done a fantastic job increasing rates to where they are. You have to give credit where credit is due. Now, I also wanted to go over, when you just look at what is is happening in the s and p 500 right now, when you look at the returns, okay, the average 2023 return.

Okay. Of individual companies in the s and p index. Okay. When you group rank them from the size of the firm, right? Because you got the largest just five companies as what? Apple, Amazon, Microsoft, Google, Facebook, right? So, and they used to call 'em the FANG stock, uh, where Netflix was in there. When you look at the top five companies, it represents 22, over 22% of the overall.

Market. When you look at six to 20, it's 17%, 21 through a hundred, it's just 5%. Then the a hundred to 500 only represents 3% of the returns in the n s and P 500. Why Cuz s and p 500 is market calculated. Unlike the Dow Jones, Dow Jones has 30 companies and it's not. Market calculated, which means it's not the size.

So if the apple represented, which it doesn't, but if it represented 10% of the, because it's such a large company, let's just say it's a 3 trillion company, and let's just say America companies combined are 30 trillion. It's all larger than that. Uh, the apple probably only represents four to 5% of the us but the point is, if that's the case, that means it owns 10%.

It's representing 10%. Now, that's how it is in the s and p 500. You would be invested in that specific example, 10% of just in Apple. Now in this case, a majority of the returns that comes from the s and p 500 just comes from the top 20 companies. Over half of the returns come from just the top 20 companies.

It holds. It's the same thing when it loses too, by the way, folks. What's the point? Stay diversified. Most people out there have these s and p 500 funds and think they're diversified, but really you only have a majority of these top firms that a lot of these firms are companies are tech companies. By the way, folks, if you're just joining me, this is Gabriel Shaneen, certified financial Planner.

You're hosting more knowledge, more wealth here on every weekend, talking about all important topics of personal finance. We are talking today in general about your accounts, your stock market, your portfolio, making sure how markets work, and understanding that what's going on in interest rates, what's going on inside the debt ceiling issue that's popping up that always pops up, um, is making sure you're properly allocated because a majority, yet again, a majority of the.

Returns that come from the market is from these independent stocks. Okay. Now, I also want to discuss with you that when you take a look at your situation and you see how you're diversified, you're probably not as diversified as you think, because as I just discussed earlier, the s and p 500 is market cap weighted.

You're probably having a majority of your investments in tech. Only and the majority of your investments are tech focused because those are some of the largest companies in the world right now, and that's how the s and p works. So please take advantage, especially when I just showed you and just discuss how value companies historically speaking, which I of course means no guarantee, but historically speaking, does very well and outperforms 12 months after the last Fed.

Hike. And so we are looking at that ending soon. So we're there to stop raising rates. So folks, please be careful that and stay diversified. And if you need help with that, folks, we can help. Give us a call. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwealthplanning.com.

That's falcon wp.com. For sure will be held More than happy to put a personal confidential conversation and assessment to relate this show to your situation. Answer the questions that you may have, because what's going right now, going on right now? A lot of people are using the word unprecedented, and it's true.

Everything's always as unprecedented. I mean, we've had so much that's happened. We've had from 2016 from when Trump came in unprecedented times. You've had that since 2018 as well. When the markets dropped 2020. During Covid 2022 with crazy inflation 2023 with local regional banks going out of business.

And now the debt selling that could finally affect you. Why? Because banks, people, so on and so forth has invested so much money in treasuries now. Cause they were earning over 5% guaranteed risk free for three months. And so it would seem like a no-brainer thing to do, where now it could actually be affected.

It could affect your liquidity, so on and so forth. Be careful folks. This is a time where you may just, you don't wanna follow the next shiny thing that somebody's talking about. You have to be able to understand your situation, understand your liquidity, understand your needs, understand your goals, and still understand that the markets are still down.

And when you look historically speaking that, uh, leading up to the last. Fed fund increase in interest rates that the markets are instable and we are there now and we look at the one year after the last fed rate increase. Then the in the stock markets, historically speaking, do very well. I'm not here to predict that the stock markets are guaranteed to go up.

All I know is that that's what the stock market does. Regardless, people are fighters. People are performers, people are survivors. We are going to do whatever's necessary to live, and businesses are the same way because they're ran by humans. Their job is to make money and as long as we believe that you and I are working because of a paycheck, whether we need it or because we want it or want more of it, it's becau because of that logic is why the stock market only goes up.

Because business' goal is to grow. They wouldn't be in the sm, they wouldn't be in the stock market. Their intention wasn't to grow. So keep that in mind folks, and if you need help determining a plan that makes sense for you, a plan that's a liquid, a plan that's safe, a plan that can execute the returns that you're looking for, something that's not trying to sell you false hope of zero risk.

Something that's not there for a false hope. I'm telling you, you're gonna get 20% returns guaranteed. That doesn't 📍 exist in the world. Don't be taken advantage of and be careful as annuity salespeople are really ramping up their sales pitches. Be careful to what's out there and we would love to help folks.

Keep us in mind. We've got offices all over headquartered here in Southern California. We would love to help. And if you have a question, we can play it on the air. Please send it to radio falcon wp.com. That's Radio Falcon. wp.com. Folks, that was a fast, fast show. I want to thank you for tuning in with us this weekend.

You can always reach myself or any one of our colleagues here at Falcon Milk Planning. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon. Like the bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for short. Folks, I would thank you for tuning in. Have a fantastic weekend.

Have a great week and God bless.