Back in mid-2020 shock-jock Dave Portnoy whipped Wall Street into a frenzy when he proclaims that “stocks only go up.” Acolytes of Portony might be forgiven for thinking this is true.
- stocks went up 30% in 2019
- stocks went up 18% more in 2020 (despite the worst recession in 75 years)
- the S&P 500 is up almost 5% YTD so far, in less than two months
- JPMorgan at the end of 2020 said that if EVERYTHING went right stocks MIGHT potentially go up 25% in 2021
- Goldman Sachs predicted that it would take until 2022 for the S&P 500 to rise another 25%
- at the current pace, stocks would melt up 51% by the end of the year
Of course, stocks can’t actually go straight up, at least not for very long.
This brings us to the economic news that could make or break your portfolio in the coming years.
Congressional Budget Office 2021 Through 2031 Economic Forecast
- every three months the CBO puts out a decade long economic and budget forecast
- projections based on legislation passed through January 12th, 2021
- The CBO expects most $1+ trillion deficits this decade, including a total of $12.3 trillion in cumulative deficits over the next 10 years.
- Debt/GDP rising to 107.2% by 2031 up from 100% in 2020
- $35.3 trillion in total debt held by the public
- standard economics teaches that such large deficits will cause long-term interest rates to rise
- short-term ones as well due to high inflation and thus the Fed hiking short-term rates
- average borrowing costs are expected to continue falling through 2025 before rising to 2.4% by 2031
- 0.4% adjusted for inflation, as close to free borrowing for the US Treasury as we’d ever want to see