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MOODY'S LOWERS U.S. DEBT OUTLOOK | CROUCH CONNECTION| NOVEMBER 2023 "ADV"



MOODY’S LOWERS U.S. DEBT OUTLOOK


From the New York Times:


“The outlook on the credit rating of the United States was changed to “negative” from “stable” on Friday by the ratings firm Moody’s, which pointed to the nation’s worsening fiscal position and political polarization as long-term concerns for America’s economy.


The change falls short of a downgrade to America’s credit rating, which Moody’s maintained at the highest AAA level. But it is another black mark for the economy and underscores the threat posed by rising interest rates, a mounting debt burden and a polarized Congress that has been unable to agree on ways to reduce America’s budget deficit.”


Moody’s statement on the change explains:


“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability,” Moody’s said in a statement. “Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”


HIGHER INTEREST RATES LONG-TERM?


Although economists and market strategists have been warning for many years that government deficits would lead to higher interest rates, the predictions never came true until Covid stimulus spending exploded the deficit to levels we never expected. Over $8 TRILLION in US deficits since 2020 have now spooked the bond market and the investors that have been readily buying US debt for many years, pushing bond yields (long-term interest rates) higher.


I have said in recent conversations that the recent lack of political will to control deficit spending could be a problem. If Congress doesn’t get spending under control, we could see a long-term change in the level of inflation and higher interest rates long-term.


Fed officials have been predicting higher rates for longer for several months now, but they have not been able to explain the real reason for their concern because they are not allowed to criticize Congress. Congress could conceivably take away the Fed’s power, so Fed officials have to be careful not to step on the toes of Congressmen and Senators.


AREN’T HIGHER INTEREST RATES GOOD?


It is natural to react to higher interest rates by welcoming the higher CD rates and bond interest rates, but unless you have significant wealth and a limited life-style, you could easily outlive your money because of the erosion of inflation. If you earn 5% interest on your CDs but inflation is 3%, you have really just made 2% return on your money


We continue to believe that investments in strong companies with the ability to raise prices to offset inflation is one of the best ways to help preserve your spending power from inflation. Earnings growth has been described as the “mother’s milk” of stock market returns, and that is where our focus is at Aspen Grove Asset Management.


Keeping some money in income investments is probably wise as well so that you can be reassured during the inevitable market downturns, but investments in well-diversified, well-researched companies with strong GROWTH prospects has been a time-tested way to beat inflation for many years. Real estate has also been a good hedge against inflation, but

access to your funds when you need them can be an issue.


RECENT MARKET ACTION


Market action during the past three months has been anything but comforting, but November has started of with a surge, in fact a historic surge. We subscribe to a daily newsletter, the Sentiment Trader, produced by some brilliant market statisticians. They track dozens of market statistics and report daily on the historical significance of recent market moves.


Over the past few weeks, they have reported on several statistics that often occur near the bottom of a market correction, raising our hopes that we could still have a year-end rally. Their post on November 6th was extremely promising:


“THE GRANDADDY OF THRUSTS WITH A PERFECT RECORD”


Reporting on a technical indicator called a “Zweig Breadth Thrust” named after the well-respected late analyst and money manager Martin Zweig, they report that the indicator which has just been triggered during the first three days of November, has had a perfect track record since 1950.


While the S&P 500 has never suffered a loss 6-12 months after these thrusts, they cautioned:


“Nothing is infallible in auction markets, and breadth thrusts are no exception, even ones with a long history of real-time success. Still, it's hard to find fault with the thrusts from last week, as they were impressive, persistent, and broad.

Similar behavior has always preceded higher prices across almost all time frames for the S&P 500 and its major sectors. While it's wise to be cautious of "always," this is one of those signals upon which we place a heavy weight, as it has helped many times in recent decades.”


We are very pleased to offer this note of optimism. Call us “cautious bulls” at Aspen Grove Asset Management.

We welcome your calls if you need encouragement, and always give us a call if we can assist is any way.



Sincerely,


Dave Crouch Kim Blackburn Kay O’Connell

Registered Principal Branch Operations Manager Financial Advisor

Financial Advisor



Buffett Quote:

“Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation.”


The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. A credit rating of a security is not a recommendation to buy, sell or hold the security and may be subject to review, revision, suspension, reduction or withdrawal at any time by the assigning Rating Agency. Ratings and insurance do not remove market risk since they do not guarantee the market value of the bond. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.


CDs are insured by the FDIC and offer a fixed rate of return, whereas the return and principal value of investment securities fluctuate with changes in market conditions. CDs are redeemable at par upon death of beneficial holder. FDIC insurance does not protect against market losses due to selling CDs in the secondary market prior to maturity where the proceeds may be more or less than the original purchase price. Real estate investments can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments.


The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.


Raymond James is not affiliated with nor sponsors or endorses any of the aforementioned organizations, publications or individuals.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Aspen Grove Asset Management is not a registered broker/dealer and is independent of Raymond James Financial Services.

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