💰 5 Fact Friday: Why Budget Deficits Don't Matter

MARKETS
1. Why Are Mortgage Rates And Bond Yields Up? 🤯

It’s the million-dollar question: Why are mortgage rates and bond yields up after the Fed cut rates? That’s not how it’s supposed to work, right?

When central banks hit the “easy money” button, borrowing typically gets cheaper. But this week, the 10-year Treasury yield shot back above 4.00% (now at 4.10%), and mortgage rates followed, climbing to 6.52%.

Here’s what’s happening: The Fed slashed rates last month to counter what looked like a weakening labor market and cooling inflation.

Then came September’s shocker: the U.S. economy added 254,000 new jobs—blowing past the 150,000 forecast. That’s not a sign of a softening economy.

Suddenly, the narrative flipped. Maybe the labor market isn’t turning over. And if employment stays strong, inflation could linger longer than expected.

But it doesn’t stop there. Rising tensions in the Middle East have pushed oil prices up more than 10% in the past two weeks.

Oil is a key input for nearly every sector—from manufacturing to logistics. When oil prices spike, it raises production costs across the board—worsening inflation even if consumer demand stays steady.

The result? Investors now expect the Fed’s next move to be a 0.25% cut, not another 0.5% “jumbo” cut. This revision in expectations has pushed downstream rates higher.

Remember: The Fed only controls the base rate. It’s the market’s expectations that sets the tone for mortgages, bonds, and everything in between.

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STOCKS
2. Boeing’s $10 Billion Balancing Act ✈️

Boeing is in a financial tailspin.

Quality control issues, delivery delays, and a massive worker strike have already cost the company over $10 billion in cash burn this year. Now, with its credit rating teetering just above “junk” status, Boeing faces a tough choice: raise money through debt or equity to keep the lights on.

Neither option is pretty.

If Boeing takes on more debt, it risks tipping its investment-grade credit rating (currently the lowest level, BBB-) into high-yield or “junk” territory. And that’s a big deal.

Investment-grade bonds are considered safe, low-risk, and widely held by institutional investors (think pension funds and insurance companies).

Once a company falls into junk status, it’s seen as a much riskier bet, and many large investors are required to sell. This not only dries up liquidity, but also makes future borrowing vastly more expensive.

Boeing has a lot of debt already—$60 billion, to be exact. So falling into junk would add billions in extra interest expenses, making it even harder to climb out of the hole.

But selling equity isn’t much better. Boeing’s stock is down 42% this year and 66% from its all-time high in 2019.

Issuing new shares at these prices would be selling low, and for shareholders, it’s adding insult to injury. It’s like slicing up a shrinking pie—existing investors get stuck with an even smaller piece, diluting their ownership and likely driving the stock price down further.

To keep its investment-grade status, Boeing needs to limit how much debt it takes on, making equity raises (or some hybrid instruments) almost inevitable.

Analysts estimate the company needs $10 to $15 billion in new capital just to stay afloat and cover its 2025 debt maturities. But with every month of the machinist strike costing Boeing about $1 billion, its balance sheet gets shakier by the day.

Bottom line: Boeing’s too deeply rooted in the aerospace world to fade away, but that doesn’t make it a safe bet. Trying to time a turnaround here is risky—sometimes a beaten-down stock is just a bad stock.

Community Check-In 💬

Let’s tap into the wisdom of our community! Over the next few weeks, I’ll be gathering your thoughts on the markets and where things might be headed.

Please tap your answer below! 👇

ECONOMY
3. Stop Blaming Deficits, Start Blaming Policy 💵

The U.S. government’s fiscal year wrapped up on September 30th, and according to the Congressional Budget Office, the budget deficit ended at a staggering $1.8 trillion—or about $12,000 per taxpayer.

While that number is alarming, it often gets more air time than it deserves. Why? Because the dollar figure itself doesn’t tell the whole story.

Companies, people, and yes—the U.S. government—all take on debt for the same reason: to boost returns.

Companies borrow cheaply to fund stock buybacks, lifting their share prices. Homebuyers take out mortgages to secure their dream homes and build wealth over time. And the government? It borrows to drive progress, spark innovation, and pump up GDP growth.

So when you hear about a $1.8 trillion deficit, don't clutch your pearls just yet. Think of it like a person taking on $12,000 in debt.

Is that bad? Well, to a corporate lawyer pulling in $250,000 a year, it's manageable. But for a family of four living on $50,000, it's a disaster.

The key isn’t the debt itself—it’s the debt relative to income, or really, the debt-to-future income.

Assuming our total debt keeps ballooning, there are only three ways out:

1. Hyperinflation to make the debt easier to pay back (not good for your wealth)

2. Aggressive taxation to balance the budget and pay down debt (not good for progress)

3. Growth—where economic expansion outpaces rising debt

Clearly, we’re banking on option 3.

So, ignore the election season finger pointing about who or what is adding to the deficit. The real question is: Are we getting value for money? Is our new debt increasing future income?

Not all deficits are created equal. If a given deficit is fueling long-term growth, it's not just acceptable—it's smart investing.

Picture this: Government A earns $1 trillion in taxes but spends $2 trillion to create a multi-layered oversight committee to monitor the spending of… other committees.

Government B spends the same $2 trillion but invests in next-gen infrastructure and education.

Both run a $1 trillion deficit, but which government sets the stage for growth?

Government B. Their investment leads to a booming economy, more jobs, happier citizens, and, wait for it—higher future tax revenues.

Bottom line: Deficits aren’t the enemy. Wasteful spending is. If the money fuels innovation and growth, deficits can pay for themselves. But if we’re piling on debt with nothing to show for it, that’s just digging a deeper hole.

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INVESTING
4. How To Buffer Your Portfolio 🛡️

Buffer ETFs go by many names: buffer, collar, risk-managed, defined-outcome, or structured outcome ETFs. Despite the variety, they all share the same goal: sacrificing some upside potential to shield against a percentage of market losses.

These ETFs have exploded in popularity, growing from just 73 funds with $4.6 billion in assets in 2020 to 327 funds managing $54.8 billion as of August 2024.

Pros

• Downside Protection: They shield against the first x% of market losses (depending on the specific ETF).

• More Liquidity: Easier to buy and sell compared to structured products without the ETF wrapper.

Cons

• Limited Gains: Gains are capped—often at low double-digit percentages.

• Not Absolute Protection: Losses beyond the buffer still hurt.

• Higher Fees: Expense ratios typically hover around 0.80%, more than most index ETFs.

Timing Considerations

While you can buy a Buffer ETF at any time, it’s critical to understand the timing. These funds reset annually, so purchasing mid-cycle can result in a diminished buffer and altered caps.

Ideally, investors should buy at the start of the fund’s cycle to maximize its intended protection.

Who’s It For?

Buffer ETFs are aimed at risk-averse investors looking for protection against market drops without abandoning stocks entirely.

They tend to perform well on a risk-adjusted basis but usually lag in total returns. If your focus is on maximizing growth, traditional diversified portfolios are a better bet.

MANIAC PICKS

💼 Google Breakup Buzz: The DOJ is officially considering breaking up Google—the biggest antitrust move in decades. But with the details still vague and the battle expected to drag on for years, Alphabet stock seems unfazed.

🎢 Tesla Trading Rollercoaster: A Canadian carpenter made $300 million trading Tesla options—only to lose it all. Now, he's suing RBC and an accounting firm, claiming they're responsible for his massive losses.

🕵️‍♂️ Bitcoin's Creator Unmasked? A new HBO documentary claims former Bitcoin developer Peter Todd is Satoshi Nakamoto—but Todd denies it, and the crypto community is calling the film's revelations into question.

💰 Billionaire Buys: As the market sprints higher, investing legends like Buffett and Fisher are zeroing in on key bets. Check out the 15 stocks that have captured the most attention from Wall Street’s top investors.

📉 Hidden Cost of Job Changes: Switching jobs may boost your salary but could cost you $300,000 in retirement savings. New research shows how frequent career moves and low 401(k) default rates can undermine your financial future.

STOCKS
5. Guess Today’s Mystery Stock 🕵️‍♂️

Ready to test your stock-picking skills? Here are 5 clues about an entertainment giant that’s looking to regain its magic touch:

1. From princesses to superheroes, this company’s roster is packed with beloved characters. Despite its vast intellectual property, the stock price has been flat for 10 years.

2. Recent hurricanes and operational disruptions have cast a dark cloud over earnings, with analysts estimating up to $200 million in lost revenue.

3. Since the CEO shake-up two years ago, this company’s streaming service hasn’t grown in subscribers—but it has turned profitable.

4. The business is pouring $60 billion into its Parks & Experiences division over the next decade to meet pent-up demand for travel and entertainment.

5. After a string of box office misses, the company currently boasts 2024’s top two films and has two more major releases slated to drop this fall.

Got a guess? Tap here to reveal the answer → 

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