I’m sure you’ve seen a new car advertisement with the “Buy Now, Pay Later” pitch. Or heard it on the radio during your morning commute, asserts Mike Larson, editor of Safe Money Report.
The idea is you just sign on the dotted line, put no money down, then drive away in a new ride.
Of course, the car isn’t costless. Anyone who puts no money down has to finance the purchase with a bigger loan. They typically need a longer loan term to keep the monthly payments lower. And all of that combines to drive up the total interest paid. In other words, short-sighted buyers ultimately pay a long-term price!
But today, the federal government and corporate America are falling victim to the same come on. They’re focusing only on policies and actions that fuel short-term gains...while ignoring the long-term pain they’ll ultimately mete out.
That, in turn, has created a “Prosper Now, Pay Later!” market environment. It’s one that creates enormous opportunities for you as an investor in the here and now.. but also threatens your wealth with enormous, future risks.
Just look at what President Trump committed our country to spending in the waning days of his administration—and what President Biden followed up with since he took office...
- A late-December COVID-19-related package worth $900 billion
- An early-March COVID-19 relief package worth $1.9 trillion
- A late-March infrastructure proposal worth $2.3 trillion
- A late-April social spending and tax proposal worth $1.8 trillion
All told, we’re talking about almost $7 TRILLION in fiscal stimulus and other proposed tax and spending programs in just five months! It’s virtually unprecedented in our nation’s history. The idea is to buy more growth now—funded by enormous debt issuance—but worry about paying for it—via higher interest costs and reduced financial flexibility—later.
Corporate America is following the same game plan, by the way. Just look at this chart showing US debt issuance 2020. You can see that it wasn’t just US Treasury sales that ballooned last year. Corporate bond issuance exploded as well. So did sales of mortgage-backed and federal agency bonds.
Source: SIFMA
A lot of this borrowed money will find its way into the economy. A significant chunk will also flood into the markets. This will fuel near-term growth in corporate revenue and earnings, and fund rampant asset market speculation by individuals and institutions alike.
I saw this coming last year, which is why I’ve been recommending several funds and ETFs to help my subscribers prosper from it. I’m pleased to report that the results have been great.
But I am NOT losing sight of the long-term costs to all this. Nor should you! The “car” will eventually need to be paid for. And those costs will be much steeper than if our government and our corporations chose the path of fiscal prudence.
Or in terms of strategy, do what you can to rake in now. But be ready for that point in time when you have to take profits and flip to a much more defensive posture. Trust me. It’ll happen down the road.
Safe Money Report focuses on these kinds of stocks, which include names in the consumer staples, food and beverage, retail, and healthcare sectors. Visit Safe Money Report here.
