Googins Advisors stands for solid advice that works. There is proof of what works.
June 2021 Newsletter
Dear Clients and Friends:
When I was a little girl, I read and pondered a story about a lady who loved her scissors: she could do many wonderful things with her scissors. Unfortunately, her blanket was wearing out and holes were developing but then she thought…why she could cut those holes out with her scissors, and she did. And she was so disappointed – the holes got larger!
I could not understand that thinking although I smiled at the story and probably felt badly for the lady. But it appears our congressmen, or shall I call them politicians, believe the same possibility as they continue to borrow and increase our country’s debt.
Googins Advisors stands for solid advice that works. There is proof of what works. Although we can enjoy the life stories of people who have taken great risk and done well – Nike, Home Depot, etc. – we only know first-hand about the people who follow and teach us the principles we espouse. I was a big fan of John Templeton, now deceased, and he frequently told people that the best investment they could make was to tithe, in fact, to double tithe. Religion and gratefulness were important to him, and he recommended them and, I believe, lived true to what he said.
What is a story of companies who use little or no debt? Investor’s Daily reports that there are 11 companies in the Index who list no debt in their most recent reports. There are others that report low debt. One client inherited a company many years ago and listened to her father who said, ‘Never sell it.’ That is not always good advice, but it has worked extremely well so far for this stock; the value has climbed and modest sales have been made to purchase additional shares in other companies for diversification. The company has followed the principle of little or no debt over a long lifetime and done well for its stockholders.
While we have always believed your long-term money should largely be in the stock market, we have purchased differing amounts of debt from time to time. Now is not that time as we have seen the government increase our debt, dare I say, exponentially, and keep interest rates very low. One report explains that Biden’s requested budget for next year borrows two-thirds of the money it would spend.
For help in understanding how this can be overcome and not lead to our downfall, we turn to The American Funds who have always provided us and our clients good returns and solid advice. The following information comes from the American Funds.
“4 reasons why U.S. debt may not spin out of control.”
- The nominal interest rate on the debt is less than the nominal growth rate of the economy. (nominal – in name only).
- The U.S. fiscal position is worsening but it is not an outlier. The U.S. debt-to-GDP ratio has risen sharply, but GDP (Growth Domestic Product) is growing faster than the increase in the debt. We are still “solvent.” The relationship of the U.S. to other countries who have an even greater percentage of debt remains strong. The privileged status of the U.S. dollar as the global reserve currency continues to protect us because it is considered to have a low risk of default.
- Governments have various levers to pull. They can raise taxes and/or decrease spending. Raising taxes may decrease economic growth while paying down debt can help offset that in the long run. If the U.S. economy sees higher levels of productivity and innovation, that could boost growth and tax revenues.
- Monetary policy can adopt to changing conditions. The government has kept interest rates low through the sale of government bonds and notes. The government issues the bond which pays low interest and uses the money paid by the buyer to finance the debt. Interest rates remain low due to the fear of the investor to buy elsewhere; he wants the security of the government.
What is our best hope – our best protection? Is it not the market and what happens when new and improved technology and innovation occur…when the market sees and rewards the new and the consistent? An individual must understand the risk that individual, corporate, and government debt lays on each one of us and consider individual action. As the number of people who believe and practice wiser solutions grows, change does occur.
We welcome your calls and questions. Thank you for your business.
Louise Googins, Investment Advisor
Richard Martin, Investment Advisor
Michael Googins, Administrator
Kim Rankin, Accountant
Carson Bieber, Assistant
Brady Peat, UW-Madison Intern
Lukas Hoertdoerfer, UW-Madison Intern