Latest / Money Matters with Greg / Episode 198: Midterms, a $2 Trillion Deficit, and Your Portfolio

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Episode 198: Midterms, a $2 Trillion Deficit, and Your Portfolio · Money Matters with Greg

• 0:02
  SPEAKER_00: Welcome to Money Matters with Greg, where we dive into the money conversations shaping your life.
• 0:08
  SPEAKER_00: From investments to estate planning, insurance to taxes, we cover it all with a fresh perspective.
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  SPEAKER_00: Join Greg and his guests each week to get inspired and take control of your financial future.
• 0:20
  SPEAKER_00: Let's get started.
• 0:22
  SPEAKER_00: Securities and investment advisory services offered through LPL Financial Registered Investment Advisors.
• 0:27
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• 0:46
  SPEAKER_01: I'm Greg Farrell, CEO and owner of Ferrell Wealth.
• 0:49
  SPEAKER_01: It's a wealth management firm local to Valpredo, Indiana, and working with clients in 25 states nationwide.
• 0:57
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• 1:06
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  SPEAKER_01: It's like sounds like Will Farrell, he's a very funny guy, but he spells his name wrong.
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• 2:21
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• 2:38
  SPEAKER_01: Uh you can again grab anywhere your pod and listen in.
• 2:43
  SPEAKER_01: Today we're gonna talk about the midterms, uh, jump right into it as far as the markets go.
• 2:48
  SPEAKER_01: So um if you want to listen in, kind of get our thoughts, that's what we're doing here today.
• 2:55
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• 3:03
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• 3:25
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• 3:32
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• 3:40
  SPEAKER_01: So let's talk midterms.
• 3:41
  SPEAKER_01: Uh that's what everybody is worried about going into uh the next couple weeks here.
• 3:46
  SPEAKER_01: Uh it is the end of October, uh, but I can't believe it's already flown so fast.
• 3:50
  SPEAKER_01: Uh we are big football fans around here, so it's uh obviously watching our Hoosiers or my Hoosiers uh for sure.
• 3:59
  SPEAKER_01: Uh has been uh entertaining.
• 4:01
  SPEAKER_01: We're going down for homecoming and uh highly recommend anybody who wants to stop by.
• 4:05
  SPEAKER_01: Our tailgate will be on the south side of the stadium, right by 17th in the grass and a tent uh for Minnesota.
• 4:14
  SPEAKER_01: It is a 3:30 game, it is Halloween, so it's gonna be epic.
• 4:18
  SPEAKER_01: Uh, college game day is coming, uh, as well as the broadcast that's on CBS.
• 4:22
  SPEAKER_01: So very excited about that.
• 4:24
  SPEAKER_01: Uh, also our Bears uh seem to be hanging in there.
• 4:28
  SPEAKER_01: Uh sorry to uh mention the passing of Coach Mike Dicka.
• 4:33
  SPEAKER_01: Uh it was very sad, but that's definitely gonna be a Halloween um costume for the ages in and around Chicago, as we only live 50 miles from this from the city.
• 4:44
  SPEAKER_01: Um that's enough for that.
• 4:46
  SPEAKER_01: I want to get to midterms as far as the elections.
• 4:49
  SPEAKER_01: So as the midterm election unfolds, and really investors need to keep a close eye on this outcome uh due to the implications for congressional control.
• 5:03
  SPEAKER_01: Um, you know, so you're as an investor, you're trying to figure this out.
• 5:06
  SPEAKER_01: Like how does this work?
• 5:08
  SPEAKER_01: Um, you know, what happens if?
• 5:11
  SPEAKER_01: Uh and uh certainly uh if the Democrats do get the House uh like is estimated, uh how is that going to change your investment strategy, if at all?
• 5:24
  SPEAKER_01: So current foregas suggest that a divided government is the most likely scenario since Republicans hold a slim majority in both the House and the Senate.
• 5:36
  SPEAKER_01: And although a shift really in party control would certainly represent a change from the past two years, these situations are common and tend to occur during midterm election cycles.
• 5:49
  SPEAKER_01: So while election outcomes are never certain, one thing that is clear is that the federal budget deficit grew to just under$2 trillion over the past year.
• 6:03
  SPEAKER_01: So we talked money on this show, and that's why I bring it up.
• 6:06
  SPEAKER_01: Um, and$2 trillion is a lot of money.
• 6:11
  SPEAKER_01: It's also the highest level in absolute terms since 2021 um after COVID.
• 6:20
  SPEAKER_01: So we talked debt on this show and your household debt.
• 6:25
  SPEAKER_01: Well, right now, um government debt's at an all-time high.
• 6:30
  SPEAKER_01: So this means that the government spent significantly more than it received in revenues.
• 6:38
  SPEAKER_01: And this is likely to remain the case regardless of which party controls Congress next year, since challenges such as rising interest rates and interest rate costs uh and entitlement spending both have been building for decades.
• 6:56
  SPEAKER_01: This is not a one-party conversation.
• 7:01
  SPEAKER_01: This adds to the national debt, which has risen past uh uh 40 trillion of over 120 percent of the size of the economy.
• 7:14
  SPEAKER_01: So um this is I mean, these are huge numbers and they're nothing to ignore.
• 7:23
  SPEAKER_01: So for investors to really follow these, you know, investors who follow these headlines, uh it may be natural to feel concerned regardless of your political views.
• 7:36
  SPEAKER_01: This is why it's important to maintain a long-term perspective that really separates the political issues from the investment side and the financial planning ones.
• 7:46
  SPEAKER_01: So what do investors need to know about the deficit and the election this political season?
• 7:53
  SPEAKER_01: So the federal deficit, the federal budget deficit, it definitely has grown.
• 7:59
  SPEAKER_01: Um, before discussing the impact of government spending on financial markets, uh let's go over the numbers first.
• 8:08
  SPEAKER_01: So the federal government recorded a 1.99 trillion deficit for the fiscal year that ended September 30th, 2026.
• 8:17
  SPEAKER_01: Now, I don't know about you and your home uh budget, but uh I know we're not allowed to run out of deficit, but uh federal government is, so it is what it is.
• 8:27
  SPEAKER_01: Um and unfortunately, um we spend too much money as a government.
• 8:32
  SPEAKER_01: But this represents this number, this 1.99 trillion, represents an increase of 12% from the$1.78 trillion the prior year.
• 8:43
  SPEAKER_01: And this is because the government spent$7.4 trillion, but only collected$5.4 trillion in revenue via taxes, tariffs, and other means.
• 8:54
  SPEAKER_01: Now, the difference is made up with borrowing through the issuance of Treasury securities, which is printing money, which none of us are allowed to do, but the government is.
• 9:07
  SPEAKER_01: So, which these are bought by investors and institutions from from around the world.
• 9:12
  SPEAKER_01: Now, based on current gross domestic product or GDP figures, the latest deficit is likely to be around 6% of GDP.
• 9:23
  SPEAKER_01: And that's similar to the ratio it was in 2025.
• 9:28
  SPEAKER_01: So the deficits in recent years have been high relative to history.
• 9:35
  SPEAKER_01: The budget deficit has averaged 4% of GDP for nearly a century, and periods of financial and um global disruption have led to these wider gaps, such as during World War II and the 2008 global financial crisis, uh, for sure.
• 9:53
  SPEAKER_01: So deficits tend to normalize after these events, for sure.
• 10:01
  SPEAKER_01: But there are a few periods when the government has operated with a start with a surplus.
• 10:09
  SPEAKER_01: And the last time the budget was balanced was during the Clinton administration, after the strong decade of economic growth that we had.
• 10:18
  SPEAKER_01: And before that, um during the Johnson and Eisenhower administrations in the late 60s and the mid-50s.
• 10:29
  SPEAKER_01: So it is possible, um, but not lately.
• 10:34
  SPEAKER_01: And over time, these annual deficits really add to the national total national debt, which surpassed$40 trillion for the first time in August.
• 10:44
  SPEAKER_01: And according to Congressional Joint Economic Committee, this represents about$117,707 per American or$298,606,000 per household.
• 11:00
  SPEAKER_01: So congratulations.
• 11:22
  SPEAKER_01: Almost$300,000 per household.
• 11:36
  SPEAKER_01: So the reality is that adjusting portfolios based on these issues would historically worked against any financial goals.
• 11:49
  SPEAKER_01: Um this is because deficits are the largest during times of economic and financial distress, uh, which tend to be when markets are near their lows.
• 12:00
  SPEAKER_01: So counterintuitively, these would have been the best times to invest.
• 12:08
  SPEAKER_01: So budget deadlines, the debt ceiling, and interest rates could be certainly in the news.
• 12:16
  SPEAKER_01: And that said, that there are there are really two implications that long-term investments should be aware of.
• 12:23
  SPEAKER_01: So, first, the national debt is approaching a statutory debt ceiling of$41.1 trillion, set by the One Big Beautiful Bill Act from last year, which could be reached by mid-2027.
• 12:41
  SPEAKER_01: Now, the federal government's deadline for this new budget is December 11th, not long after the midterm election.
• 12:50
  SPEAKER_01: So raising the debt ceiling will likely be one of the key debates, as we get it all the time.
• 12:55
  SPEAKER_01: Um market doesn't like the conversation, but that is what it is.
• 12:59
  SPEAKER_01: They do it, you know, they just raise it.
• 13:01
  SPEAKER_01: They have to.
• 13:02
  SPEAKER_01: So raising the debt ceiling will likely be one of the key debates for sure.
• 13:07
  SPEAKER_01: And if the decision is not made in time, there could be a government shutdown.
• 13:11
  SPEAKER_01: So we'll see about that.
• 13:12
  SPEAKER_01: That's happened in the history books as well.
• 13:15
  SPEAKER_01: But while shutdowns can result in hardship for federal workers and cause short-term market swings for sure, major indices really sort of tend to stabilize and look past these issues pretty quickly.
• 13:32
  SPEAKER_01: So this is the case.
• 13:34
  SPEAKER_01: Um, even during historically long shutdowns, such as 2018 and more recently 2025, the historical government shutdowns and steady rise in the stock market has happened over these periods.
• 13:52
  SPEAKER_01: And of course, this is you know, the past is no guarantee of the future, but this does highlight the importance of not overreacting to political news when it comes to investing.
• 14:04
  SPEAKER_01: So the second point is rising interest rates are compounding the government's fiscal challenges for sure.
• 14:10
  SPEAKER_01: Uh the 30-year treasury yield, this is why Trump wants interest rates to go down, but I mean just the Fed just raised.
• 14:18
  SPEAKER_01: And the 30-year treasury yield has remained about 5% since June, while the 10-year yield is still hovering near, you know, the same level that it's been.
• 14:30
  SPEAKER_01: This really matters because as existing government debt matures, it must be refinanced at a higher rate, which increases interest payments and worsens the budget imbalance that you see.
• 14:47
  SPEAKER_01: So this is one reason the Treasury Department has really intervened by buying more Treasury securities to help stabilize stabilize U.S.
• 14:56
  SPEAKER_01: interest rates, but has even engaged in other operations such as supporting the Japanese yen and to indirectly stabilize rates.
• 15:08
  SPEAKER_01: So the other thing that we have to think about going into the midterms is the policy uncertainty can lead to short-term volatility, um, for sure.
• 15:20
  SPEAKER_01: So the national debt is uh you know is a long-term challenge that there's no simple solution.
• 15:30
  SPEAKER_01: Since it involves decisions around taxes, entitlement programs, spending priorities, all of these are political, you know, uh uh footballs, for sure, that are being juggled.
• 15:43
  SPEAKER_01: Um, and at the same time, predictions when it comes to policies have not always been accurate, for sure.
• 15:50
  SPEAKER_01: But especially during times of strong economic growth.
• 15:56
  SPEAKER_01: So, for example, the market decline that followed last year's tariff announcements was shorter than many expected and gave way to a rebound that brought the major industry to all-time highs.
• 16:06
  SPEAKER_01: So, this is why it's important as an investor to stay level-headed uh when it comes to political topics.
• 16:13
  SPEAKER_01: And you know, we we try to always talk about what's the data say, what's forget the noise, you know, don't listen to the noise.
• 16:23
  SPEAKER_01: Um what is the data telling us?
• 16:27
  SPEAKER_01: What do earnings look like?
• 16:29
  SPEAKER_01: Um, and how are the results coming about as far as earnings goes?
• 16:34
  SPEAKER_01: And that's really, really important.
• 16:36
  SPEAKER_01: So again, as an investor, you really try to try to limit the noise as much as possible.
• 16:43
  SPEAKER_01: And you can see that economics policy uncertainty has been a contributor to short-term market swings in recent years.
• 16:54
  SPEAKER_01: But these periods really have they tend to be short-lived.
• 16:59
  SPEAKER_01: And prior episodes, including this year's geopolitical conflict in the in the mid in the Middle East, Iranian war, has really created volatility as investors tried to really measure the impact on the economy and corporate profits, price of oil.
• 17:14
  SPEAKER_01: While oil prices are still elevated, markets have performed really well uh due to the healthy economic trends that are really, really good.
• 17:23
  SPEAKER_01: Um none of this is to say that every year is positive.
• 17:28
  SPEAKER_01: Uh, the national debt is is not a challenge, uh, or that policy is uh is certainly irrelevant.
• 17:38
  SPEAKER_01: Instead, the point is that underlying factors such as corporate earnings, interest rates, and longer-term economic trends tend to be the primary drivers of market performance over the over time.
• 17:50
  SPEAKER_01: So for investors, it's more important to make sound investment decisions based on these longer-term trends rather than on political headlines or which party controls Congress.
• 18:05
  SPEAKER_01: So focus on the trends.
• 18:08
  SPEAKER_01: We always talk about that.
• 18:09
  SPEAKER_01: Focus on the trends, do your homework, sharpen your pencils, get ready for opportunity.
• 18:18
  SPEAKER_01: Whatever the results are, there will be volatility on both sides.
• 18:23
  SPEAKER_01: Um, but the bottom line is that the midterm election and the growing federal deficit are really important topics.
• 18:31
  SPEAKER_01: But history shows that long-term portfolio outcomes are driven by fundamentals rather than by political outcomes.
• 18:40
  SPEAKER_01: So that being said, that's my take on the midterms and uh how to stay calm and invest wisely.
• 18:49
  SPEAKER_01: Um, here on this show, Money Matters with Greg, I'm Greg Farrell, CEO and owner of Ferrell Wealth.
• 18:54
  SPEAKER_01: It's a wealth management firm here locally in Valparaiso, Indiana, and uh serving clients in states all over.
• 19:01
  SPEAKER_01: We have an office down in Tampa, Florida.
• 19:04
  SPEAKER_01: Um, so if you are a snowbird coming up here, uh we'd love to hear from you for sure.
• 19:09
  SPEAKER_01: If you have any questions, we always love to hear from everybody, um, certainly on DMs and um all the socials Facebook, LinkedIn, X, um, and Instagram.
• 19:20
  SPEAKER_01: You can find us uh at Farowealth.
• 19:23
  SPEAKER_01: If you have any questions, email me, Greg at Farrowwealth.com.
• 19:27
  SPEAKER_01: And uh we'll try to uh answer answer your questions in the next show or if not beyond for sure.
• 19:35
  SPEAKER_01: We get uh a number of questions uh throughout.
• 19:38
  SPEAKER_01: And we're also broadcasting on WVLP FM, 103.1 FM.
• 19:43
  SPEAKER_01: Um, and uh thanks to WVOP, it is a great to be a member of the family there.
• 19:48
  SPEAKER_01: Uh shows broadcast on Thursdays at one o'clock and Saturdays at nine o'clock on replay.
• 19:55
  SPEAKER_01: And um certainly hope this was helpful to calm some nerves going into the investment, going into the elections uh as far as uh the markets go.
• 20:06
  SPEAKER_01: The market has had a pretty nice return so far, uh without a doubt, uh for the year, although it has retraced in the last few months.
• 20:18
  SPEAKER_01: Um the big drivers in regards to the market, obviously, is what we're talking about today: political, geopolitical, um, and oil.
• 20:30
  SPEAKER_01: Those are the three things we're talking about a lot, and clients are asking about um quite often.
• 20:35
  SPEAKER_01: So I hope this is helpful.
• 20:37
  SPEAKER_01: Again, uh it's Greg Farrell signing off here, Money Master Greg, uh episode 197, I think it is.
• 20:44
  SPEAKER_01: Uh find us anywhere you pod.
• 20:46
  SPEAKER_01: Uh thanks for being here, and uh we I hope you have a healthy and profitable week.
• 20:51
  SPEAKER_01: See you next week.
• 20:54
  SPEAKER_00: Thanks for tuning into Money Matters with Greg.
• 20:57
  SPEAKER_00: We hope you gained some valuable insights today.
• 21:00
  SPEAKER_00: Remember, your financial journey is personal, but you don't have to go it alone.
• 21:04
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• 21:07
  SPEAKER_00: Until next time, here's the making your money work for you.
• 21:11
  SPEAKER_00: Securities and investment advisory services offered through LPL Financial, a registered investment advisor, member FINRA SIPC.