Bob’s Journal for 12/7

Treasury Bonds and Federal Debt: A 20-Year Warning

The financial markets can’t sustain more than 20 years of the currently projected deficits and interest rates, according to the Penn-Wharton Budget Model from the University of Pennsylvania’s Wharton School.

The model is used to estimate what the effects might be on the federal fiscal picture of various changes in federal budgets and the economy. While the staff uses the model to do projections and issue reports, members of the public can go to the website and create their own scenarios.

In a recent study, the PWBM staff estimated that U.S. debt held by the public can’t exceed about 200% of gross domestic product (GDP). After that, the situation won’t be sustainable, and the federal government will begin defaulting on the debt.

The defaults can be explicit, such as failing to pay interest or principal. Implicit defaults are more likely, such as allowing high inflation and a decline in the currency.

The study estimates that under a best-case scenario with today’s optimistic and favorable market conditions, the government has about 20 years to implement a combination of spending reductions and tax increases.

A caveat is that current market conditions allow high deficits because investors assume the government will take appropriate actions in time to avoid serious problems. They’re not worried about what the situation might be in 20 years.

If a significant number of investors doubt corrective actions will be taken in time, the study says, the time available to take corrective action would be shorter than 20 years.

Protect Against ‘Ghost Hacking’

A relatively new way cyberthieves profit is by taking over the identities of the deceased, an act known as ghosting or ghost hacking.

Incidents of ghost hacking are increasing rapidly. There are many variations, but the main approach used by the crooks is to search for news that someone passed away recently, such as through online memorials and death notices.

Then, they try to hack into and take over someone’s social media accounts, email accounts and the like. This often is easy to do after someone has passed away, because no one is monitoring the accounts and looking for suspicious activity.

Once into the accounts, the thieves have many options. They can send spam, scams, malicious messages and malware to friends and family of the deceased.

The thieves also might obtain enough personal information about the deceased to hack into more valuable accounts, such as financial accounts, or to steal the identity and take out credit cards, loans and the like in the deceased’s name.

It is important to include digital assets in your estate planning, as I detail in the December 2023 issue of Retirement Watch. Also, be sure someone is looking after the digital assets of recently deceased family members and friends.

On your own accounts, use strong passwords. The best defense is to require two-factor authentication before entry. This means that after you enter the username and password, the account sends a code to your cell phone or email that you must enter before being allowed access to the account.

Facebook has a process for putting an account in memorial status after someone dies so that changes can’t be made. Google allows you to appoint someone to handle your accounts after you pass away.

Bitcoin’s Surging Again

Bitcoin (BTC) enjoyed a good year in 2023, surging above $43,000 this week. But it still hasn’t been one of the digital currency’s best years, and BTC remains well below its all-time highs.

BTC started 2023 at around $16,600, down about 70% over 12 months. It almost reached $25,000 by mid-February before falling back to just above $20,000 in mid-March and then surging above $25,000 by March 20.

The digital currency traded between $25,000 and $30,000 for months before starting a late-year rally.

BTC’s move above $43,000 this week is its highest price since April 2022. It’s up more than 170% over 12 months.

But the digital currency has had much better runs. In early 2021, BTC was about 10 times higher than 12 months earlier. In late 2017, the 12-month gain was over 2,000%, according to Bespoke Investment Group.

The average 12-month change since the start of 2017 is about 180%.

So, 2023’s rally in BTC is only average for the digital currency. Even worse for those who buy only after BTC is in the headlines, the all-time high of about $65,000 was reached in November 2021, and the previous high was about $60,000 in April 2021. Those who bought near the top still are in the red.

The Data

Personal income increased by 0.2% in October, following a 0.4% rise in September. The October increase was the lowest in four months. Income from assets increased at a 0.8% rate while income from employment gained only 0.2% in October.

Personal spending increased 0.2% in October after rising 0.7% in September. October’s rise was the lowest in five months. Spending on services increased, while spending on goods declined.

The Personal Consumption Expenditure (PCE) Price Index was unchanged in October, following a 0.4% increase in September. Over 12 months, the PCE Price Index was up 3.0% through October after rising 3.4% through September.

The core PCE Price Index, which excludes food and energy from the PCE Price Index and is the Fed’s preferred measure of inflation, increased 0.2% in October. It increased 0.3% in September.

Over 12 months, the core PCE Price Index rose 3.5% through October after rising 3.7% through September.

The ISM Manufacturing Index was 46.7 in November, the same level as in October.

The ISM Services Index improved to 52.7 in November from 51.8 in October.

The PMI Manufacturing Index fell to 49.4 in November, the lowest level in three months, from 50 in October.

The PMI Services Index for November rose to 50.8 from 50.6 in October.

The PMI Composite Index for the economy remained unchanged in November at 50.7.

Nonfarm productivity increased at an annualized rate of 5.2% in the third quarter. That’s up from 3.6% in the second quarter and is the highest productivity increase since the third quarter of 2020.

The higher productivity caused unit labor costs to decline by 1.2% in the third quarter, which follows a 2.6% increase in the second quarter.

Factory orders dropped 3.6% in October, the biggest decrease since April 2020, following a 2.3% increase in September.

Transportation orders were a major factor in the decline. After excluding transportation orders, factory orders declined 1.2% in October, which is the largest decline for that measure since December 2022.

Pending home sales were down 1.5% in October following a 1.0% increase in September.

Over 12 months, pending home sales were down 8.5% through October after falling 11.2% through September.

The private sector created 103,000 new jobs in November, according to the ADP Employment Report. That’s down from 106,000 in October.

ADP reported the pay of those who stayed in their jobs increased 5.6%, the lowest increase since September 2021. Those who changed jobs saw their pay increase by 8.3%, the lowest since June 2021.

The number of job openings in the economy decreased by 617,000 to 8.733 million in October, according to the JOLTS (Job Openings and Labor Turnover Survey) report.

That’s the lowest number of job openings since March 2021.

The number of people quitting jobs also declined in October. After rising the last few months, the number of quits is moving back toward the two-and-a-half year low reached in July.

New unemployment claims increased by 7,000 to 218,000 in the latest week. Continuing claims, which lag a week behind new claims, increased to 1.927 million from 1.841 million. The latest number is the highest since November 2021.

The Markets

The S&P 500 rose 0.37% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.20%. The Russell 2000 increased 3.57%. The All-Country World Index (excluding U.S. stocks) fell 0.41%. Emerging market equities lost 1.69%.

Long-term treasuries gained 3.74% for the week. Investment-grade bonds increased 1.83%. Treasury Inflation-Protected Securities (TIPS) added 0.85%. High-yield bonds gained 1.03%.

On the currency front, the U.S. dollar rose 1.34%.

Energy-based commodities lost 3.26%. Broader-based commodities fell 2.59%, while gold declined 1.09%.

Bob’s News & Updates

My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here. You can be among the first to write a review.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

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A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.