Asset Allocation

Behind the Numbers, with David Kelly

In his latest market bulletin, issued on September 8, JPMorgan Funds’ chief market strategist takes a look at the investment implications of the federal debt noting most drastically that “interest costs on the debt over the next few years rise very sharply, and by 2019, these annual interest costs reach $774 billion, accounting on their own for almost the entire annual deficit.” From his analysis Kelly draws three conclusions: “First, beware of Treasuries–an economic recovery combined with burgeoning federal debt could push 10-year Treasury yields above 6%, eating into total returns on short-term maturities and generating actual losses on longer-term bonds. Second, recognize the risk of higher taxes…and take advantage of tax-aware strategies. Third, build a bigger nest egg. Any attempt to deal with the deficit will likely involve higher taxes on the rich or lower spending on the elderly, because this is where it is easiest to raise revenue and slow spending.”