US Stocks or US Bonds, Which Is Riskier?

Every once and awhile someone finds what I used to do for a living and asks me “what do I think of the stock market”. I always reply, I don’t. For years, I had to wonder and plan for what clients thought about regarding the stock market, but for me personally, the last time I really cared what the market was doing was in the late 1980s. In 1987 in one day the stock market declined 23% and then went back up. Once I understood this, I never cared what the stock did on a short-term basis. For my clients yes, me no.

By the way, the reasons from the decline stupidity, greed and fear. Stupidity because the “geniuses” on wall street implemented a new program to protect their assets called programmed trading. They told their clients that programmed trading would protect their assets in a decline because if the market go down they would sell immediately. Turns out if every one sells at the same time and nobody buys, the market goes down really fast. Another name for wall street “genius” is moron.

Greed because many investors, large and small, leveraged their investment by borrowing against their stock holdings to buy more stock. Great if the market goes up, leveraging increases profits, but really bad if the market goes down because then either they have to either come up with cash to pay down or off the loan or the investment is sold at loss.

Fear because some investors once they saw the market going down sold because they thought there were losing money. After the decline in 1987 the market recovered in a few months but investors who lived in fear turned a paper loss into a real one. In this case, the problem was not the market, but the fear of investors.

Every decline after was a combination of the same three reasons. Personally I don’t care what the market does short term because I try not to be stupid, am not greedy and do not live in fear of market volatility.

What I do think about a lot is the US Bond market. The US Bond Market totals about $36 Trillion. Yes, that’s Trillion with a T. About 30% or $8.5 Trillion is owned by other countries, both governments and private investors. By comparison, in1970, about 5% of the total debt was owned by foreigners. That’s a problem. A big problem.

In March of this year the new Canadian Prime Minister visited Great Britain and France to publicly display the countries relationship as very close friends. Reportedly, one of the topics of discussion was selling US Bonds as a response to Trump’s bullying of Canada and other countries. And make no mistake, Canada and other countries now look at the US as a bully, not a friend.

FYI, Canada is the 6th largest foreign holder of US debt behind number one Japan at over $1 Trillion, followed by China, UK, Luxembourg, Cayman Islands respectively. If foreign countries start selling US debt, whose going to buy it and what are the possible consequences? Higher US interest rates, higher inflation and reduced economic growth are a some possibilities. Or all the above plus more is a real possibility.

Again, reportedly, after meeting with several European countries, the Canadian PM and called Trump and explained what would happen if Canada and several other countries begin selling US bonds. I suspect the Canadian PM used small words and easy to understand pictures.

I have read several articles recently that discussed foreign investors replacing US Treasuries with other possibly more secure options. Part of this is related to the turmoil the Trump/Musk Presidency has brought to both the US economy and US stock and bond markets.

On May 16th, Moody’s downgraded US government rating from Aaa to Aa1. Not a bid deal you say. Maybe, maybe not. Bond ratings are based on income, expenses and debt service. In 2025 interest on US debt will be almost $1 Trillion and in 2026 interest is projected to exceed $1 Trillion. By 2025 it is projected interest on the debt will approach $2 Trillion annually. To put it in simple terms, unless we change our ways, we are screwed.

There is one and only one way out of this mess and that is to raise taxes on the very wealthy.

So am I worried about the US stock market. Not really. Am I worried about the US bond market. Very much. My advice going forward, only support National candidates who will raise taxes on the very wealthy in the form of increased income taxes, increased estate taxes and a wealth accumulation tax.