Tom Russo has raised the alarm on the national debt, warned stocks may get squeezed, and explained why Warren Buffett's massive investment inRusso — the managing member of Gardner, Russo & Quinn — told Insider in a recent interview that he's deeply worried about the US government's aggressive borrowing, and its long-term consequences for Americans.unless lawmakers strike an agreement to lift the debt ceiling.
For one, a company's stock is typically valued based on the estimated size of its future cash flows. Those potential profits are worth a lot less when prices are surging today, and higher interest rates have boosted the risk-free return from a 1-year Treasury to almost 5%, Russo said. Higher rates also encourage saving over spending, and raise borrowing costs for consumers and businesses, which tends to dampens spending and investing. Reduced demand usually translates into slimmer corporate profits, and increases the risk of a recession, both of which typically weigh on stocks and other assets.
Source: News Formal (newsformal.com)
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