Advisors Confront the ‘Doritos Economy’ as Shutdown Looms

Advisors Confront the ‘Doritos Economy’ as Shutdown Looms

The U.S. government’s indulgent spending and high debt are topics advisors should discuss with their clients.

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Reviewed by: Ron Day
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Edited by: Mark Nacinovich

The past decade has seen an acceleration of what you could call the “Doritos economy.” A popular commercial for the chip company (tortillas, not semiconductors!) encouraged consumers to “crunch all you want, we’ll make more.” 

Gone are the days when ETF investors could simply research and filter their way through the more than 3,000 offerings that now trade on U.S. markets, allocate their assets and call it a decade. For years, financial advisors have found themselves stuck in a position where simply investing based on their client’s risk tolerance and time horizon may be incomplete.  

Increasingly, they must identify, consider and account for macro-economic issues that either grow into a bubble or blend into the fabric of modern markets. Perhaps chief among these is government borrowing, which now checks in at over $30 trillion. And the increase is accelerating. (At the rate of $100,000 an hour, just $1 trillion would take roughly 1,000 years to pay back.)  

It's no secret to investors and financial advisors that the U.S. government has racked up quite a debt load. Lesser known is whether this a rubber band that is close to breaking after being stretched too far or just a feature (and bug) of the modern U.S. economy. 

Government Funding Deadline Looms 

Government funding runs out on Sept. 30, and the government would shut down the following day if no agreement is reached. (It’s a distinct possibility given strenuous objections to debt among some Republicans in the U.S. House.) After more than a decade of unchecked spending by both parties, Congress is faced with another dilemma: Find ways to reverse course on spending or fight to another last-minute agreement to kick the proverbial can down the road.  

Such is life in the Doritos economy. One Republican congressman was recently quoted as saying, “We may be in the same galaxy, but we’re on different planets” and “It’s a mess right now.”  

Advisors Can Help With ETFs 

Investors who hire investment advisors have made discussing the issues that affect their portfolio a priority. That comes as the threat of the Doritos economy continuing—with debt ascending unchecked—has little in the way of historical precedent. That, in turn, makes the flexibility of ETFs to tackle modern challenges critical in an advisor-client discussion.  

One potentially relevant market segment is infrastructure spending, a big part of the government’s recent funding. Investors may be able to profit from investing in companies that are paid to help upgrade bridges, tunnels, roads, etc.  

Using etf.com’s ETF Screener, I was able to quickly identify 16 infrastructure-focused exchange-traded funds, including the Global X U.S. Infrastructure Development ETF (PAVE), which is the largest in the category with $5.2 billion in assets. In its sixth year, U.S.-focused PAVE is up 20% in 2023. It invests in producers of construction equipment and raw materials, as well as in transport and engineering stocks, and caps individual holdings at a 3% weighting. 

The more global investors perceive the Doritos economy as unsustainable but not sufficiently addressed, the more pressure could build on the U.S. dollar. There are many single currency ETFs, and some investors consider cryptocurrencies such as bitcoin to be currency surrogates.  

Advisors looking to defend client portfolios against a weaker U.S. dollar may consider the long-tenured, largely ignored Invesco DB U.S. Dollar Index Bearish Fund (UDN). It made its debut way back in 2007 and has suffered a 25% cumulative loss since its inception, which explains its $70 million asset level. UDN attempts to simulate a short position in the U.S. Dollar Index (USDX), which is comprised of six currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. 

Crunch all you want, especially now that football season is here. But when it comes to the Doritos economy, advisors can seize the opportunity to offer solutions to clients. They can’t control the path of government spending, but they can profit from it—a dip well worth considering. 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.