When the U.S. Government Stops Being a Going Concern 

I recently requested a copy of my undergraduate diploma so that I could hang it in Sherwood's new Colorado office. As I was centering it in the frame, I noticed that, unlike my original diploma, this one—in addition to having a splash of color on the lettering (fun!)—listed my minor: Managerial Accounting.

Back in the day, I added a minor not because I particularly liked accounting, but because my 22-year-old self thought, "more is more," and I had the classes to make it count. When I finally received my diploma, I was disappointed to note that my minor bonus achievement had gone undocumented, even though I hadn't really understood accounting or its importance at the time. 

Years later, in my Master's program, I took an accounting class that radically changed my view. Accounting is one of the most valuable skills an investor can bring to the table, as it tells the story of an entity.

You may not know this, but the SEC requires every publicly listed company to periodically file a set of financial statements. The reason is to allow the investing public to see what's going on in the company.  

If you remember the Enron scandal that rocked markets, you may think, "What does it matter that companies file statements? They can still do bad things." However, what you may not know is that a team of students actually discovered Enron's duplicity while examining the company's financial statements and published their findings before the scandal broke. The story was there all along. There were simply not enough people looking for it. And of course, the statements likely noted that the company was "a going concern." 

Understanding the “Going Concern” Assumption

When companies publish their financial statements, they often include a list of assumptions—i.e., "in calculating these numbers, we have assumed this..." Accounting is both an art and a science in that way. One of the common assumptions is what's known in the accounting world as "a going concern," which essentially means the investor can assume the company will continue to operate.  

The assumption matters because it guides the story of financial statements. If the company is a "going concern," you can assume it is utilizing its assets to support ongoing operations. The company is likely striving to make money for its shareholders. If a company is not "a going concern," the story shifts. What liabilities exist? How will the assets repay creditors? What can be retrieved from a sinking ship? 

Shutdowns and Market Uncertainty

Recently, politicians voted to end the longest government shutdown in American history. While our goal at Sherwood is to never make political commentary, but rather market and economic analysis, I do think it's interesting to consider recent events in light of "a going concern" assumption.  

Historically, the U.S. government has maintained "a going concern" assumption. I recollect no government shutdowns during my childhood. The last decade, however, has been different, and we find ourselves in this predicament more and more. This matters for a lot of reasons (including the obvious one that shutdowns can be deeply disruptive to individuals and families, but more on that later).  

In the context of what we do here at Sherwood, shutdowns matter because they introduce uncertainty into the story. As we've said in the past, uncertainty begets volatility. When something stops being "a going concern," you have to figure out what it is instead. What is the new story?  

One of the many unfortunate consequences of the shutdown is the closure of institutions that produce vital economic data. The investing public relies on these data to make decisions about how the economy is performing. In their absence, we must turn to other methods. Some private institutions are still reporting on various data, but the information is not as widespread.  

Investors may be surprised by the data when it becomes available online. Already, people have been closely watching employment and inflation numbers to gauge how the Federal Reserve might react with respect to interest rates.  

GDP data helps investors track the impact of tariffs and, as things continue to reopen, will give us a sense of the economic activity lost as furloughed employees sat at home. Estimates suggest that 1% of GDP is lost for every week that the government is shuttered. While some economic activity will be recovered, billions will be lost permanently. We will need to write a new narrative for the year, even as we return to the assumption that the U.S. government will resume operating.  

Planning as Stability

The implications of this new normal are still being felt out. The most obvious is that there may be increased volatility as the markets digest new data. If the economy has contracted more than analysts had anticipated, we may see some negative pricing adjustments. Of course, the news may also surprise to the upside and produce positive adjustments. Time will tell. 

Meanwhile, there are other real-world implications, such as the food insecurity facing millions of individuals. As financial professionals, we view the events through one lens. Still, as people, we view them with our humanity wrapped around us. There is uncertainty on both fronts, volatility on both fronts.  

In response, we turn to what we always turn to—planning. We have stress tested for this. We believe in our plans, and because of that, we also believe in the margin our plans have created for those clients who have chosen to respond in generosity and graciousness.  

A few weeks ago, inspired by the actions of one of our clients who called to request funds to donate to her local food bank, we offered to match all client contributions to community food pantries up to $100. And the response has been truly profound.  

Many of our clients responded within hours, forwarding receipts for donations already made or enthusiastically stating, "Count me in."  

For me, this is the beauty of working in this space — it's why I love what we do. The truth is, there is no such thing as a "going concern." In this life, nothing is certain, and we live every day in the face of endless change, which can be a tough way to navigate life, unless you have a plan.  

When you have a plan, one that has been stress-tested and built defensively, you can breathe during moments of uncertainty. You can choose compassion over panic. Planning offers us—not perfect security—but greater stability, firmer ground to stand on. It's why we place it at the center of what we do, because it enables us to operate from a position of "going concern."  

As we head into the holiday season, I want to express our deep, heartfelt gratitude to all of you who have chosen to look at your plans and say, 'I can join in caring for my community.' We have been deeply moved this past week by your messages of generosity and hope, and we are honored to partner with you—both in business and in life. Thank you. 

As always, if you have questions about this topic or other current economic events, your plan, your investments, or anything else, please don't hesitate to reach out.