The Big Squeeze

The Big Squeeze

 

 

Chin up patriots, that most heinous annual civic duty is upon us! This solemn April 15th Tax Day, chronologically the year 2024, sure feels financially and socially like Orwell's 1984.

Multiple wars being financed by the United States, zero sovereign border security save that offered by the cartels, and a Congress which is really, really good at its primary function...spending money...has resulted in economic calamity.

The result? Crippling inflation is at 40-year highs resulting in the US Dollar having lost some 50% (you read that correctly) of its purchasing power since Joe Biden took the Oath of Office on that chilly morning in January 2021 watched by thousands through Concertina wire in our Nation’s Capital.

American citizen taxpayers are being squeezed out of their own country; consider, every 100 days now another $1,000,000,000,000 is being added to the National Debt!

Without significant increases in productivity, the US Dollar will careen towards zero value; put another way, when everything is free, nothing has value. The REAL “Green New Deal” is the collapse of the US Dollar because baby, this “green” has no value.

Socially, if ever there was a group of unrepresented, unspoken for, downtrodden, ridiculed, huddling masses it is surely composed of US taxpayers. April 15th should be a National No Tax Day; the effects would be immediate and staggering.

A Tax Holiday would result in annual productivity spikes which would defy comprehension and immediately trigger a Nobel nomination in economics. Imagine a world where citizens didn’t have to pay their own government to launder money!

The one upside to paying “your fair share,” is that at least we can still pay in U.S. Dollars, instead of something of real value like say gold, bitcoin, or real estate. Thankfully the words “This note is legal tender for all debts, private and public.” is still WRITTEN on U.S. currency. Be VERY concerned when the US Government no longer accepts US Dollars.

Happy St. Patrick's Day

 Happy St. Patrick's Day

Happy St. Patrick's Day financial farmers! There are few cultures so naturally blessed with song, word, and dance than the Irish. The best investments are those that we can enjoy. If you're in the mood for some traditional Irish song along with your Guinness beer today check out The Harris Bros: https://youtu.be/6jfx7D10etE

Ides of March

Ides of March

 

 

2,068 years ago Julius Caesar was assassinated in the Theatre of Pompey, ending the Roman Republic and starting the Roman Empire. The death of Julius Caesar led to the collapse of the Roman Republic and the ascension of his adopted heir Octavian who in 27 BC avenged Caesar's death. Octavian ultimately became Augustus Caesar and launched what would become the Roman Empire.

 

Pax Romana, or Roman Peace, in this new Roman Empire lasted some 200 years across what was then the known world including large swaths of the Mediterranean, Northern Europe, and Northern Africa. It was at this time that Roman Citizenship afforded one unprecedented safety and security; a Roman Citizen could walk the known world with the assurance of the Roman Empire behind him. This citizenship status was one of the greatest benefits Romans enjoyed and allowed trade, commerce, and civilization to spread unimpeded for thousands of miles in all directions from Rome.

 

In a world today where few people know the birthdates of their own grandparents, it is striking how the pull of history reminds us to the day of an event over 2,000 years ago, with only the birth of Jesus as a more profound and exact historical recording. Indeed, the scale of the respective Caesars' power was such that time was altered to incorporate their legacy into months of the year; July & August.

 

 

Truflation© Exceeds 50%

Truflation© Exceeds 50%

 

 

No hyperbole man, Truflation© on a cumulative basis since the start of the Joe Biden Administration in January 2021 now EXCEEDS 50%!

 

Truflation©, as per its definition, is a basket of goods that consumers actually "touch" on a daily basis and are required for living in a modern society. This basket includes five elements: Food, Housing, Gas, Education, and Health Insurance. 

 

The five pillars of Truflation© have now cumulatively exceeded a 50% increase since January 2021. In essence, consumers have LOST over 50% of their buying power in real terms. The effects have been particularly devastating for young working American families on the hook for supporting a large portion of entitlement programs, many of which it is unlikely they will ever benefit from personally.

 

What is a financial farmer to do? Well it is no coincidence that the price of gold, the stock market, real estate, and crypto to name a few assets are UP over 50% since January 2021. Fiat paper money like the USD has literally been "heading for the hills" almost as fast as it is being printed. Investor cash has sought refuge in physical commodities, ownership stakes in companies, and good old fashion dirt.

 

 

Debt Bomb

Debt Bomb

 

 

Besides Defense, a stable currency is the best thing a nation can provide to its citizens. The current Administration is adding approximately $1,000,000,000,000 ($1T) to the National Debt every 100 days. This pace is unsustainable because an equal amount of value or productivity is NOT being created along with the corresponding debt. This is how a country is destroyed.

 

Over the centuries many governments have attempted to solve their economic problems by debasing their currency; whether by decreasing the content of gold or silver in coinage, increasing the supply of paper money relative to precious metal backing it, or altogether removing a currency from the Gold Standard. 

Almost always, the debasement of a country's currency has been the result of funding war. War is extremely expensive not only in resources, but also loss of productivity to the warring countries. The larger and longer the conflicts, the greater the hit to the Treasury.

Currently the United States is waging at least three (3) Wars; one in the Middle East, one in Ukraine, and the other one on the Southern Border. The argument could be made that there are also multiple other skirmishes happening 24 hours a day, 365 days a year around the world in which the USA is involved. Putting those aside though, the three major conflicts are costing America vast sums of money. Think in terms of TRILLIONS, not billions.

To look at the stock market or real estate or gold or Bitcoin one would think that this economy is booming. Record highs are being notched daily. There is jubilation in the trading pits. Every month a new high in single family home prices! Yet, just the opposite is occurring with the VALUE of the USD becoming increasingly worthless. As discussed frequently on this blog, inflation has by my estimate destroyed over 50% of the USD buying power over the past 3 years alone. And there is no end in sight.

Barring AI, the major increases in the share prices of many S&P 500 members has simply been a function of increased pricing. Anyone who shops at a grocery store knows this. Or fills up their car with gas. Or pays for health insurance. Or pays for education. Or resides somewhere other than a cozy cave. Truflation© has been running double digits for years. And that compounds quickly.

I have understood the relationship between gold and value for a long time; gold is hard to find, easy to buy, and can not be made by man. Similarly, I also understood that higher and higher stock prices are typically a result of both higher earnings, but also to a large extent, inflation. Same thing for real estate; a classic supply and demand scenario with the added factor of uniqueness. But Bitcoin has puzzled me.

I have come to believe that Bitcoin is a bet. It is a lasting bet against stupidity, greed, and corruption. Meaning Bitcoin, given its cap of 21,000,000 units, should continue to move higher in USD terms indefinitely until some time that sane monetary and fiscal policy is restored...but that day may never come.

$12 Eggs

 $12 Eggs

 

 

 

Joe Biden has egg on his face. When the cost of a dozen eggs in the grocery store reaches twelve bucks, the economy is broken. Inflation over the past 3 years has ravished the United States far worse than any enemy, foreign or domestic.

This author estimates that we have lost some 50% (that's right, FIFTY percent) of our purchasing power over the past 3 years alone. And it has hit us where it hurts most; housing, food, energy, healthcare, and education. Nobody really cares about the cost of a ton of soybeans, that is literally for bean counters in Washington, D.C.!

The median American has been decimated by rampant inflation in core goods and services. Paying for two wars and absorbing some 5-10% of the existing US population in new migrants has triggered massive price increases across the board. "Free" is probably the most expensive word in existence; trillions in spending adds up, especially if there is not a corresponding increase in productivity. Empty carbs kill.

Credit Card Nation

 Credit Card Nation

Increasingly Americans are just saying "charge it!" This has resulted in America becoming a Credit Card Nation racking up $1.13T in credit card debt. The timeline to the run-up in credit card debt overlaps almost perfectly with the run-up in consumer prices. This author has argued for some time that the "truflation" consumers bear is most likely around +50% over the past 5 years.

With prices up so high and wages stagnant as a forest mushroom, the consumer has been forced to put purchases on the proverbial "loan shark in their wallet" to help cover expenses. By-and-large, the greatest costs borne have been in terms of housing, food, and energy...especially over the past 3 years when inflation has spiked sky high.

Given the rate of growth in debt, it is going to be nearly impossible for many people to EVER pay off their credit card debt. Especially when the usury rates are almost at 30%. It becomes a vicious cycle punishing people repeatedly for a purchase made on a credit card. Obviously it also punishes the poorest in our country as well because the rich pay off their balances monthly.

A strong, prudent man from Delaware, where the largest credit card companies are incorporated, sure could make a difference. Perhaps the Consumer Protection Bureau could look into the favorable deals given to credit card companies so they can charge so much interest? Who is on the dole? And why?

Barring some inclusive and diverse help, there will be a greater rate and dollar amount of defaults in the coming months. Ultimately consumers will slow spending or risk having the spigot of cash turned off. The upside? The dollars you owe today are worth less than the dollars you spent yesterday.

Dow 50,000

 Dow 50,000

 

 

Forty years of Dow Jones Industrial Average performance begs the question "When?" not "If?" the DJIA will reach the 50,000 milestone.

 

As often discussed on this blog, the greatest dangers to the financial farmer are taxation and inflation. In regards to the DJIA, we can clearly see the effects of inflation; the average has a relatively stable linear trajectory from 1984 to 2024. Albeit, there are some SERIOUS instances of volatility cause tremendous slides and spikes. 

With that said, we are about 32% away from Dow 50,000 or just about a third. Over the past forty years the Dow has risen some 37,000 points or 3200%. Is America 32X BETTER than it was in 1984? Doubtful.

As best I can tell, the major "advances" over the past 40 years have largely been in the PRICES. Real wages have fallen after having peaked sometime in the early 1970s. What has increased? The price of nearly everything save perhaps for COMPUTING power. And that is what I argue has been the REAL growth over the past 40 years, indeed perhaps even dating back to the invention of the microprocessor itself.

Nearly every component of the Dow, the the members have changed significantly over the past 40 years, have by definition been industrial companies. Over time though those components have weighted more and more towards technology. The same can be said of the broader S&P 500 Index, whose 505 members are a cross section of the largest companies in the United States.

Today fewer companies make more of the profits, and naturally those companies have higher market capitalizations. It has gotten so extreme that less than a dozen technology companies account for the majority of the capitalization. 

There have been several seminal events over the past 40 years of Dow performance which has driven the market significantly higher. In the early 1980s the taxation structure was significantly changed in the United States under President Reagan. This led to an unprecedented boom.

After the crash in 1987 and recession in the early 1990s I argue the next seminal event was in December 1994 when the Netscape Navigator browser was released. That opened the world to the internet. And even during multiple upheavals during the next 30 years the internet gradually came to dominate global commerce.

I believe we are at a similar inflection point to December 16th, 1994 the day after Netscape Navigator was released with AI today. Via ChatGPT and distribution via the largest company in the world, Microsoft, I believe the world again is going to pivot higher in terms of real growth.

What does this mean for the Dow Jones Industrial Average? Assuming more of its components harness AI, or are even replaced in the Index BY AI-dominate companies, the Dow itself should see meaningful increases in the year(s) ahead and not just due to inflation, but rather TRUE growth in terms of productivity. If the Netscape theory holds, then we should see Dow 50,000 sooner rather than later.