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The media is perplexed why Americans are unhappy … Main Street budgets are getting tighter … are stock market gains fake? … all our analysts are optimistic about 2024
Let’s start with a handful of headlines, all from the past few months:
US economy strong under Biden – Americans don’t believe it – The Guardian
When will Americans stop caring and learn to love the American economy? – Washington Post
If the economic statistics are good, why do Americans feel so bad? – USA Today
Why the economy feels so bad when experts say it’s so good – Fortune
Why Biden’s strong economy feels so bad to most Americans – CNN
The Biden economy is strong. Why don’t voters agree? – MSNBC
Well, below is a chart showing why voters don’t think this economy is so great…
We’re going to look at the percentage change in Personal Consumption Expenditures in blue, and Average Hourly Earnings percentage change in red.
You will see that these two lines remain relatively constant until 2021, when our government’s currency printing fiasco helped create the worst inflation in 40 years.
As you can see, what it cost Americans to live (in blue) skyrocketed, while what they earned rose slightly relative to what they earned back in 2018. Those wage gains then leveled off and are now rising at a rate below the rate at . which prices are climbing.
Source: StockCharts.com
Today, even after inflation has fallen dramatically over the last year, Americans are still paying far more to live than just a few years ago – without a commensurate income bump.
That’s because a fall in inflation is not the same as a fall in prices. Remember, inflation simply measures the change between two prices. So, lower inflation does not mean lower prices, it simply means that prices become more expensive at a slower rate.
So, what is the truth about absolute prices, not about inflation?
They remain terribly high…Americans see it in their wallets and credit card balances…and that’s why they are pessimistic about the economy.
They feel poorer.
In September, CNN (which, above, is perplexed as to why Biden’s strong economy feels so bad to most Americans) covered a Bank of America survey that found 67% of employees say the cost of living is outpacing growth in their salaries.
And how does this translate to real, High Street budgets?
Here’s CNN (apparently, they don’t read their own articles):
Although overall prices are not increasing as quickly as in June 2022, they are still increasing.
Everything from eggs and car rentals to a night out at a restaurant is significantly more expensive than before the pandemic.
The average family spends about $700 more per month on the same goods and services compared to two years ago, according to Moody’s Analytics.
Let’s do the math here.
According to the Peter G. Peterson Foundation (a self-described “nonpartisan organization dedicated to increasing awareness and accelerating action on America’s long-term fiscal challenges”), the median American household income is $74,580.
If the average family spends $700 more per month, that’s an annual cost of $8,400. If we assume constant wages, that is the equivalent of an 11.26% wage cut for our average family.
In the spring, the US Census Bureau conducted its Household Pulse Survey. Every year, the survey asks American adults if they struggle to make ends meet.
In 2021, 26.7% of respondents answered “yes” … in 2022, it rose to 34.4% … and this past spring? It reached almost 40% of all American adults.
Yeah, it’s really baffling why we don’t lift each other up on this economy.
Are you happy with your investment returns?
A stock investor might read the above and think, “yeah, this inflation has been bad for the average American family. Good thing I pushed all my chips into the market at the Covid bottom. I’m up 101% and really growing my wealth.” “
Source: StockCharts.com
Is such a conclusion correct?
Last week, InvestorPlace CEO Brian Hunt sent an internal email to a number of department heads.
He included a chart that I will provide below. It shows the S&P 500 overlaid against the M2 Money Supply.
For readers less familiar, M2 is a broad measure of the money supply, including currency and various relatively liquid bank and money market mutual fund deposits.
While M2 has been growing for years, it exploded at a record pace during the Pandemic as the government pumped the economy with freshly printed dollars.
Now, as we look at these two lines together, does anything jump out at you?
The S&P is green; M2 is in black.
Source: StockCharts.com
Here is Brian’s comment:
Stocks do not generate much real, hold in your hand wealth. They simply reprice to account for the huge increase in currencies.
To show this another way, Brian suggested we look at the S&P 500 versus the price of gold.
We’ll do that in a moment. But to give us some perspective, let’s start with how the S&P has performed in a vacuum in recent years.
As you can see below, since mid-July 2018, the S&P has climbed 61%.
Source: StockCharts.com
Pretty good, right?
Through this narrow lens, it seems that being in the market actually helps us grow wealth.
But let’s now turn from the dollar (putting aside the colossal growth and inflation of M2 Money Supply) and look at how the S&P performed during the same period when priced in gold.
As you can see, it is returned… null.
Source: StockCharts.com
In real terms (adjusted for inflation), the purchasing power of equity investments is stagnating in the same way that High Street consumers are struggling to stay afloat with their monthly budgets.
Back to Brian:
When measured in real money, stocks are flat.
Your “profits” in stocks will not buy you extra fuel, shelter or food. That’s because those prices are much higher as well. They repriced to account for the huge increase in currencies.
Let’s not misinterpret what that means
This is not a strike against the stock market – quite the opposite.
It is evidence of why we should invest in the stock market or in other quality assets outside of the dollar.
Yes, regular Digest readers know I’ve been leaning bearish for months even though I’ve advocated adopting a trader’s mindset to take advantage of the bullish conditions of 2023. But any concerns I have about the broad market pale in comparison to the concerns I has on the purchasing power of your dollars if you do nothing with them.
Today’s 5% savings accounts are great, but they’re not a “forever” solution (especially if the Fed cuts rates next year). So, we need robust investment vehicles that enable us to maintain and grow the purchasing power of our wealth.
These vehicles can take many forms: high-quality stocks that pay dividends, income-producing real estate, or hard assets that float on the rising tide of inflation, to name a few.
And we will only need these vehicles more as the financial condition of our government worsens.
This past Friday, Bridgewater’s billionaire founder, Ray Dalio, sounded off on that
Dalio made many of the same points we’ve highlighted here in the Digest in recent months. He touched on the explosion of our national deficit since Covid, and the enormous increase in the cost of servicing that debt now that the Fed has pushed rates to over 5%.
Let’s jump to CNBC:
The United States is $33.7 trillion in debt, a total that has exploded by 45% since the Covid pandemic in early 2020, according to Treasury Department data. Of that total, $26.7 trillion is owed by the public. Last year, the government ran up a $1.7 trillion deficit as it struggled to keep up the pace of spending.
As the debt grew and the Federal Reserve raised interest rates to try to curb inflation, the government spent $659 billion in net interest costs in fiscal 2023 to finance the debt.
Dalio said that’s a recipe for trouble.
“The worse it gets, the more we’re going to have that long-term problem,” he said. “You can see it in the numbers. It’s just a matter of numbers. We’re near that inflection point.”
Along with the basic budget issues, Dalio also warned that foreign buyers, who make up about 40% of demand for US Treasuries, are pulling back, creating a supply-demand problem.
So, what happens when we reach this inflection point?
Higher taxes… the Fed issues more bonds to pay for the black hole of spending… and the purchasing power of your dollar savings melts like an ice cube on a summer day.
Fortunately, our top analysts believe that not only the stock market can preserve the value of your wealth next year, but also that the bull market of 2024 can blow it up.
Recently, our Editor-in-Chief Luis Hernandez (and fellow Digest writer) sat down on camera with Louis Navellier, Eric Fry and Luke Lango to think about the market in 2024.
I’ll bring you select portions of that roundtable discussion when it’s ready (and InvestorPlace Omnia subscribers will be able to access the entire video). But I’ll jump straight to the punch line…
All three experts are extremely bullish on 2024. Luke even wrote that next year could be one for the record books.
Stepping back, it’s really no surprise why most Americans don’t feel good about the economy. In real terms, we are poorer. And the current trajectory of our government suggests more of the same.
But three of the most successful analysts in our industry are all optimistic about the coming year and the potential to create significant wealth, even with today’s economic reality.
So, perhaps the best defense against our government is an amazing offense through the investment markets. We look forward to bringing you our analysts’ top ideas on how to achieve this in 2024.
good evening,
Jeff Remsburg
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