S3 E1: The New D.E.I.

In Episode One of Season Three of Money, Markets & New Age Investing Greg Weldon defines the new "D.E.I." for the next four years in the US under Donald Trump.

The new D.E.I. is...

...DEBT

...EASY-MONEY

...INFLATION 

Hear all about the NEW AGE "trends" and find out what Greg envisions for the markets over the next few months, in Season Three, Episode One, of Money, Markets & New Age Investing! 

Chapters

• 0:00 US Economy in Crisis
• 11:55 Financial Pressures and Potential Crisis
• 20:37 Market Trends and Investment Strategies

Transcript

Speaker 1: 0:00

Hi, greg Weldon here and I'm your host of Money Markets and New Age Investing, and this is Season 3. Welcome to Season 3, episode 1. We're going to start off by giving you the new DEI. Dei is dead. Long live the new DEI. The king is dead. Long live the new king DEI. What does it mean now? Now, it means debt easing and inflation. Dei it's the new DEI.

Speaker 1: 0:33

Public debt now $35.97 trillion as of November 15th, just shy of $36 trillion. I mean, you know, pretty much unbelievable. When you take the October budget data that was just released, first month of the new fiscal year 2025, spending was $584 billion, revenue, $327 billion. Essentially, you spent $600, you took in $300. You took in 300. Spending was 178.5% of revenue, 180% of revenue, almost twice of revenue. In other words, 44 shy of four times the October of a year ago. Deficit of $66 billion Four times the deficit of a year ago. October, all right. October, all right.

Speaker 1: 1:42

Now, in terms of that $257 billion in debt, which is basically public debt, it was financed by borrowing from the public the means of finance within the budget numbers. This is the terminology the means of finance, borrowing from the public. So it's public borrowing that we borrow from the public, do we start to see how kind of backwards this is. But the extent to which $257 billion was financed by borrowing $262 billion, $5 billion more Last fiscal year, that total through the 12-month period was $140 billion, just shy of $140 billion that just was borrowed that never found a home. And then all of a sudden we find out there was $140 billion spent on moving illegal immigrants around the country. So again, fishy things going on there, let alone the complete recklessness and irresponsibility of the spending.

Speaker 1: 2:41

All right now let's take that that 35.97 trillion national debt, public debt of that borrowed from the public is 28.4 trillion. There's another 7.9 trillion held by foreigners, mostly central banks, foreign official accounts. And then you have, though still roughly $7 trillion that the Fed holds. It adds up to more than $36 trillion because $36 trillion is like the marketable debt. There's actually off-book debt. That makes it even higher.

Speaker 1: 3:13

Then you throw in household debt. New Fed report from New York Fed just came out. Household debt just shy of $18 trillion. Mortgages are $12.6 trillion of that. Consumer debt over $5 trillion for four months in a row now.

Speaker 1: 3:29

Of consumer debt, $1.17 trillion is consumer credit. I mean credit card debt, excuse me, credit card debt. Interest rates are now 23.4 on average. We talked about that in the last episode. But what's interesting about credit card debt? At 1.17 trillion? It's greater than personal savings, just credit card debt, which is barely 20% of total consumer debt. That doesn't include mortgages. Let's see where we're going with this. Auto loan debt 1.64. Also, itself alone greater by half a trillion dollars than personal savings.

Speaker 1: 4:13

And when you take the labor market, which we're not going to talk about really today, other than to note the fact that again, even though the average weekly earnings has gotten to 4, 3.6 to 4%, you're still relative to a 2.6 headline and 3.3 core CPI, at best 1% real basis growth in income. It's not enough to support spending when inflation is what it is and a lot of things are a lot higher. You could make a case that if you take service inflation, it's four and a half of things are a lot higher. You could make a case that if you take service inflation, it's four and a half or higher. So no wonder the consumer's choking, no wonder delinquencies are starting to rise and now late payments on mortgages starting to rise. You have a total of $55 trillion in public and consumer and household debt in public and consumer and household debt. Throw in, conservatively, $11 trillion of corporate, commercial and industrial debt. That's a total of $65 trillion. That's almost $200,000 a person, every person from the six-month-old to the one-day-old to the 99-year-old 330 million people I used to calculate. And at the same time now is the consumer choking with debt that has reached you know kind of crisis levels on a ratio relative to other things, let alone the transfer payments, in other words, government handouts still above $4 trillion and rising again, making up almost 25% of personal income. But now the senior loan officer survey that just came out this week last week Rather, I'm thinking. It's the weekend still. It's actually Tuesday already. It's one long work day. I work all weekend, goddamn. Thank God. I love what I do, but you have to slew the senior loan officer survey show.

Speaker 1: 6:09

They're tightening standards on consumer loans, all right, and at the same time, this past week we got the commercial bank balance sheet data from the Fed that showed loans actually contracted by $20 billion $12 billion, of which 19.3 total $12.2 billion was credit card loans. I haven't seen a double-digit billion per week credit card loan balance decline in a long time. I'm not saying there hasn't been one, but I don't remember seeing one in a long time. Not only that, there was a $0.7 billion decline in automobile loan balances at commercial banks, so a big decline in loans. This is a credit contraction only one week, but still noticeable 65% of which was credit card loan contraction.

Speaker 1: 6:56

The rejection rates on credit cards has skyrocketed. So not only are they tightening standards, they're actually applying those standards vigorously. The rejection rates on credit card loans this is from the Fed just rose to 22%. That's up from two years ago. 18% October over October, 22% now 18%. Rejection rates on people asking to have their limits increased skyrocketed to 45%. Almost half of people that want their limits increased are getting rejected by the banks. That's up from 32% just a year ago. So that's a massive, you know one-third increase. All right when you start to talk about the rejections on auto loans 14%, up from 6% two years ago. And now mortgages higher rejections on mortgages really noticeable 20.7% in October. That's up 8.6 percentage points from a year ago when it was 12.1. From 12.1 rejections on mortgages to 21%, 12 to 21. We're talking about now new applications for new cards has fallen dramatically. This is a credit crunch because the consumer is choking because you don't have any income.

Speaker 1: 8:23

Growth and inflation remains sticky and you know to whatever extent it's reflected in retail sales continue 27 of 30 months. The headline number has deflated on a year-over-year basis, this month at 2.8 versus 2.6, I used CPI. Real growth was only 0.2 versus the core rate. It was minus a half of 1%, all right, and retail sales were up 2.8 billion for the month, which is a small monthly increase. By the way, I don't know why everyone got so excited. This was a strong number Again, it wasn't 2.11 billion. Of the $2.8 billion total increase in retail sales for the month was automobile sales, which were really weak. Last month, ex-auto retail sales only rose $700 million for the month On a $700 billion per month number. That's terrible, terrible, terrible. It's not only not good, it's awful.

Speaker 1: 9:26

Out of 21 indexes they used to break down industry sectors in retail sales, only four had year-over-year rates above the core rate of 3.3. Vehicles, miscellaneous store retailers, online shopping, eating or drinking establishments. The other 81% 17 of 21, were down, deflating on a real inflation-adjusted basis. Keep in mind retail sales does not consider inflation, it just is the pure dollar number. So if you have to spend more, this is a case of people spending more but actually buying less stuff. That's what's happening here. We've shown this month and month again to our institutional clients in our daily research.

Speaker 1: 10:12

So let's talk about some of these numbers. I mean, you know, just sporting goods, books and music down 6% year over year. Electronics and appliances down 4.9% year over year. Furniture down 0.9,. Clothes up only 0.3, and vehicles up only 0.9% year-over-year Furniture down 0.9%. Clothes up only 0.3% and vehicles up only 0.8%. Eating and drinking establishments seem strong at up 1.7% year-over-year, but that's really weak compared to what it's been and it shows that where the rubber hits the road, so to speak, on discretionary spending, it's eating and drinking out. Case closed.

Speaker 1: 10:49

For me it always has been All right. Online shopping still the strongest at 4.4, which seems strong, and it is Not weak. But compared to consistent double-digit gains for the last several years, month in and month out, 4.4 is subpar for that sector. It just is. So let's look at it this way eight out of the nine major components in retail sales are negative, excuse me. Seven out of nine, excuse me, seven out of nine of the major components are either negative or up by less than one percent. Not strong at all. Consumers choking, and it's very obvious. Within that same context CPI inflation, I mean the service sector X energy of 4.8% year over year. All 11 indexes in the service sector are above 3% year over year and 8 out of 11 are above 4.5%. It's basically, you could say, service sector inflation remains 5%. That's more than double the Fed's target rate.

Speaker 1: 11:55

So why then, is it strange that delinquencies are rising? And let me throw you a stat on the back end of this, in terms of delinquencies on automobile loans, normally when you see a problem, it's the 18-year-olds to 39-year-olds that have issues. These are people early credit, not as high-paying job, not far along in their career, not as established financially who start to become late on their auto loan payments. This time around it's across every age sector, and the older age groups are catching up. The 40 to 70 sect now is involved. Every one of these is moving higher at a level we haven't seen since 2008 into early 2009. I mean at the peak of the crisis. What's interesting here is the 50 to 59-year-olds and the 60 to 69-year-olds. The 50 to 59-year-olds and the 60 to 69-year-olds both of those sectors have gone from delinquency rates below one to well above two in just the last couple months. That's a big shift psychologically and just from a statistical standpoint.

Speaker 1: 13:03

But to say, hey, donald Trump won the election. And while I would say less government is always better, one side was clearly about less government, one side clearly wasn't. So you know my choice. I'm not a fan of really any of these politicians per se because they're not unifying, but maybe unity is just not there to be had anymore. But beyond that, what you do have is a rush of sentiment of bullish exuberance. Now I'm not going to go Alan Greenspan on this market and say it's irrational exuberance. I will say it's illogical exuberance. And why do I say that? Because Trump isn't even in office yet.

Speaker 1: 13:49

Number one, number two policies will take time to play out. We're not even going to start yet with the policies themselves, aka tariffs. But let's just say this is a time frame before anything will actually happen, and we need stuff to happen now. The consumer is choking. Now. The consumer is still 70% of the economy and the consumer is lagging the stock market like I've never seen before, and that correlation is as tight as anything usually gets. And the consumer is the leader up and down at bottoms and tops, and right now it's a big negative. We'll talk more about that in terms of tech, having been that leader in a second.

Speaker 1: 14:30

But the point is the consumer is choking now and fed rate policy is tight because they're still well above inflation, with the fed funds rate all right above more than 100 base points above, which means they are tight. Policy is still tight on rates. Quantitative policy is still very tight. With 800, and I think it's 897 billion is now the rolling 52-week net change in the Fed's balance sheet. It keeps hitting new lows every week. So quantitative policy is tight. Rate policy is tight.

Speaker 1: 15:00

Inflation has started to pick up again and let's not forget in case you didn't hear, most people haven't, because it's not mainstream news that the us has dropped since the end of june into july into one of the worst droughts we've seen in our lifetime. Not quite as bad as the drought two was it two, three years summers ago but it's bad and it's gotten bad very quickly and we've shifted from uh, la nina to el nino and this is not the kind of thing that you have one or the other. It's usually there very quickly and we've shifted from La Nina to El Nino and this is not the kind of thing that you have one or the other. It's usually there's one and there's a period of time the other one develops. You see, it come. No, this is bing bang, boom right in a row. All right.

Speaker 1: 15:39

According to NOAA, as of the end of I think this was November 15th 52% of the 48 US states, 52% of the landmass, is in a drought, a moderate drought that's up from 11% in June. 52% over half the country has experienced a moderate drought, up from 11% in June. 22% of the country has experienced a severe drought. 22% of the country has experienced a severe drought Severe 22%. That's up from 3% in June. From 3% to 22%. In a matter of what do we got? July, august, september, october four months In terms of there's no issue with dryness. Only 12% of the country now, versus 71% in June. So you can see how it shifted from June. Not only that, you have this issue around the world and this is going to affect this next crop here in South America.

Speaker 1: 16:36

All right, in terms of things like soybeans and corn and some of the other things Already at near or just coming off of new record highs. Many food groups and commodities cocoa, coffee, oj, pork, beef, milk, cheese, butter the CPI in food has bottomed at negative territory. You knew it was going to happen and it's coming back fairly strongly. Five out of six components in the grocery groups were up in the CPI and some dramatically so, some two of them at double digit annualized rates for the month, and the one that wasn't up was unchanged. It wasn't down and this is a big flip from four or five that have been deflating every month to now five inflating again and the headline food CPI going up.

Speaker 1: 17:19

So this brings us back to the Fed. We've got a credit crunch. We've got a consumer that's choking. We have Fed policy that's tight. We have a president who wants to come. We don't have time. They need to be a neutral now and they're not.

Speaker 1: 17:36

What is neutral? First of all, is it relative to inflation? You could say with 3.3 inflation, that might mean four and a quarter is neutral. You would say with 2.6% inflation, neutral, you could get away with 350, 375. The market is pricing the latter 350 to 375. But that's for the end of next year. We don't have until December of 2025 to see that. So in the meantime, as inflation starts to rise again and gosh forbid energy gets loose, because it's the only reason that you are not seeing a bigger picture inflation problem already. If energy starts to perk up and watch natural gas, by the way, I think that that's bottom then could give us some year over year vig. You're going to get further stagnation in the underlying economy. The consumer All right, and that, with higher inflation, means stagflation. Prepare for that kind of outcome. And then the question becomes is it a credit crunch? And I wouldn't have said yes two months ago. But now we're seeing signs of this.

Speaker 1: 18:37

And I go back to what I wrote in 2006 in my book Gold Trading Boot Camp. I wrote in that book ahead of 2008. We saw the consumer, we saw the housing bubble, we saw all of that coming. I wrote about this two years before it happened, three years before it happened. In the context of that, one of my quotes that I like to continue to use because it's more applicable now than it was then, it was true then and it's true now. And I remember going on CNBC to promote the book with Joe Kernan and Mark Haynes and discussing this and saying that the Fed would be forced to monetize US Treasury debt by buying bonds, printing money to do it to bail out the consumer and to bail out the housing organ. And they looked at me and it's funny, joe Kernan literally got off the air and I'm back in the green room and he's on the air and he goes wow, we've seen a lot of nut jobs on this channel. And he called me a nut job on national television. And of course, two years later I saw him and had a little discussion with him about how right I was and how uncool it was to call me a nutjob on national TV.

Speaker 1: 19:43

But at any rate, the quote is when peering into a debt deflation abyss, monetary officialdom will choose to reflate at all costs every time. Now Jerome Powell has given us this mantra that we know how to fight inflation. We have the Paul Volcker playbook. He just enacted it, seemingly successful. The jury's out on that. I'm not ready to say that. But you could make that case that the tightening has done enough to help inflation come down in the context of the natural decline that would have come anyway from a mathematical year-over-year base effect perspective. But when it comes to this and you're talking about a potential credit crunch, you will acquiesce to higher inflation to circumvent the worst-case scenario. It's a debt deflation.

Speaker 1: 20:37

Now what's interesting is the commentary from Powell and how that relates back to Paul Volcker in 1978. And Powell uses the exact same phrases sometimes. It's really amazing to compare the two. Now, what's interesting back then is Volcker said the last thing we want is a credit contraction. The difference is that people that I've heard people say this, and I'm not trying to refute the feel-good factor, I'm not trying to refute the positivity that we have as a result of this election. Having said that, let's be realistic.

Speaker 1: 21:05

Okay, this whole, like Reaganism renewal, this resurrection, this revival, this whole you know, new deal, so to speak. Reagan didn't have debt. He wasn't saddled with so much debt that he could barely move. This is why you had a 40-year downtrend that began pretty much with Reagan in 1982, with Paul Volcker and Ronald Reagan, where you had the downtrend in inflation and interest rates that just ended with the pandemic. You already have the negative rate doesn't work. Experiment failing in Europe. So we know there are limits to what you can do on the downside. This is the whole 2018 white papers around. How do we ease policy with rates so low already when we need to? This has always been a concern and thank God for whatever extent the Fed has gotten back interest rate power to use when they're going to need it and they're going to need it because you have this trend over, which means you're going to be acquiescing to higher rates of inflation to save the consumer, to save the economy from going into debt deflation. Now I'm not saying you're on, you know, on the cliff, looking into the abyss yet, but, man, you're awfully close.

Speaker 1: 22:21

And the thing that is kind of left out here is stocks and what happens. People are piling in and I remember 82. I remember the S&P was in its infancy of trading. People were kind of like what is this a stock index? I mean, it was really esoteric back then. It's really amazing to think about it compared to how sophisticated everything is now. But the bottom line is this is not 1982. All right, why? Because, for one thing, fixed income now means income. Money markets are yielding 4% and up and have record inflow and record amounts of money held in them. Now you're eventually going to want to release that money into the stock market, which is why people are kind of surprised that hasn't happened in the last two weeks.

Speaker 1: 23:05

The issue here is I don't think people trust the market. I sure don't. Crypto got a nice boost out of that. You remember, right here I said you know you take a measured move and get above $66,000. It's's going to 99,140. There you go, all right, gold held above 2,500. Silver's held above $30.

Speaker 1: 23:23

And what's the biggest Trump trade that maybe sustains out here? It's the higher dollar, because of kind of higher interest rates and because of potential tariffs, which would be terrible for the dollar and would unwind the dollar down the road, and that's a whole nother story. That's another podcast three, four times down the road. But a higher dollar is one of the worst things for the US stock market. The correlation is so tight it would blow your mind it's the most reliable tight historically goes far back correlation of anything negatively correlated higher dollar, lower stocks, lower dollar, higher stocks. It's that simple. And right now the dollar is rallying, breaking out in a fairly significant longer term dynamic. So something's got to give here and I can't help but think it's the stock market.

Speaker 1: 24:14

And then you say to yourself well, you know what's the leadership going to be, what's the engine of economic growth here in the US? I mean, well, ai has been the engine of asset price growth for stocks, but I have said repeatedly here that you are two steps away from that being. You know all in consumer products that you have sales, that you have teams, that you have an infrastructure built out to sell products that are specific to this, as opposed to the chips and the computing power and all the kinds of things you might need and the energy requirements and all the other things where maybe we got a half a step to a step ahead of ourselves here with AI. Number one, all right, we know that it's not consumer-led, even the XLY, which has rallied nicely off the Trump trade. Why? Because 40% of the XLY is Tesla and Amazon. You want to pick two stocks that are going to benefit from a Trump win and the fact that online sales is the only thing in retail sales that's remaining buoyant. You're talking about Amazon and Tesla. So the XLY has kind of been compromised as a reflection of the consumer versus the XRT, which is a much broader based retail store index of stocks that is falling and breaking down against the S&P 500. The consumer is not a leader here and the consumer needs to be a leader.

Speaker 1: 25:33

Now, okay, is AI going to make up the difference? Well, it has. The problem is the front end of the pipeline in chips is already breaking down. All right, the XSD now all of a sudden joining the party and threatening to break down here, that's the S&P Semiconductor Index. The XLK, which had been against the S&P 500, an upside leader this entire time for the last two weeks, has failed to confirm this move in the S&P. It's on wind, it's on fumes, it's on whatever is blowing this thing to the upside. It doesn't really have sustainability, not right now. You don't have an upside leader. Even NVIDIA looks very toppy here, really toppy pattern. It looks like it's left hanging out to dry. It kind of reminds me.

Speaker 1: 26:23

And when you look at Europe too, and the whole election around Europe with Trump and potential trade and potential currency, and then this whole thing with Russia, european markets are breaking down and I have said either Europe or China, which also continues to suffer, stimulus wasn't enough. Either one of those areas Europe, the semiconductors here in the US or China could become a catalyst for a bigger picture correction. These markets are technically set up for it. They are stretched to the max and that is what this is all about. Okay, it's all about the new DEI, debt easing and inflation. You need to keep pace with the inflation. It's going to become increasingly difficult.

Speaker 1: 27:05

Passive investments in stocks not going to be what it's been since 1982. Everything has changed and in that context, you're going to have to again look to do a lot more things differently, be a lot more proactive and be in a lot more things differently. Be a lot more proactive and be in a lot more different opportunities of different markets per se, and I think that the rally in Bitcoin is a good example. I'm not a Bitcoin lover, but I'll tell you what. In a case where you have all these currencies that are under pressure and you might have tariffs and you might have places where liquidity becomes an issue, not everyone's going to run out and buy bullion. Then where are you going to put it A lot easier to have a phone and an account and to buy crypto? So that's one of the reasons that I continue to like Bitcoin and I do like kind of the action down here on this corrective move in gold and silver. At the meantime, I think the stock market here looks very vulnerable.

Speaker 1: 27:56

Keep pace with us. Follow me on Twitter at WeldonLive. W-e-l-d-o-n. Weldonlive. The product that we put out is called the Global Macro Strategy Report. That's also on our Twitter page under WeldonLive. I'm on YouTube as user Gregory underscore Weldon, youtube as user Gregory underscore Weldon. Certainly follow the podcast on Twitter, that's, at money underscore podcast, and then, you know, check us out. We like to post some charts and some cool articles and anything that we feel might be of interest in accomplishing our goal here, which is to help kind of the you know, the not professional audience out there to do what they need to do here, to keep pace and to stay out of harm's way. That's it, episode number one of season three in the books. Join me next time for the next episode of Money Markets and New Age Investing.