S3 E4: Macro, Micro & Markets - It is Time to Act!

In this episode Greg discusses:

The two biggest macro-economic dislocations in US history, as the main secular "themes" for 2025 (and beyond).

The micro-details in the form of the simple mathematics that clearly illustrate and define those two macro-dislocations.

And the markets...what to do! Two specific strategies that anyone can deploy within the stock market to help protect the purchasing power of your money, income and wealth.

Transcript

The Macro-Micro Markets Overview

Speaker 1 0:00

Hi, welcome back to Money Markets and New Age Investing. This is season three, episode four, and man, I have a lot to go through. I'm just going to get right to it, because what we're going to talk about here is the macro, the micro, and then the markets, the macro being the biggest picture. Overhang that there is the 800-pound gorilla in the room, the dark cloud that follows us wherever we go, the issues that we're going to have to deal with longer term, and then how that kind of ties into some of the micro around where we are now with the economy and the consumer. And I can tell you I'm going to show you two specific comparisons that speak volumes as to where we are literally in this 50-year debt bubble. It goes back to 1971 when President Nixon closed the gold window and we took the right of sovereignty to the nth level by basically being able to sell as much debt we want, print as many dollars as we want. We see the end result now is $36 trillion in public debt, another $18 trillion in household debt. That's $54, $55 trillion in debt against GDP of $29 trillion. You see where I'm starting to go with this Simple math is going to be kind of eye-opening here, or ear-opening in the case of a podcast.

Speaker 1 1:24

I do have charts of all of this. I put together a special chart package and I have my 2025 year ahead outlook. Not to come off as salesman-y right at the beginning here, but since I'm on this case, I'm happy to send it to anyone. Greg Weldon, g-r-e-g-w-e-l-d-o-n at WeldonOnlinecom, shoot me an email because the charts are worth seeing. I can't stress this enough for investors out there, for anyone managing money. If you kind of break it down and make it as simple as possible, the big picture, it's disturbing. That's why no one wants to talk about it.

Speaker 1 1:56

I mean bullish on life, not so bullish on the economy and the dollar and the purchasing power of our currency, of the Canadian currency, of the Aussie currency, of the Euro, of any of these currencies. We see where those currencies have gone. I mean the Euro. It's gotten crushed against gold over the last, really since 2021. In the end, the value of the end has gone down by 50% relative to gold since 2021. Think about that.

Speaker 1 2:21

But let's start with we're going to really focus on the US and the first thing I want to do is compare. There's two big comparisons here the consumer and then overall debt as it relates to public debt and the government and households. But start with the consumer. The personal consumption expenditures data came out, always a great treasure trove of information. Real disposable personal income against spending, that simple Disposable income being what you have to spend. So income versus spending, very simple Income versus spending. I get this much in my wages. I spend this much All right, and my wages I spend this much, all right.

Speaker 1 3:05

When we went off the gold standard in August of 1971, income in this country was 4.043 trillion at the end of the year, annualized over the previous 12 months. Compared to so income was over 4 trillion when spending was not even 1 trillion 705 billion. So the ratio was over 5 to 1, over 5 to 1 of income over spending. A big buffer, of course, was the savings rate was in double digits. June of 1990, all right, we're talking 19 years later. All right, we have. Income is now $7.3 trillion, so it's up $3.2 trillion, so up 80%. Pretty good, right, income at $ 1990. But purchasing spending, $3.8 trillion, up from $705 billion to $3.8 trillion, up 440% Income, up 80% spending, up 440% into 1990. And that's one of the reasons we had the 1991 recession in line with the Gulf War, but that recession was vicious and not a lot of people remember that. Okay, so we went from over five to one five and a half-ish to one in August of 71,. Income overspending In 1990, it's barely two to one, 1.9 to one.

Speaker 1 4:40

All right, let's move forward to June of 2008,. Before the financial crisis, income had now jumped to 12.7. Spending was 10.2. Income's up 75% from 1990, whereas spending's up 170%. So you're talking about now a ratio that's gone from 5.5 to 1.9 to 1.25 in terms of income versus spending. We're still earning more than we spend. Let's jump now to just before the pandemic, january of 2020. You're talking about spending versus income. You had a ratio of 1.1 to 1. It was very close, very close 14.84 in spending versus 15.8 in income. So you still had a little bit of cover in's minus 1.2, based on spending of $20.4 trillion against income of $17.6. It's a negative almost $4 trillion in the year in terms of consumers in their personal disposable income versus their personal consumption spending.

Speaker 1 6:07

Let's go back and look at this 1971, 5.5. Go forward 19 years 1.9. Go to 2008, 18 years 1.25. Go to 2020, 12 more years 1.1. So to go from 5.5 to 1.1, where you're basically spending every dollar you make almost, but to go from 5.5 to 1.1, where you're basically spending every dollar you make almost. But you went from 5.5 to 1 to 1.1 to 1, and that took you 49 years. Check that 30. Yeah, 49 years, 49 years. And you went from plus 1.1 to minus 1.2, a complete flip-flop.

Speaker 1 6:45

In four years, the savings rate had been either side of 6%, really since 2009 with QE. It's now 3.8, down from 4.1 in November. December was 3.8. There's only three other times in the modern monetary era where savings in the US has been below 4% December of 99 to October of 2001,. Tech bubble crash. October 2004 to October 2009,. And that was a long time.

Speaker 1 7:16

And remember how many economists were screaming about the savings rate? No one listened and we had a financial crisis. And January of 2022 to December 2022, it rose a little bit, but now it's right back down. Even in 1987, it was 4.1, which is where it was in November, but now it's 3.8. That's I mean. Now. That's really interesting in the context of, also, credit card debt All right.

Speaker 1 7:43

So where, if you see the spending is outpacing income by over $ card debt, all right. So where, if you see the spending is outpacing income by over $4 trillion. All right, the savings rate has dropped from 6% to 3.8. And now we're talking. What else do we have? Well, how about our credit card?

Speaker 1 7:55

Revolving credit is $1.4 trillion now and in the last 12 years, going back to 2012, it's up 64%. That's an average annualized rate of 5.3. With 5.3 revolving credit growth year over year for the last 12 years, 12 years annual rate, 5.3. That's larger than GDP. Retail sales, exports, imports sales, exports, imports I mean any final demand number you want to find. None of them have an average annual growth rate of 5.3, as does revolving consumer credit.

Speaker 1 8:34

Here's the kicker Revolving credit right now at $1.4 trillion versus savings of $843 billion $843 billion the difference is over half a trillion dollars. It's even greater if you want to talk about some of the other consumer lending, but let's just talk about revolving credit as the Fed's number. Commercial banks are over 80% of that. But let you add on consumer credit, a total consumer credit of 5.2 trillion, up a trillion from january 2020, and the ratio to savings goes to minus 6.1.

Speaker 1 9:20

And you want to tell me the consumer's healthy? I hear this on davos all the ceos after the unemployment number. I can't. I can't tell you how many guys got on TV and said the consumer is healthy, the consumer is strong, the consumer is robust. No, that's false. It just isn't true. Household debt total now $17.94 trillion and guess what? Credit card delinquency is now 11%. The only other time there was high the first half of 2009, right before the crash. The second comparison now that we have income versus spending so grossly misbalanced Consumer not going to be an upside leader, that's for sure.

Speaker 1 10:09

But in terms of the government, how about the government and public debt, which isn't even the government debt, but public debt finally getting some attention? And all the crazy things the government spends money on? So it's a, it's a crime, it's really. It's unbelievable, it's just beyond comprehension. But in the meantime, let's just look at the facts that we have, because it's pure math. All right.

Speaker 1 10:29

Government now, debt versus GDP. All right, it's a pretty simple thing. Economists have used it forever. We're in the danger zone, past the danger zone, into the. You know about to have a crisis zone and you know. You can say that that's been imminent for a while and hasn't happened. That doesn't make it any less imminent.

Speaker 1 10:47

The government debt in 2022 versus GDP let's look at the ratios here. Okay, government GDP was 10.8. These are trillions 10.8 and GDP debt was six. So you had a 4.7 trillion cushion. So the ratio was 1.80.

Speaker 1 11:07

The GDP then you go out to 2019. Let's go from 2002 to 2019. All right, you had flipped. You actually flipped in the fourth quarter it's going to be the first quarter of 2016, where debt of 19.2 was above GDP of 18.5. And you had negative 1.04. By 2019, you were minus 1.21. Excuse me, 1.05, rather Sorry Now, I know it's a lot of numbers, but here's the point.

Speaker 1 11:33

Now you're minus 1.2. If you add household debt, you're minus 180. What does that mean? That means debt versus the GDP is 120%. Debt is 120% of GDP. Household debt plus public debt is over 100. It's actually 186% of GDP.

Speaker 1 11:52

Now what does that mean? It means it costs the $1.86 in new credit creation to get a dollar of growth in GDP in the economy. You can't sustain with these numbers and you've gone from in 2002, 2002, all right. So we're talking just over the last 22 years, plus 1.8 on the debt to gdp to 1.8 on the minus side. When you add household debt, it's a symmetrical decline. So if you need to create a dollar 80 of debt to get a dollar gdp growth. You need to make sure that growth is going, because you can't service the debt you have now because it's so huge. So you're going to keep doing what you're doing. It's the Einstein thing You're going to keep doing what you're doing.

Speaker 1 12:39

Expect a different result. No, expect the same exact result which, now that the 40-year downtrend in inflation and interest rates is over, now that we have so much debt versus 40 years ago, reagan had no debt Volcker defeated inflation. We went on a tear. Why? Because Reagan had no debt. We do now. We're saddled with it, and these numbers don't compute Uncharted territory. These are two black holes. We have crossed the event horizon line on both of them.

Speaker 1 13:08

I talked about this in the last episode. Debt to GDP, I mean, come on, You're talking about throwing in household debt. It's 186% Income versus spending in the US is out of control for the consumer. They've drawn down savings, they've done as much as they can with credit card debt. There's a tipping point here, man it's called the event horizon line when you've crossed into that black hole and you don't really even know it yet, but you can't escape because you can't burn enough fuel to escape the gravitational pull of the black hole. You can't burn enough money to escape the gravitational pull of the debt black hole. And that's what they'll do They'll burn more money. And this is the inflation story in a nutshell. And in fact inflation is on the rise again. Just like I said, it would be Back in February, march into early April saying, look, inflation is going to come down.

Speaker 1 13:56

You had a base effect on energy. You had a lot of food prices that were so high that the year-over-year rates were going to be dramatically negative. And that's exactly what happened. Food went from like 6% 7% year-over year to minus 2%, just as we thought. Petroleum was even worse because prices kept going down. So the base effect was magnified and you got really deep declines. That's done, that's done. You do have some rising gasoline coming the following months now last year, which means the base effect remains kind of negative. But let me tell you something Food is a problem. Services remain at 4.7.

Speaker 1 14:32

And when you look at the PCE that the Fed looks at 2.6, up from 2.1 at its lowest just three months ago, it's a three-month rise. So four months ago you were at 2.1. Now you're at 2.6. Everyone's excited 2.1, we're going to get to the Fed's target. No, you're not 2.6. And it's a 50 basis points in September, over which time the Fed has cut rates by 50 basis points. Hello McFly, I mean seriously.

Speaker 1 15:01

And this is the case in point, with the biggest macro, the event horizon line, being crossed in two different black holes. It's almost like we have two different black holes, pulling the economy apart. Here's the government, public debt and here's the consumer, and of course, both of those things are the same and we're just going to get mashed in this black hole Because these numbers don't compute and you can cut spending and you should do all the things that are being done right now to cut spending. It's not even going to be close enough and you can't use tariffs to plug the gap. It's not a viable program. It's going to hurt the economy to the point. You need growth to service the debt we already have and the only way to get that growth is to create more debt. That's what these numbers say, straight up, flat, that's it.

Speaker 1 15:43

Therefore, central banks will acquiesce to higher general rates of inflation. I said that last year. I said that in my book in 2006. And it doesn't even matter, because when you're staring into a debt deflation abyss, as I said in my book in 2006,. Central bankers will choose to reflate every single time at any cost. I said in 2006, the Fed would monetize treasury debt to bail out the consumer and the housing market. You know, I mean it's pretty funny because I had a lot of naysayers back then. This was before Nouriel Roubini, even you know, anyone knew who the guy was and that's exactly what happened. And now this has gotten to the point where I'm saying this is the tipping point and we're entering the event horizon line. Let's look at markets, because this is the most important thing. So I want to make you know the second half of this, all about the markets.

Speaker 1 16:34

This is what we do here. We manage money and we provide advisory services to a range of customers that goes from the single largest hedge funds in the world literally one that just moved down to Miami South to me as one of my biggest clients to retirees at 80 years old that are kind of managing their own portfolio and kind of having fun with it to whatever extent, and those people that are trying to struggle, which is why, kind of, we started the podcast. I don't get paid to do this. It's not a real flow into my business. They're not usually my target audience kind of thing in terms of sales. That's why we're not real salesman-y. But, bottom line, we also manage money.

Speaker 1 17:11

I'm a Series 3 CTA registered, so our minimum account's a million dollars. But that's because a $40 move in gold right now, with a high price of gold, is $4,000 per contract and my minimum risk assessment on any given position is 0.5. That's 0.4. That's the average daily move. It's all mathematically back-engineered to get the million-dollar minimum, because that's what I need to make my risk controls work and it's all about risk, all about managing the risk.

Speaker 1 17:43

But to give you some of this right now and what I've given my clients this week and I've done a couple of interviews on social media, on podcasts and so on and so forth all right, when you want to start talking about gold and you want to start talking about an asset that is hugely underinvested and you want to talk about how, actually, you have had a disinvestment from gold ETFs and a lot of money moved into Bitcoin. Bitcoin is now a risk asset. It has become equitized. I mean, it really has. It's you know ETFs. It's like, well, we want this, we want to be different, but we need to be an ETF, we need to get into the stock market, to be different and to be, you know, accepted as what we are. And now you're just another risk asset because you're a stock and you're an ETF, and that's all the people that bought it that drove it from the high 50s to where it is now.

Speaker 1 18:37

Sure, we caught that move. Of course we did. That's what we do. I mean, I'll take advantage of any move to help my clients endure and try and keep pace with the debasement and the purchasing power of their money. That's what we do here and we've been quite successful since this program we started that is specifically tailored for this kind of environment in 2018. We have kicked butt so happy to share that information with accredited investors. Only. We don't hawk the money management. We keep it close to the vest. But this is a time when people like to do what I do will become more valuable, because I can be long or short. Any stock market, any bond, any currency, any commodity, and what I'm going to tell you now and give you here today is a way to kind of do it yourself in a very you know, kind of a low level way that might be effective. This could change. This is not like I'll do this for the next year. It's the strategy for now that will help protect you by doing a couple of simple things in the stock market.

Speaker 1 19:38

Let's look at the performance okay, over the last month in the stock market of 180 industry sector indexes. That's followed by bar chartcom, which I really think is a great tool. 180 sectors, from semiconductors to retail, to industrial, to precious metals, 180 and the performance over the last month. Number one is gold mining shares, up 31% in the last month, okay. Number four is precious metals ETFs, up 19.6 in the last month. Number eight is metals ETFs, up 14.2 for the last month. Those are in the top eight. Three of them precious metals, gold mining shares. Now, how about the bottom Three of them? Precious metals, gold mining shares. Now how about the bottom? Out of 180, two from the bottom 178 in performance over the last month is semiconductors, down 18%. 175th out of 180, integrated computer systems 174th is retail, which goes in line with 170th, which is staffing, both down, double digits, all right. Down. Number 165th is clothing and shoes at retail, down 8%, all right. And then retailing restaurants 156, down. I didn't put that number in, but gaming was also in there at 158th, as was electronic computer components. I mean, think about that. I mean, also at the bottom of the list, we're building residential construction, computer services, banks and medical against gold mining. Now, if you get a rotation by Wall Street money into these things, holy mackerel.

Speaker 1 21:27

And so what are the ETFs to buy? Well, you have a couple of them. In gold, it's the GDX, there's also the ring. Okay, those are the two top. Gdx is the largest.

Speaker 1 21:41

What's interesting in this context and why we like gold mining shares and ETFs here? The last time that I recommended this particular strategy was in the fourth quarter of 2015. And it worked out really well. Why? Because gold is up 40 40 above its 2011 peak and the mining share etfs are 40 below its peak. The divergence in the mining shares to the metal has never been higher, never been greater, never been wider. All right, last year you're talking about, uh, the etfs were, uh, the gold was up 27.2%. Etfs were down 3.2 billion in funds. They were selling the ETFs over the last 18 months and buying some Bitcoin too.

Speaker 1 22:24

And you say well, then why is gold up? I mean, open interest isn't big. This isn't speculative. There's no froth in the gold market, none, zero. You had a $900 rally in the face of a dollar that's been strong. You imagine the rally when the dollar starts to weaken. We haven't even seen that yet. We haven't seen any allocation in Wall Street money into the mining shares None. It's all AI and tech, infotech. If we get a reversal of that trend, it's going to be huge because these markets are not as deep you try and move money into the precious metals at a scale that you know. If even wealth managers out there and IRAs and all the guys that you know are the PMs out there and the registered investment advisors and the IBs and the RIAs I mean, if you're talking about so much money, it's just you know would really emphasize a huge move here.

Speaker 1 23:18

So Ring and the SLP, sl excuse me, ring and the GDX are the gold. Ring is top-heavy with the big mining shares. They will benefit here and that will be interesting to watch. Like the Newmont, anglo-ashanti Gold and Barrick, those are the big three. Consider those the big three. Anglo Ashanti Gold looks great right now. It's breaking out.

Speaker 1 23:40

Newmont has been a dog, but if that starts to change and it did at the very end of last week that would signal that Wall Street money is coming in. Why? Because the money managers out there. They buy the names they know they're not going to do too much work on it and say look, we want to be in gold, that's not a knock, we want to be in gold, all right. So we're going to buy a new mod, because that's the name we know. We're going to buy AU. We're going to buy some of these headline stocks that everyone knows. In that context, ring right now, not because those have been underperformers. If that starts to change, ring might take over from the GDX as the preferred choice. You also have the silver area as well, so we got to keep that in mind. But at the same time, there's a lot more in this.

Speaker 1 24:26

In the special that I just did, do you want to get some of this information? And I actually picked 12 stocks in Canada and Australia that are top picks here right now for the next move. And why these two places? Because the currencies are weak, because gold is making new highs in both of those currencies and has been for months, and that's why they're some of the top performers. And what you could potentially do if you're sophisticated enough and have enough time and want to apply yourself on this, you could theoretically you know, sell a futures contract in the canadian dollar or aussie dollar for every hundred thousand uh in shares that you buy, any hundred thousand aussie dollar in shares you buy. That would hedge you and this way you'd make the whole return in dollar terms, which would be great. So those 12 stocks are in this report.

Speaker 1 25:13

If you want to get it and run hawk and stocks, it's not what we do but it's, you know, largely a quantitative and then kind of macro blended. Look at these things all right, um, breakout levels the ring at 36, 50, the gdx at 44 and a quarter slvp at 1565, the sil at 42, 30, the gdxj junior miners at 55 60. I got charts of all of those. If you want them, email me. Uh, so, but how does this play with the second part of our dual strategy here to deal with these dueling black holes that we have approaching right? Where's the leadership and stocks coming from? Is it china? No, consumer, no, from the AI tech? No, it's dissipated leadership.

Speaker 1 25:57

You can see it relative to the S&P on its own merits, technically speaking. I mean the XLK, the Infotech ETF, the S&P index. That is the Infotech index. It's been an upside leader since 2009, especially the last two years and that has ended. It has rolled over on a relative basis and if the xlk gets below 224, 40 that's a major breakdown and momentum is already negative on an outright basis. All of this projects downside of 13 to 14 percent in a very fast fashion, potentially for the xlk. All right.

Speaker 1 26:35

The semiconductor index, smh if that moves below 232, it violates the longer term uptrend line. The 200-day moving average momentum peaked in july. It's huge divergence in some of these things. You know, if we get a rotation out of these groups because the leadership is gone, the, the rate of return is gone. Everyone owns them. I mean you get some people in there who want to take profits or lock down some stuff or move into safety. There's going to be no volume of buyers. This could cascade. This could really be ugly. I mean I'm sorry to say that, but watch the XLK at 224.45 for sure. And then watch the SMH, the semiconductor what was the level? I said I already threw away my note there on that one. You can rewind and grab that out. So at any rate, to go forward with that whole thought process, all right. This means where gold miners are relative to gold and no one owns this stuff, it becomes a value play. Could gold be considered a value play? The gold miners? It is actually a value play in a big way.

Speaker 1 27:41

But you might want a second tier of this because food inflation is coming back. The PPI numbers wholesale food PPI was for nine, over 9% year over year. Food all the way down the chain 7.2% year-over-year price increases. The logistics manager's report was interesting this week. I forgot to mention that and it's perfect to mention right here, because inventories you've built a lot of inventories ahead of what they thought might be a trade war, so they built inventories. Inventory space is now very low. Inventory costs are skyrocketing. Transportation costs in the US are skyrocketing and they're expected to move higher. This will add to the potential for inflation, let alone the risk of some kind of you know cutoff or blockage or you know, the Panama Canal is a perfect example. That could be a major problem In terms of food.

Speaker 1 28:35

You also have weather. All right, this has now gone from El Nino to La Nina. It's a weird La Nina, like unusual patterns, but it's kind of the same thing, just reversed and then tipped over and then turned upside down and then turned around. It is more heat, more cold, more dry, more floods, it's both. I mean, that's what happens. So depending on what area, based on what commodities grow in that area, you have all kinds of risk to food commodities.

Speaker 1 29:05

Cocoa tripled last year, almost already at a new high. We took advantage of that for our managed money clients. Oj went from like $2 to $5, record high. Okay, we saw that one coming being here in Florida. We knew this was going to be a big problem. We caught that move too. All right, cattle We've been long cattle for a while.

Speaker 1 29:24

$2 a pound at the wholesale level Now, first time ever, record highs as we speak. Coffee this week exploded. I've been long coffee and bullish on coffee. We've talked about coffee on this program all year, all year, last year into this year. And when it broke through $3 just recently in our for our clients I said look, every time in the past since 1970 is four, maybe five times you've been above $3. Every one of them was reversed by the next month. I said this was not only not going to reverse, this was going to continue to $4 and then stick. And that's exactly what's happening right now. You have corn, wheat and soybeans at their lows. South American weather is bad If you don't get a good crop out of South America. You just downgraded last year's US crop in a big way. You have no margin for error in some of these things and the prices came down a lot, a lot, all right.

Protecting Against Inflation With Gold

Speaker 1 30:14

Other things that are new highs are linked to cattle, frankly, into that kind of dynamic, along with pork and hogs, lean hogs, milk, eggs, cheese and pork now, not all these things trade in the futures market, but you can access this stuff in the dba. That's dog boy alice. And you're talking about an ETF that right now is allocated. The biggest allocation is in cattle at 17% of the fund. We have a list of that. If you want to see the whole rundown, it's in the PDF we prepared. But I'll tell you what the mining share picks, the 12 mining shares, the whole of the charts that show you all these. I mean the dynamic around both of these giant black holes. And then we're talking about some more information on the DBA.

Speaker 1 31:00

But if you own a gold mining ETF, in whatever degree of percentage you think is appropriate for your risk tolerance and for your portfolio and for your future goals, and then part of the DBA, that's a good one-two punch that will at least inflict some pain on the jaw of inflation as we go forward, and if and when that changes and we continue to do this podcast, I will certainly let you know. You can keep up with us, you know, continuously, by getting our research as well. Email me again, greg weldon, g-r-e-g-w-e-l-d-o-n. At Weldon online. Follow me on Twitter at Weldon live L-I-V-E. Follow the podcast at money underscore podcast on Twitter and look for me on YouTube, gregory underscore Weldon. Thanks for listening.