A Bunch of Stuff + My Top 10 List
This week I cover a bit of macro economic factors driving markets, plus my top 10 list for the current secular bull market in precious metals.
Hey everybody. Thanks for reading. Eric Hyde here again. The Tobin Report is all things money, markets, and charts.
Let’s get to work…
In this report, I’ll cover a bunch of stuff:
Rate hikes
Inflation
Consumer debt
U.S. default
Housing
Employment
Portfolio Top 10 list
1️⃣ RATE HIKES
According to the CME Fed Watch tool, there is an 82.6% chance the Fed will NOT raise rates in June. With the banking crisis still unfolding, credit has already contracted…and the Fed considers this a pseudo rate hike.
2️⃣ INFLATION
But what if inflation spikes up again as many predict…like it did in the 70s and 80s? Can they afford to continue raising rates when the cost to service the debt is so high…when banks continue to fail…when our ally countries (if we have any left) are begging us to stop because it has a negative affect on their currency?
Look at the inflation chart below. In the 70s and 80s, we saw 3 waves of inflation, each wave higher than the previous. What if the 9% we saw last year was the equivalent to the first wave, 6%, in the 70’s?
I believe we are on that path. Spending has not been curbed. Employment still strong. Wages still strong.
My base case: inflation spikes again to higher levels in 2024/2025.
But…..I could be wrong. Obviously. I’m wrong all the time.
We shall see.
3️⃣ CONSUMER DEBT
Consumer debt in the U.S. has surpassed $17 trillion for the first time ever, according to the Federal Reserve Bank of New York.
Total for borrowing reached $17.05 trillion, a rise of nearly $150 billion or 0.9%.
The increase in debt was seen across all categories, with larger balances for mortgages, home equity lines of credit, auto loans, student loans, retail cards, and other consumer loans.
Credit card debt has risen at the fastest pace of any debt, reflecting more people using credit cards to finance day-to-day expenses.
Spending less? No.
Borrowing more? Yes.
4️⃣ U.S. DEFAULT
If a U.S. default sounds catastrophic, that's because it is.
Janet Yellen described it as a severe downturn, millions of unemployed, and a 45% selloff in the stock market.
"A default would crack open the foundations upon which our financial system is built. It is very conceivable that we'd see a number of financial markets break – with worldwide panic triggering margin calls, runs, and fire sales."
Yellen warned that a protracted default does not rule out as severe a downturn as the Great Recession. The value of the stock market is slashed by about 45 percent – “wiping out years of retirement and other household savings," she described.
Yellen still sees June 1 as the date the Treasury could run out of cash.
Politics? Fear mongering? Playing games?
I think yes.
That said…………
Is it a ZERO possibility that the U.S. defaults?
No.
Oh yeah, and if they RAISE the debt ceiling…..that just means more printing. Sounds like gold would LOVE that. 😎 And if gold loves that, so will I.
5️⃣ HOUSING
U.S. home sales fell more than expected in April, down 3.4%.
On an annual basis, April’s existing sales were down 23.2%.
Yes, the U.S. median price for all home types is only down 1.7% from a year ago.
Everyone is talking about a housing crash. Yet mine has actually gone UP, even in the last 6 months. To be fair, I’m using the value Zillow and Redfin are telling me. Could be wrong.
This doesn’t meant we won’t see a crash…but again, consensus is sometimes the signal for a contrarian view.
6️⃣ EMPLOYMENT
The U.S. labor market is NOT showing any signs of weakening. This does not help the case for lowering inflation.
Weekly jobless claims fell by 22,000 to 242,000 for the week ending May 13, down from the previous week's unrevised level of 264,000 claims.
The latest labor market data was significantly better than expectations.
Continuing jobless claims, which represent the number of people already receiving benefits, were at 1.7 million during the week ending May 6, decreasing by 8,000 from the previous week's revised level of 1.8 million.
SUMMARY
So why do I pay attention to these macro drivers? It is these factors that guide my investment decisions.
Here is what I mean:
Rate hikes: Done or almost done. Inflation: Still high. Consumer debt: Highest in history. U.S. Debt Ceiling: Not resolved. Housing: Not crashing. Inflationary. Employment: Still good. Inflationary.
I didn’t even cover a huge host of other macro drivers like geopolitics or de-dollarization, supply chain concern, or trade with other countries…. But this is sufficient for now.
But by putting it all together, this is what drives my investment thesis for the coming months, 12-18 months to be specific.
Here is my top 10 list:
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