Weekly Market Update by Retirement Lifestyle Advocates

Stocks Collapse

         The Dow Jones Industrial Average declined 7.86% last week, while the Standard and Poor’s 500 fell more than 9% in what was a very difficult week for stocks.

         If you’ve been a long-term reader, you know that I have been warning about stocks being overvalued.  The CAPE, or cyclically adjusted PE, was near all-time highs, as was the Buffet Indicator that measures the total value of the stock market relative to gross domestic product.

         While media pundits will blame any number of events for the market’s decline, the real reason stocks are declining is that they are overvalued.

         Incidentally, as I have often stated in this publication to the skepticism of some readers is that I expect the Dow to Gold ratio to reach at least two and perhaps even one.  A Dow to Gold ratio of two would have the Dow at twice the price of gold per ounce priced in US Dollars.  That would have the Dow at 20,000 and gold at 10,000 or something along those lines.

         Note that the current Dow to Gold ratio after last week’s dismal stock performance is about 12.5.  That’s far lower than one year ago when the Dow to Gold ratio was nearly 19.

Inflation Remains a Problem

         The Personal Consumption Price Index, or PCE, the inflation measure favored by the Federal Reserve, rose again in February.  Core PCE increased .4% month-over-month in February.

         Over one year, core PCE has risen 2.8%.  If the Federal Reserve is serious about tackling inflation, it’s going to be tough for the central bank to reduce interest rates.

         We’ll get more inflation data this week.  The March Consumer Price Index will be reported on Thursday, and the March Producer Price Index will be reported on Friday.

A Decent Jobs Report

         The ADP jobs report showed that the US economy added 155,000 private sector jobs in March, more than the consensus estimate of 120,000 and more than double the 77,000 jobs added in February.  Manufacturing added 21,000 jobs in March the largest increase since October 2022.

         Government employment was a different story altogether;  The federal government cut 216,215 jobs in March.

BRICS Countries Continue the Move Away from the US Dollar

         If you’re not familiar with the term BRICS, it is an acronym for Brazil, Russia, India, China, and South Africa.  These five countries were the original members of BRICS. 

         On January 1, 2024, the coalition was expanded to include Egypt, the United Arab Emirates, Iran, and Ethiopia.  Saudi Arabia was invited to join BRICS, but the country has yet to formally accept the invitation.  Malaysia, Azerbaijan, and Turkey have now applied for membership as well.  This group of countries has been very open about the fact that they are looking to bypass the US Dollar and the SWIFT system, a US dollar-based system used in trade.

         When the United States locked Russia out of the SWIFT system and froze $300 billion in Russian assets denominated in US Dollars, it forced any country that wanted to trade with Russia to use a US Dollar alternative.

         A recent MSN article put it this way: “As US sanctions and soaring debt pressure global economies, BRICS nations and other global south economies are intensifying efforts to establish financial mechanisms that reduce their exposure to US sanctions and dollar volatility.”

         The same MSN article cites that 95% of trade between Russia and China already bypasses the US Dollar by using Russian Rubles and Chinese Yuan to settle these transactions.

         Mike Maharrey sums up why this matters to the United States and to you if you’re managing a nest egg:

“The U.S. needs the work to need its dollars.  Since the global financial system runs on dollars, the world needs a lot of them, and the United States depends on this global demand to underpin its bloated government.  The only reason the U.S. can borrow, spend, and run massive budget deficits to the extent that it does is the dollar’s role as the world reserve currency.  It creates a built-in global demand for dollars and dollar-denominated assets.  The absorbs the Federal Reserve’s money creation and helps maintain dollar strength despite the Federal Reserve’s inflationary policies.

         If this trend continues to build, inflation will, too.

How Fast Is the Move Away from the US Dollar Happening?

         That’s a question I often get from clients and listeners of the RLA Radio program.

         The US Dollar made up 57.8% of total allocated exchange reserves at the end of 2024.  That is the lowest level in more than 30 years and down 7.3% in the last ten years.

         That means that in 2015, total exchange reserves denominated in US Dollars was 65.1%.  A little math has us concluding that US Dollar reserves have declined by between 11% and 12% over the past decade.

         If this trend intensifies, as I believe it will, at least over the near term, further inflation will be fueled.    

RLA Radio

         This week’s RLA radio program features a ‘best of’ interview that I did with investment newsletter publisher Mr. Simon Popple.

         Simon and I chat about the future of commodity investing and what aspiring retirees should do now to capitalize on the current economic and political environment.

         The interview is posted and available by clicking on the "Podcast" tab at the top of this page.

Quote of the Week

“Whoever gossips to you will gossip about you.”

                                             -Spanish Proverb