Weekly Market Update by Retirement Lifestyle Advocates

Some U.S. States Moving Toward “Digital Asset” Reserve

         While no state has yet been successful in establishing a digital asset reserve, a.k.a cryptocurrency, several states are now potentially moving in that direction.

         Utah, presently, is the state closest to adopting a law that would mandate the state’s treasurer maintain some of the state’s reserve fund in a digital asset or a cryptocurrency.  (Source: https://decrypt.co/304890/third-of-us-states-bitcoin-crypto-public-funds)

         One of the Utah House of Representatives Committees, the Economic Development and Workforce Services Committee, passed the bill on the third reading by an 8 to 1 vote.

         Utah’s bill would authorize the state treasurer to allocate up to 5% of certain public funds to “qualifying digital assets” as long as the digital asset has a market capitalization of $500 billion when averaged over the prior 12 months.

         Utah’s bill does not mention Bitcoin specifically, but currently, that is the only cryptocurrency that would meet the minimum market capitalization requirements.

         A similar proposal in North Dakota failed on February 4 of this year.

         New Mexico, Arizona and Texas have bills similar to Utah’s bill pending as well.

Is the Federal Reserve Getting it Wrong?  Again?

         Lance Roberts published a piece last week that revealed the Federal Reserve’s track record on forecasting economic growth.  (Source:  https://realinvestmentadvice.com/resources/blog/forecasting-error-puts-fed-on-wrong-side-again/)

         This chart was included in the article illustrating the Fed’s economic forecasting track record.

         The blue lines on the chart illustrate the years that the Fed underestimated economic growth, and the red lines on the chart illustrate the years the Fed overestimated the growth of the economy.

         Notice there aren’t many years that the Fed’s forecast was close to economic reality.

         Roberts contends (and I agree) that the Fed has it wrong again largely from overestimating the strength of employment.

         Since the U.S. economy is 70% dependent on consumption, when employment conditions weaken, a recession often follows.  While Roberts cites many statistics in his piece (link above), one stood out.  The number of employees working full-time has declined by about 4% over the last two years.

US Adds $2.2 Trillion to Debt Total in 2024

         In calendar year 2024, the US Government added $2.2 trillion to its debt total.  (Source:  https://www.schiffgold.com/commentaries/treasury-adds-2-2t-of-debt-in-2024)

         Most of this debt was financed short term with higher interest rates than were previously typical.  This chart illustrates.

         Notice that the weighted time to maturity (the blue line on the chart) stands between 5.5 and 6 years while the interest paid on the debt rose to more than 3% (the orange line on the chart).

         When digging into the $2.2 trillion in new debt, about half of that total came from paying interest on the debt.  That’s a shocking statistic.

Gold Has Another Good Week

         Gold prices reached all-time highs again last week, continuing the strong rally year-to-date.  Silver also rallied, but its performance lags that of gold.  The chart below is a weekly price chart of an exchange-traded fund that tracks the price of gold.

         Notice the parabolic nature of the price action on the right side of the chart.  While the fundamentals of gold remain strong, a pullback here would not be surprising.  Since November 1 of 2023, gold prices are up approximately 69%.

         Comparing that to silver’s advance over the same time frame, one finds that gold has outpaced silver by nearly 20% as silver has advanced about 50% over that same time frame.

         I expect that performance gap to close over time.

The yellow metal continues to perform well.  As I have often stated here, I think that there is still more upside for gold and even more upside for silver, given the current level of the gold-to-silver ratio in light of historical averages.

         Gold typically performs well in times of economic turmoil, especially when inflation is running hot as it is presently.

         Gold prices now exceed $2,800 per ounce.

Recession Imminent?

         Jim Rickards, a past guest on RLA Radio, published a piece last week in which he outlined three recession risks that lie ahead. 

         Rickards stated that despite new policies that will likely be economically sound in the longer term, these short-term risks will be difficult to overcome.  (Source:  https://dailyreckoning.com/rickards-a-u-s-recession-is-coming/)

         Rickards had this to say about the newly installed Trump Administration’s policies:

The new Trump administration is off to a fast start. All of the key nominations for the Trump cabinet and White House staff have been made, the Senate confirmation hearings (where needed) have mostly been held, and some of the key positions have already been filled. Trump signed a large pile of Day One executive orders over the course of January 20 and 21, immediately after the inauguration. More executive orders are in the pipeline.

This all stands in sharp contrast to Trump’s 2016 transition process where the nominees were not well chosen, confirmation went slowly, and the deep state holdovers from the Obama administration were still in place. What a difference four years makes.

We are extremely optimistic about Trump’s economic plans. Whether by executive order, regulatory processes, or legislation, Trump will be pursuing lower taxes, less regulation, and higher tariffs on foreign trading partners in order to promote high-paying jobs in the U.S.

         That said, Rickards noted that it will take some time for the positive effects of these new policies to be felt economically and in the financial markets.  In the near term, Rickards identified these three risks:

         One, stocks are extremely overvalued and will likely have to move lower.

         Two, economic contraction is coming (maybe here already in my view).  Inflation has persisted, energy prices are high by historical standards, unemployment is rising, manufacturing is contracting, and hiring is frozen.

         Three, currency wars are back, and trade wars are coming.  Rickards notes that this will accelerate economic contraction.

Global Debt Reaches 323% of GDP

         Global debt has now reached an all-time high level, according to analyst Martin Armstrong.  (Source:  https://www.armstrongeconomics.com/armstrongeconomics101/economics/global-debt-reaches-326-of-gdp/)

         Mr. Armstrong notes that global debt increased by $12 trillion in the last three quarters of calendar year 2024.  Armstrong was quoting data from the Institute of International Finance.  This level of debt accumulation worldwide was higher than what was seen at the time of the pandemic.

         Total global government debt is now $98,000,000,000,000 ($98 trillion) and is forecast to reach $130 trillion by 2028.  Mr. Armstrong suggested that his computer models are predicting that it’s at that time the world will feel the aftershocks of a global recession.

What a Terrible Investment

         Looking below the surface at the recent fourth quarter reported GDP numbers, one finds some very troubling data.

         First, the GDP numbers.  According to the Bureau of Economic Analysis, the gross domestic product of the United States grew at a 2.3% rate.  That’s slightly lower than the consensus estimate of 2.6% and down from the 3.1% growth pace reported in the third quarter.

         In terms of dollars, the US economy grew by $130.6 billion.

         So the next logical question is: what funded this growth?

         You don’t have to look too far to find the answer.  It was funded by debt.  During the fourth quarter of the year, the US Government ran a deficit of about $711 billion.

         US Government spending is a component of the Gross Domestic Product.  I’ve made this point here previously, but it’s worth making again: if the US Government was not engaging in deficit spending, the recession would already be here.

         The ugly reality of the numbers is this:

         The US Government is spending more than $5 in deficit spending to get $1 worth of growth.

         Obviously, this can’t continue.

Another Reason to Own Silver?

         If you’re at all familiar with technical analysis, you may be familiar with a chart pattern known as a “cup and handle pattern”.  It is a fairly reliable pattern that forecasts a bull market when it appears.

         Check out this 55-year cup and handle pattern that is forming in the silver market.

         Got silver?

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         This week’s RLA radio program features a replay of an interview that I did with Mr. Michael Pento, Host of the Mid-week Reality Check podcast. 

         In case you missed it, the replay is posted and available now by clicking on the "Podcast" tab at the top of this page.

 

 

"No amount of evidence will ever persuade an idiot.”

                                                      -Mark Twain