Weekly Market Update by Retirement Lifestyle Advocates

Stock Valuation Levels

         The Dow to Gold ratio continues to fall as gold rises.  Stocks remain very overvalued by many measures.  The Buffett Indicator, a stock valuation metric that compares market capitalization (total value of stocks) to gross domestic product (economic output) is very overvalued, standing at about 195%.  (Source: https://www.advisorperspectives.com/dshort/updates/2024/09/03/buffett-valuation-indicator-august-2024). Historically speaking, less than 100% is “normal,” suggesting that a decline in stocks of 50% could be possible.

The Federal Reserve Cut Interest Rates But US Treasury Yields Keep Rising

         The central bank of the United States, the Federal Reserve, cut the Fed Funds rate by .5% on the 18^th of September.

         On September 17, the yield on the 30-year US Treasury bond was 3.96%.  Presently, that yield is 4.11%.  Since the interest on the long bond is determined by the market, higher interest rates on the long bond mean US Treasury Bond buyers see increased risk in loaning the US government money.

Another Rating Agency Threatens the Top Credit Rating of the US Government

         Moody’s, one of the major rating agencies, recently threatened the Aaa credit rating of the US Government.  (Source:  https://finance.yahoo.com/news/us-debt-dynamics-inconsistent-aaa-110001502.html).

         Moody’s gave US debt a negative outlook while stating the next US administration “must grapple with widening budget deficits”.  The rating agency suggested that the debt dynamics will be increasingly unsustainable and inconsistent with the Aaa rating if no policy actions are taken to course correct.

         As I’ve written previously, course correction will be difficult and require severe spending cuts since 3 of every 4 personal income tax dollars collected go to pay interest on the debt.

         Standard and Poor stripped the US Government of the top safety rating back in 2011.  Fitch took the top rating away from the US Government last year.

$16 Trillion Problem

         Matthew Piepenburg, writing for Gold Switzerland, reported that over the next three years, the US Government would need to refinance about $16 trillion of debt.  (Source:  https://vongreyerz.gold/a-global-snapshot-stupid-broken-evil)

         Piepenburg says that the average coupon on the $16 trillion in debt that will roll over is 2%; however, the actual yield on the debt is more than 5%, meaning that buyers of the debt are demanding a discount to compensate them for the increased credit risk.

         He suggests central banks around the world recognize this, and it explains why these banks are dumping US dollar-denominated assets and accumulating gold.

Is More Currency Creation, aka Quantitative Easing, Inevitable?

         Now that the US Government is borrowing money to pay interest on money it already borrowed, it’s just a matter of time until the Fed will have to step in and become the buyer of last resort for US Government debt.

         When the Fed buys debt, or US Treasury’s, it does so with US Dollars that have been created from thin air.  This, as we have all experienced first-hand, is inflationary.

         Past guest on RLA Radio, Peter Schiff, suggested last week that the Fed would likely revert to QE in the first quarter of 2025;  “There’s no doubt in my mind that we’re going to have quantitative easing probably at the latest by the first quarter of 2025. The Fed may even start after the election, depending on how bad things are. But the rate cuts were just the beginning. Powell and the guys at the Fed are saying, ‘Well, the economy is great. Everything is awesome, but we’re cutting rates by 50 basis points anyway–’ something that they rarely do.”

Dockworker Group Threatens Strike

         The International Longshoremen’s Association has threatened to strike for the first time since 1977, asking that their demands be met by October (tomorrow).  (Source:  https://www.dailymail.co.uk/news/article-13896603/dockworkers-strike-International-Longshoremens-Association.html)

         A strike would mean that 85,000 workers across 36 ports on the East Coast and the Gulf of Mexico would walk off the job.  That would result in approximately $5 billion in losses each day.

         The move by the Longshoremen’s Association would mean supply chain disruptions fueling inflation and increasing the cost of living.

         A senior economist at the American Institute for Economic Research forecast that a strike could fuel price increases that would be comparable to those seen in 2021 and 2022.

Costco Selling Gold Like Crazy

         As gold prices have surged higher, Costco is selling more gold than ever.  (Source:  https://finance.yahoo.com/news/costco-still-selling-gold-bars-like-hotcakes-as-prices-surge-121843838.html)

         Costco began selling gold bars in 2023 and analysts estimate that sales of the yellow metal have continued to increase.  Wells Fargo analysts have estimated that Costco is selling $100 million to $200 million per month in gold bars.

         While that monthly sales estimate is rather broad, it suggests that Costco’s gold business generates from $1.2 billion to $2.4 billion in sales each year.

         This week’s RLA radio program features an interview that I did with brilliant economic historian Bob Hoye.

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

         The weekly Headline Roundup newscast is also posted there.  If you haven’t yet done so, check out the free resources available on the website.

“I know a man who gave up smoking, drinking, sex, and rich food.  He was healthy right up to the day he killed himself.”

                                                      -Johnny Carson