IN-DEPTH: TRANSCRIPTION - LONGWave - 03-10-24 - APRIL - Economic Stagnation Will Soon Turn to Stagflation
SLIDE DECK
TRANSCRIPTION
SLIDE 2
Thank you for joining me. I'm Gord Long.
A REMINDER BEFORE WE BEGIN: DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are COMMENTARY for educational and discussions purposes ONLY.
Always consult a professional financial advisor before making any investment decisions.
SLIDE 3 - COVER
It must be an election year because all the news flows expound on the strength of the economy, the great job numbers and the stellar performance of the financial markets. What is there not to like!
What is not to like is that is misinformation. It is hype that is great for elections but can be a dangerous cocktail for investors not doing their homework!
I want to show you in as quick a fashion as I can where you are being mislead.
SLIDE 4 - AGENDA
To do that I want to cover the areas outlined here.
SLIDE 5
In a recent CNN poll, 48% of respondents stated that they believe the economy remains in a downturn, and only 35% said that things in the country today are going well.
These are atrocious numbers by any measure and are completely at odds with the current mainstream narrative.
SLIDE 6
The disparity between somber economic sentiment and a surprisingly strong headline unemployment rate and Gross Domestic Product (GDP) can be easily explained.
SLIDE 7
The divergence between headline GDP and Gross Domestic Income (GDI) is staggering.
The gap opened up in late 2022 and has grown ever since. GDP is now about half a trillion dollars bigger than GDI. This fact is something I have been talking about for over a year and it only keeps getting worse the more the US deficit worsens.
An exploding deficit yet the economy is great – how does that work??
SLIDE 8
While GDP suggests a strong economy, GDI reveals a stagnant economy. Both measures used to follow a similar pattern, but as I have pointed out previously, this changed drastically in 2023. While GDP rose 2.5% in 2023, GDI only bounced 0.5%, effectively signaling economic stagnation.
SLIDE 9
According to the Bureau of Economic Analysis, real GDI increased only 0.5% in 2023, compared with an increase of 2.1% in 2022.
If we use the average of real GDP and real GDI, it increased only 1.5% in 2023, compared with an increase of 2.0% in 2022.
Maybe this is not a recession, but it certainly is a weak economy.
SLIDE 10
In fact what we are realistically experiencing is Stagnation with the beginning elements of Stagflation showing.
SLIDE 11
I like this chart of the DJI: Gold ratio going back to the 60’s. It has made me a lot of money by keeping me on the right side of what is really going on and not the misplaced spin of the day.
It identifies the major legs we have experienced regarding Stagflation in the 70’s on the left, through to the cyclical period of stagnation following the Dotcom Bubble bursting, through the period of reflation brought to you by Quantitative Easing to the post Covid world and the end of the Great Moderation.
For the last three years I have watched the consolidation take the form of a corrective ABCDE triangle fenced in by colliding trend lines.
It has been our opinion that the break out would resolve itself to the downside with Stagnation and the unfolding Beta Drought Decade.
Over the last month with the major move in gold it appears the test is complete and the red monthly bars are down.
The secular period of Stagnation since the Dotcom implosion will now resume.
It is one of the reasons we have been talking about Gold and specifically Integrated Gold miners in our weekly newsletter chart deck.
SLIDE 12
This fits with our 2023 Thesis paper entitled the Great Stagflation that laid out the thinking in a lot more detail which can be downloaded free from the MATASII web site
Though the Thesis paper talked about the coming debt crisis during the Beta Drought Decade …
SLIDE 13
…we had yet to fully experience the full unfolding ramifications of the $6.3T in government deficit spending.
This chart gets to where the GDP – GDI distortions has gotten us to.
We had ~$62T in global government debt as measured by GDP in 2020 with supported by ~84.96T in debt.
2 years later the debt is ~$82T on a GDP measure of $104T
This is ~20T of new global government debt to grow the global economy by $20T!
Are we growing Debt or Growth? Or are we growing the economy or just debt?
GDP measures expenditures (i.e. spending driven by debt). GDI measures income or the other side of the value of the spending. It comes up woefully short.
That is the simple misconception that is being used to mislead everyone.
SLIDE 14
How is this showing itself in the economy and why the polls read as they do?
SLIDE 15
The unemployment figures actually show weakness if looked at properly.
Real wage growth in the past four years has been negligible, at 0.7% per year - four times weaker than the previous four years.
SLIDE 16
Furthermore, the labor force participation rate remains below the pre-pandemic level at 62.5%, the same as the employment-population ratio at 60.1%.
SLIDE 17
Poor real average hourly earnings combined with a decrease of 0.6% in the average workweek has resulted in an uninspiring 0.5% increase in real average weekly earnings in the year to February 2024.
SLIDE 18
There is also a weak trend in profits. Everyone is mislead by the unprecedented market distortions brought to you by the Magnificent 7 by their earnings per share which are a function of how much they are reducing shares outstanding with massive stock buybacks.
In 2023, profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $49.3 billion, compared with an increase of $285.9 billion in 2022, according to the BEA.
Profits of domestic nonfinancial corporations increased $66.6 billion, compared with an increase of $247.6 billion in 2022. This is a very weak trend.
SLIDE 19
Though figures indicate that the US economy is performing significantly better than the euro area, both are still below what expectations should be for the level of deficit stimulus being pumped into this almost lifeless economy.
SLIDE 20
Keynesianism is working against the potential of the United States economy.
SLIDE 21
The accumulated $6.3 trillion deficit of the past four years had a negative impact on the economy.
Rising taxes and persistent inflation are eroding the average American quality of life.
More citizens need to hold more than one job to make ends meet, and the number of multiple jobholders has reached a multi-decade record.
SLIDE 22
Gross Domestic Income proves the economy is stagnant, and if we look at GDP and GDI excluding the accumulation of debt, they show the worst year since the 1930s.
SLIDE 23
How can an economy be stagnant with 2.5% GDP growth?
Here is the failure of Keynesianism in all its glory.
Headline aggregated figures are optically strong due to the accumulation of debt,
SLIDE 24
…. and employment figures are bloated by government jobs, disguising a struggling private sector and a weakening purchasing power of the currency.
Cheap money is very expensive in the long run, and discontent rises as Keynesianism focuses on increasing the public sector while the productive economy suffers higher taxes and more challenges to pay the bills.
SLIDE 25
…. Bills that come with paying for the jobs and services to support 10M in undocumented immigrants flowing across our border like an uncontrolled tidal wave.
A tidal was of unbudgeted and as of yet (because it is an election year) with no tax increases to pay for the load on public services at the state and local levels who have no budgets or nor plans for it.
Want to take a guess at what the deficit spending is going to be to pay for this??
SLIDE 26
Inflation is a consequence of the misguided increase in government spending and debt monetization in the middle of a post-pandemic recovery, leading to an aggregate loss of purchasing power of the currency that is close to 24% in the past four years.
SLIDE 27
The government is taking in inflation what it promises in entitlement spending.
The result? You are poorer.
It is dangerous to blame Americans’ discontent on a lack of information.
SLIDE 28
Americans are suffering a prohibitive tax wedge as well as the hidden tax of inflation just because the government decided to play the oldest trick in the book: promise “free stuff” and print new currency through deficit spending, which makes the allegedly free programs more expensive than ever.
SLIDE 29
The failure of Keynesianism is evident.
Sadly, politicians will promise more Keynesianism and present themselves as the solution to the problem they have created.
SLIDE 30
The Fed is making a big mistake by cheering the headline economic figures that come from disguising a private sector recession with a massive increase in public debt and weakening employment figures embellished by temporary jobs and public sector hiring.
SLIDE 31
We are paying for big government become bigger government!
Additionally, it is making a mistake by giving dovish signals that make market participants take more risk. There has been no relevant reduction in the money supply if we include the different layers of liquidity injections.
Announcing forthcoming rate cuts will certainly make speculative debt rise but will hardly change the credit demand from the backbone of the economy, small businesses, and families.
Since the US government has rejected any calls for normalization and instead added more deficits and debt as if rising bond yields were not a problem, citizens and businesses have already suffered greatly from ongoing inflation and rate increases.
As such, the rate cuts will help an already bloated government spending and the zombie corporations that keep access to capital markets.
Everyone else will be hurt both ways, with inflation and lower access to credit.
SLIDE 32
You may think all the above problems are policy mistakes, but they are not. This is a slow process of nationalizing resources.
Inflation and artificial money creation through deficits and monetization are a gradual transfer of wealth from real salaries and deposit savings to the government or what is increasingly becoming (whether planned or unwittingly) becoming the Regulatory State.
SLIDE 33
You are basically becoming poorer to sustain an ever-increasing government size.
The next time you read that massive deficits and monetary easing are good policies for the middle class, ask yourself why you find it harder each year to pay for goods and services.
SLIDE 34
The mistakes made in 2020–2024 will cost the middle class many more taxes, even if the government promises it will only be “taxes on the rich,” the oldest gimmick to raise your taxes.
SLIDE 35
More taxes, persistent inflation, the hidden tax, and the loss of value of your wages.
That is “easing” for you.
A private sector recession with headline economic figures bloated by government debt.
SLIDE 36
This is the perfect recipe for increasing economic Stagnation!
SLIDE 37
I started this video with how weak the CNN poll was regarding how 48% of respondents stated that they believe the economy remains in a downturn, and only 35% said that things in the country today are going well. These are atrocious numbers but actually reflect what people see and experience with their own eyes.
It is my sense that both Presidential candidates are terribly polarizing candidates taking America either further right or further left.
What will solve economic conditions is to take America towards the center on what America is and what built America. A de-polarization of America and a functioning Congress versus a country increasing directed by “Executive Order” and “Government Regulations” not through bi-patrician Congressional Bills.
I hear a former President’s voice in my head from over 40 years ago when he spelled out that “the Government is not the solution, the government is the problem!”
The next four years of his term ushered in some of the US’ best economic times and policies that fostered them.
I also hear another President 20 years before that challenging us with: “Ask not what your country can do for you, but rather what you can do for your country!”
SLIDE 38
Without American coming together, rather than continuing to fracture – Economic Stagnation and Stagflation is ahead of us!
SLIDE 39
As I always remind you in these videos, remember politicians and Central Banks will print the money to solve any and all problems, until such time as no one will take the money or it is of no value.
That day is still in the future so take advantage of the opportunities as they currently exist.
Investing is always easier when you know with relative certainty how the powers to be will react. Your chances of success go up dramatically.
The powers to be are now effectively trapped by policies of fiat currencies, unsound money, political polarization and global policy paralysis.
SLIDE 38
I would like take a moment as a reminder
DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are for educational and discussions purposes ONLY.
As negative as these comments often are, there has seldom been a better time for investing. However, it requires careful analysis and not following what have traditionally been the true and tried approaches.
Do your reading and make sure you have a knowledgeable and well informed financial advisor.
So until we talk again, may 2024 turn out to be an outstanding investment year for you and your family?
I sincerely thank you for listening!
