IN-DEPTH: TRANSCRIPTION - LONGWave - 12-18-24 - DECEMBER - The Re-Privatization of America

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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

The US has been on an unsustainable economic and financial path for more than 40 years. We at MATASII have been forced to report on this even though equity markets have been rising. Like Venezuela, and many other examples, the fact is that as a country fails, its stock markets typically go up.

One reason for this is the purchasing power of a failing economy is the first and ongoing sign of failure. This reduction in purchasing power, most evident as inflation, drives financial assets up due to the depreciating purchasing power since it takes more currency to buy the same market value.

There are rafts of supporting indicators that reflect a failing economy that consumes more than it produces and employs credit to sustain itself.  The difference between the failure of a household and a government is simply a government can print more currency and fabricate more credit. Households and Corporations have no such escape route.

That is the bad news. The Good news is we are recently seeing early indications that this death spiral may be signaling the possibility of altering its’ trajectory.

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We would like to share with you what we believe we are seeing as the very early signs of possible change in direction and hope for our collective future!

As such I want to cover the items outlined here.

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Unfortunately we need to start with the key bad news so we can appreciate the early “green shoots” of optimism.

Let’s start with recapping two central roadmaps the US has been following.

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We have been outlining this roadmap for five years now and in fact dedicated the 2023 Thesis paper to it untitled: “The Great Stagnation”.

The sequence is one that leads economic stagnation towards economic stagflation and eventually will lead to a Debt Crisis before the end of the decade.

Government’s control the publication of their economic statistics and it is not unusual that as economic conditions worsen, government’s start distorting their reporting to hide the reality of the situation and to buy itself time.  The US unfortunately has been a casualty of this (which as I have had to endlessly report on) as the quality & accuracy of reporting continued to deteriorate reaching the state of producing mis-information to hide the economic reality.

The critical concerns for us with the reporting have centered on the Employment and Inflation distortions which we will come back to in a moment.

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The ongoing economic decay was also hidden by the era of the Great Moderation as yields continued to be taken down which boosted consumption and debt. That era ended abruptly with the post Covid Supply Chain inflation bursting onto the scene, driving borrowing rates up.

The post Great Moderation era is now marked by the forced reality of higher inflation, higher borrowing rates and exploding debt servicing costs for governments who continue to increase their Debt-to-GDP and Deficit-to-GDP levels.

The long worsening economic problems have become acute and obvious to even the economic indifferent and uninformed.

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The second roadmap we have been on is that of seeing the US and governments of other developed economies move towards what we termed as the Regulatory State which we focused on in our 2024 Thesis paper.

To keep failing economies alive it is to be expected that governments will borrow more to sustain themselves and to pump freshly created credit into the hands of the electorate. The “Bread and Circus” strategy of pumping counterfeit clipped denarii has been the norm of failing economies since the collapse of the Roman Empire.

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More and more people become reliant on government support either directly as employees or indirectly as recipients of social transfer payments.

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Power and influence of government expectantly expands as economic conditions worsen. Crony Capitalism begins to prevail as the rich get richer and the poor fall further and further behind.

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Government size and scope explodes larger. The US has been no exception to this well trodden path of self reinforcing destruction.

SLIDE 12 - BLOATED GOVERNMENTS IS A MAJOR 21st CENTURY PROBLEM

Bloated government size in fact is now a major 21st century problem.

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  • WHAT HAPPENS IS GOVERNMENT BECOME TOO BIG TO CONTROL
    • The US’ Chevron Deference ruling allowed unaccountable regulatory authority.
    • It has uncontrollably metastasized in the cracks between the Legislative, Executive and Judicial branches of government.
  • THE REGUALTORY STATE HAS BECOMES A FOURTH ARM OF GOVERNMENT
    • Whether you call it the Administrative State, the Regulatory State or the Deep State, the issue is the same. It becomes unmanaged and increasingly in control.

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  • IT ALSO BECOMES INCREASINGLY TOO BIG TO FUND!
    • The missing powers of Creative Destruction, lack of accountability and stable public policy foundations within government inevitably fosters "Fiefdoms", Budget Creep and avoidance of Program Obsolescence.
    • Without the pressures of Bankruptcy, profit motive nor competitive pressures -> bureaucracies are unfortunately inevitable.

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  • Many countries according to IMF Statistics have governments (has shown in dark red) that are well over 4% annual deficits. The French Government just fell because at nearly 6% it was well over the 3% EU mandated maximum with an astounding 60% of spending being that of the government
  • Goals tied to the needs of the electorate ("We the People") must be consistently re-inculcated towards:
    1. Rising Standard of Livings,
    2. Public Security and
  • Real Economic Growth.

SLIDE 16

  • THE HARD REALITY IS GOVERNMENTS NEED TO BE CONTINUOUSLY "RIGHT-SIZED"!
    • Corporate America learned in the post Dotcom Bubble as China entered the WTO that "Right Sizing", "Downsizing" and "Offshoring" were central for sustainable viability. Governments are now at that same point of departure.
    • The driving force for that departure is the Taxation-to-Spending Ratio, (where inflation is properly considered a hidden tax), and the Deficit-to-GDP ratio.
    • Government administrative operations need to be geographically distributed to maintain the tie with the electorate versus the "revolving doors" of government, contract workers and the lobbying complex.

SLIDE 17 - THE SOLUTION TO THE CRIPPLING OF AMERICAN SMALL BUSINESS

  • SMALL BUSINESS IS CRITICAL TO THE VITALITY OF A NATION – BUT UNFORTUNATELY IT IS STRUGGLING!

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    • Small businesses with employees 1-49 are particularly struggling in 2024 (down by 118,000), while large businesses are booming.
    • Employment in businesses with 20-49 employees is down 8 of 11 months in 2024, shedding a total of 99,000 jobs.
    • Year-over-year employment in small businesses is down from 1.8 million in January to a mere 22,000 in November.
    • Why are small businesses failing in 2024? Across the board, surveys find that small businesses are facing similar challenges this year:
      • Inflation
      • Uncertainty around the economy and elections
      • Higher interest rates and
      • Finding qualified people.

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  • HURDLES TO SURVIVAL
    • ECONOMIC ENVIRONMENT - A Particularly Tough Environment
    • REGULATIONS - Compliance, Costs & Competitive Disadvantage
    • RISK / REWARD - Taxation and Liabilities (Litigation)
    • LABOR - Gen Z Expectations & Attitude (College), Illegal Immigration
    • START-UP SURVIVAL - Cost of Living
    • FINANCING - For Existing Businesses Is A Problem

These are the areas taken from regional central bank surveys getting the most feedback on.

SLIDE 20

  • THE PRE-ELECTION CONCLUSIONS
    • BIG Business has become increasingly about Corporatocracy versus Small Business  with has always been about Entrepreneurialism & Self Reliance – the building blocks of America and the American Dream.
    • Big Business + Government was labeled in the late 1930's as "Fascism" by Italian leader Benito Mussolini.
    • We have witnessed that increasing relationship in the exercise of America power
    • Big Business needs have increasingly been met by the government through Lobbying / Influence and Regulatory Arbitrage at the expense of Small Business.

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    • Small Business has been steadily exposed to industrialization of franchising by corporations in hollowing out what was formerly the exclusive enclave of "Ma & Pa" business sectors, (i.e. Hardware stores, Convenience stores, Restaurants, Fast Foods, Donut Shops et al).
    • Small Business has increasingly been subjected to profit squeeze through Government overreach, crippling regulations and compliance requirements.

SLIDE 22

  • A SUDDEN SURGE IN SMALL BUSINESS CONFIDENCE!

The Surge?

  • The net percent of owners expecting the economy to improve rose 41 points from October to a net 36%, the highest since June 2020. This component had the greatest impact on the overall increase in the Optimism Index.
  • The net percent of small business owners believing it is a good time to expand their business rose eight points to a net 14%. This is the highest reading since June 2021.

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Why?

  • This is how the NFIB series for asking executives whether this is a “good time to expand” has moved over the last 10 years. (Chart Right) In a nutshell, if Trump is in power or about to return to it, then it’s time to expand; otherwise, it isn’t.
  • Small business owners matter greatly. They may or may not be right to have such confidence that a Trump administration will improve the environment for them. And it’s possible that they’re simply loyally telling pollsters that things will be better now. But animal spirits like this, in a crucial sector of the economy, should be a great tailwind for Trump.
  • If companies think it’s safe to invest and do so, that’s the administration’s battle won, no matter what policies they eventually enact.

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Let’s now talk about what may be about to happen – “THE UNSHACKLING OF AMERICA”

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INVESTING IN AMERICA

  • We are beginning to see a narrative focus by the Trump administration nominees as a whole on programs that create and instill:
    • OPTIMISM
    • OPPORTUNITY
    • RISK TAKING
    • SMALL BUSINESS RELIEF
  • This is based on a fundamental shift towards Productive Investment in people versus Fiscal Investment (Spending) on transfer payments for Consumption. I have talked about that fundamental difference in my weekly newsletters.

FOSTERING

  • If this is actually carried out then we should expect to see growth in:
    • INNOVATION
    • PRODUCTIVITY

REVITALIZATION OF AMERICA

  • The result of the above directional approach will be the potential Revitalization of America and the Unshackling of America.

A recent UK Financial Times article featured this graph suggesting this directional thinking was fostering the rise shown.

SLIDE 26

AMERICAN EXCEPTIONALISM: THE CLEANEST DIRTY SHIRT

  • Global economic stress is showing everywhere resulting in effectively a growing "flight to safety".
  • This is most evident as shown by the increasing strength of the US Dollar and the dramatic increase in risk capital being employed.
  • This has resulted in the biggest overshoot in analysts' annual estimates in years! The S&P 500 is now over 680 points above the highest 2024 year-end price target from Wall Street strategists and 25% above the average target (4,861).

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The economies of China,

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….. Japan

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… and the EU are in trouble

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….. and historic levels of money flows are heading to the US. Also see your Weekly Current Market Perspectives Newsletter in the Flows Section.)

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FINALLY, A REAL SUPPLY SIDE PUBLIC PLAN which has been blatantly missing!!

Markets and economists are beginning to fully recognize that a serious rationalization of spending is the only way to prevent a debt crisis and reduce inflation in the United States.  In the latest estimates published by the Treasury, the accumulated deficit between 2024 and 2034 would reach $14 trillion. Considering the path of uncontrolled public debt and rising fiscal irresponsibility reached over the past four years, many feared a debt crisis looming. In a period of peace and recovery, a 6.4% budget deficit indicated the lowest economic growth, adjusted for debt increases since the 1930s.

Market participants now appear relieved and are discounting a declining deficit as well as a stronger currency.

INFLATION IS ALWAYS A MONETARY PHENOMENON

Governments create inflation by issuing constantly depreciating currencies, eroding purchasing power through massive spending, and subsequently eroding productivity and the real value of wages and savings. Therefore, strengthening the currency, restoring confidence in public finances and reducing inflation are all part of the same policy: curbing government deficit spending.

A depreciated currency is not a tool of economic growth, but a policy supported by cronyism and bureaucrats aimed at subsidizing their inefficiencies at the expense of citizens’ real wages and deposit savings.

A REAL SUPPLY SIDE PLAN

For the first time in years, we may see a real supply-side plan. This administration deserves some trust, as the alternative would have led the United States into an economic catastrophe.

The new administration must understand that the only way to maintain and strengthen the U.S. dollar’s reserve status is to curb deficit spending and reduce debt while accelerating productive economic growth and private investment. Argentina’s Milei has demonstrated that eliminating deficit spending can significantly reduce inflation.

The United States needs to implement drastic measures to eliminate the bloated expenditure path of the past four years and restore confidence in the solvency of the public sector.

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CHANGE IS UNDERWAY

The president-elect has wasted no time in assembling his team of disciples. You can break the forces of change down into four discrete buckets:

  1. i) Justice,
  2. ii) Health,

iii) National security and

  1. iv) Economic Revitalization.

I have talked about the changes underway in these areas in my weekly newsletter.

If President-Elect Trump gets his way his second term could be historic! Throw in the government Waste, Cuts and Removal project spearheaded by entrepreneurs Elon Musk and Vivek Ramaswamy and you are well on your way to a potential revolution in the fourth arm of the separation of power - the administrative state or what I wrote about in the 2024 Thesis paper - The Regulatory State!

SLIDE 33 – CONLCUSIONS

So what conclusions is this leading us towards?

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Well there is little doubt if you delve into the details there is at least A STRATEGIC PLAN!

The nearly 1000 page Project 2025 outlines the plan in detail and Trumps transition team are committed to it and most importantly to Trump versus heading in different directions which we have witnessed in prior administrations!

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The plan is anchored in

THE RE-PRIVATIZATION OF THE US ECONOMY

  • STOP FALSE & UNPRODUCTIVE ECONOMIC GROWTH
  • STOP THE DISTORTION OF CAPITAL ALLOCATION
  • RESTORE FAITH IN THE US ECONOMY & DOLLAR (* CRITICAL)

We discussed all these in our latest UnderTheLens video

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It has the likelihood of being a Winning Strategy. Implementation is another story as well as the hurdles that must be overcome. The challenges are frankly monumental.

However, unless America gains significant traction with reshoring then America is doomed to an inevitable debt Crisis.

America can no long consumer more than it produces – America must produce more than it consumes.

As I have long held – Money and Wealth is created by:

  1. Mining It
  2. Building It
  3. Growing it
  4. Producing it

It isn’t created by printing it!

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THE REAL QUESTIONS NEEDING ANSWERS:

  • WILL TARIFFS, TAX INCENTIVES, DEREGULATION & EQUITY FUNDING DELIVER RESHORING?
  • CAN THE IMPERATIVE OF TAMING INFLATION & CREATING FAMILY SUPPORTING JOBS HAPPEN?
  • ARE WE BETTING THE COUNTRY?
  • CAN ALL THE CHANGES BE DONE IN 18 MONTHS & BEFORE THE MID-TERMS REMOVED HOUSE CONTROL? (LIKELY NOT BUT WILL THERE BE ENOUGH POSITIVE CHANGE?)

SLIDE 42

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 43

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!