Ponzi Economy, 2024

NFTRH 799’s opening segment illustrating unsustainable debt leverage

Below is an exercise that considers real economic/macro/market indicators and one writer’s view of what is in play this election year. I avoid becoming enmeshed in politics like I avoid the plague. But this is probably the most important, not to mention bizarre, scary and angry election year ever. Now think about the robo-expansion of debt (what’s a few more $Trillion for the cause, eh?) at this crucial time. There is not a partisan bone in my body because I don’t believe in the system itself, let alone either of the modern versions of the parties dominating that system.

Ponzi Economy, 2024

Excerpted from the March 3rd edition of Notes From the Rabbit Hole, NFTRH 799:

Though the economy is stable and markets are bullish by definition of price trends, the underpinning is anything but healthy.

The U.S. national debt is rising by $1 trillion about every 100 days

Of course, increasing debt leverage has been the game for decades now. Taking a stance against this leveraged and massive debt monster may have been right in theory and in essence, but would have been wrong in actual results, save for a few meltdowns over the last 2.4 decades of the worst (or some would say best) of it.

The debt has increased markedly during a time when the Fed is supposedly tightening monetary policy. The government (fiscal) is spending like a drunken sailor with Treas/Sec Janet Yellen, who I assume has a direct line to the outwardly hawkish Jerome Powell, right in there overseeing the process.

The NFTRH view is that in an important, divisive and downright scary presidential election year (in its lack of viable choices) the Fed is keeping up hawkish appearances with the Funds Rate, but relieving that pressure out its backside orifice through bond monetization activities (as per previous reports/graphs/data). My assumption is that it is doing this in coordination with the Biden admin, with Yellen as its point man.

My further assumption is that this is an ‘all or nothing’ play, a “last chance power drive” if you will, to secure the election by the Biden admin. Further still, my assumption is that IF they are able to keep up (debt-fueled) appearances into the election, what comes after is not going to be pretty. Quite the contrary, it will probably be very ugly indeed if/when 4 more years are secured.

Why do I say that now, at $34 Trillion in debt as opposed to some other time at less Trillions in debt? I say it because at some point there will be a saturation point, when the edifice stops growing and just wheezes, rolls over and deflates. I say it because…

…for the first time through those inflationary decades (for our purposes looking back to the 2000 time frame, but in the Continuum’s trend, back to the 1980s) “something broke, finally!”

I do not make a habit of getting hysterical about things such as irreconcilable debt because decades lined up one after the other are a long time. It was proven to me many years ago that ‘they’ can keep the game going longer than any given idealist can maintain a positive mental health situation while opposing it. You can be fundamentally pure and lead a hell of a lot of people astray. However, while not being hysterical (I don’t think ;-)) at the current time, I sure as shootin’ will highlight reasoning why it may be different this time, finally.

The Continuum chart was created many years ago to advise the intact downtrend in long-term Treasury yields. As noted many times, my view is that the downtrend – and its disinflationary signaling – allowed and enabled monetary policymakers (Fed) to promote inflationary operations at will. Why not inflate? The Bond market says ‘no inflation problem’! Well, in 2022 with the break of the decades old trend, the bond market said “inflation problem!”

Fast forward to 2024 and we see the government doing all it can to leverage more and more Trillions in debt for economic stability while the Fed plays hawk while also manipulating bonds to assure it does not play hawk too aggressively. Wouldn’t want to ruin good election year stock mania, now would we?

While I am of course only making guesses educated by indicators, I think it is a viable plan to expect them to try to keep things intact into the election, after which we will see a deflationary resolution. The other possibility is that the newly reaffirmed government (Biden admin) will just keep on fiscally pumping. But the second term imperative will be something less, don’t you think? If they grab power for 4 more years that’s a win. After that, Katie bar the door. All bets are off.

I am trying my best to just illustrate what the market’s indications are telling me. You may recall that I was critical of Trump. I still am. I wish there were another viable candidate to stand against the democrat machine. But the republicans are a mess, with a spectacular (one definition: strikingly large or obvious) figure at the head. I would also add the description ‘cartoon-like’. But what the party in power is doing is in my opinion mortgaging us all (we Americans, anyway) in order to keep power beyond 2024.

As such, the NFTRH plan is for this high risk process to continue as long as that risk is not realized. It’s a one-way ticket to paradise and a last chance power drive. It is dangerous, desperate and bullish. When my original rally projections of Q1-Q2, 2023 morphed into year-end I had this thought: ‘duh, it’s an election year and duh… it’s the most divisive election year maybe ever’. Markets are getting manic to the upside and the question remains ‘can they bring it to the finish line in November?’

NFTRH 799 then moved on to strategies for navigating the 2024 environment, discussing individual sectors, potential internal market rotations, indicators, sentiment and more. Our job, after all, is to successfully manage the markets, not to rail against the monetary, political and/or social backdrop informing those markets. While I use TA extensively, the market is rotating internally to include more segments (hello gold stocks, commodity/resource stocks, etc.) and macro and stock level fundamental research is also required. I do my own macro and have individual associations and the very valuable (to me) Simply Wall St for the stock level stuff.*

* An above board reminder that this is the lone affiliation I have chosen to work with because I am a paying premium subscriber and find SWS’s equity-related fundamental data trove to be the best I’ve seen. A nice tool for the toolbox.

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