Are the Saudis Ready to Ditch the Dollar?

For several years now, I have been writing about the ultimate consequences of the considerable devaluation of the US Dollar.

          Over the past couple of years or so, every American has felt the effects of this dollar devaluation first-hand as consumer price inflation has driven the price of nearly every necessity higher. 

          But now, even more serious consequences may be on the horizon. 

Ever since the 1970’s, when the US Dollar became a fiat currency, the dollar has retained its status as the world’s reserve currency due to the agreement put in place with Saudi Arabia in the early 1970’s.  This agreement had the United States offering Saudi Arabia military protection in exchange for the kingdom pricing oil exports in US Dollars.  It was this agreement that established the petro-dollar as any country around the world that wished to purchase oil from Saudi Arabia had to inventory US Dollars in order to do so.

          That agreement has served the US well for about 50 years.  However, over the past few years, there are ever increasing signs that much of the rest of the world is seeking US Dollar alternatives.

          This past week, another major move was made away from the US Dollar as Saudi Arabia publicly announced the kingdom was actively looking to price its oil exports in currencies other than US Dollars.  This from “The Gateway Pundit”  (Source: https://www.thegatewaypundit.com/2023/01/another-biden-catastrophe-saudi-arabia-announces-readiness-trade-currencies-us-dollar-another-blow-us-economy/):

Saudi officials announced this week they are ready to to trade in currencies other than the US dollar in a huge blow to the American economy.

Saudi Arabia announced the move following a December meeting with China’s President Xi Jinping. The kingdom is ready to trade in yuan instead of the dollar in trade exchanges.

Saudi Arabia has also announced its intention to join the BRICS alliance.

Russia Today reported:

Saudi Arabia is ready to discuss trading in currencies other than the US dollar, according to the Kingdom’s finance minister Mohammed Al-Jadaan, as cited by Bloomberg.

Al-Jadaan’s comments come a month after China’s President Xi Jinping said that Beijing is ready to make energy purchases in yuan instead of the US dollar in trade exchanges with members of the Gulf Cooperation Council (GCC). China’s leader highlighted the necessity of the shift while speaking at a Chinese-Arab summit hosted by Saudi Arabia earlier this week.

“There are no issues with discussing how we settle our trade arrangements, whether it is in US dollar, in euro or in Saudi riyal,” Al-Jadaan said on Tuesday during an interview with Bloomberg in Davos, Switzerland.

The oil-rich kingdom is seeking to deepen its ties with vital trade partners, including China. The readiness for talks on the issue expressed by Riyadh may signal that the world’s biggest oil exporter is open to diversifying away from the US dollar after decades of pricing crude exports in the US currency. The riyal, the Saudi national currency, has been pegged to the greenback, too.

          This is simply HUGE news and provides yet another reason for Americans who aspire to a comfortable retirement to diversify out of US Dollars.  (One of the best ways to do this, in my view, for many investors is to consider adding precious metals to one’s portfolio.)

          While I don’t know the time frame (nor does anyone else in my opinion), I believe that ultimately the US Dollar will lose its status as the world’s reserve currency.  Admittedly, this opinion is at odds with the opinions of some very bright guest experts that I interview on my radio program, but in my view, the US Dollar’s devaluation will continue, and the rest of the world will increasingly and urgently look for alternatives.

          “Quoth the Raven” is an interesting opinion column.  Here are some comments on this recent development involving Saudi Arabia from that column (Source:  https://quoththeraven.substack.com/p/saudi-arabia-just-killed-the-petrodollar):

Put simply, I believe there is a historic divide in the making between the BRICS nations, led by Russia and China, and the West, led by the United States.

I was one of the few outlets last summer to even report on the fact that Russia and China openly announced a “new global reserve currency” (announced in July 2022, predicted by me in February 2022). And of course, Russia and China can’t do it on their own: they are working with nations like Saudi Arabia and India to help put their plans into practice.

Crucial to dethroning the U.S. dollar would be the removal of its use for buying and selling oil – a system that has been in place since the 1970s when the U.S. promised security for the Saudi Kingdom in exchange for the petrodollar system that underpins the dollar’s strength as global reserve currency. It’s a topic that I discussed at length back in September with Andy Schectman on this podcast.

Andy told me back in September 2022: “The dollar hegemony is right about ready to break when you realize that Saudi Arabia is about to join the BRIC nations. Do you think Biden is going to fly there to ask for more oil? He went there to beg them not to join BRIC.”

“The dollar was made reserve currency only because of our protection of the Saudi kingdom,” Andy continued. He then noted astutely that Saudi Arabia had signed new protection agreements with Russia. “All of the Eastern European countries that have repatriated their gold. They’re all part of the EU but they all trade their own currency. They’re all going to break away from the Western system,” he added.

And now it looks like Andy was right: it appears Saudi Arabia has just issued a death knell to the exclusivity of the petrodollar as we once knew it – the first of several dominoes that needs to fall before the U.S. is exposed financially as an emperor with no clothes.

            As I have discussed here previously, the BRICS nations (I’ve added an ‘S’ to the BRIC reference to include the country of South Africa) are now developing their own currency, likely commodity-backed, to use in trade.  This latest development involving Saudi Arabia may have the Saudi’s looking to use a different currency in oil trade, perhaps this BRICS currency that is being developed.

            While this move away from the US Dollar was likely going to happen anyway at some point, recent US policy decisions have motivated the Saudi’s to move more quickly away from the US Dollar.  This from “Times of India” (Source:  https://timesofindia.indiatimes.com/readersblog/blogthoughts/saudi-arabia-the-foundation-of-brics-currency-47508/):

BRICS is an alliance of the world’s five major developing economies: Brazil, Russia, India, China and South Africa, most people underestimate it since it includes emerging economies as opposed to established economies in the G7. These five countries account for 41 percent of the world’s population and have a combined GDP of over 24.4 trillion U.S dollars. They also have a substantial military capability and an increasing political influence in the global sphere, and by teaming together, this group commands a voice for itself in the global sphere, for example, it helps them to have wiser worries about emerging economies whenever the West implements policies that are explicitly beneficial to itself, and a famous example of this is the carbon tax. The European Union routinely complains about the carbon emissions created by the Indian and Chinese steel industries. Because their industries are adopting to clean energy, they are now going to apply a carbon tax, so that when Indian and Chinese steel enter the global marketplace in 2030, Indian products will be taxed penalties precisely because of more carbon emission than these developed countries. However, developed nations have generated so much carbon during their development phase that they are primarily responsible for climate change, yet they ignore the past and now impose a tax on carbon emission, when developing countries needs economic fuel to thrive.

Saudi Arabia is one of the most powerful nations in the world, and it has always been the closest ally of the United States of America. However, Saudi Arabia is currently involved in a cold war with the same United States, because Saudi Arabia reduced oil output by 2 million barrels a day as a result the price of oil shot off from 91 dollars a barrel to 94 dollars a barrel, this action was tremendously profitable to OPEC, but it caused mayhem in the West. Further, President Biden warned Saudi Arabia with unclear repercussions and even offered passing the No Pick Bill to challenge Saudi Arabia’s security which begin violating the Petro dollar agreement between the U.S and Saudi. So, in exchange, Saudi Prince Mohammed bin Salman made a major step that sent shivers down the spines of Americans, and that was his proposal to join members of the BRICS. Previous years data states that Saudi has started making defence deals with both China and Russia firstly, they are not overly reliant on the U.S, secondly the Biden administration wants to relax economic sanctions on Iran, Saudi Arabia’s opponent in the Middle East, and the third reason is the oil consumption of BRICS. Resulting in Saudi Arabia, the world’s top oil producer allegedly proposing to join BRICS, by which they will have the backing of China, Brazil and India as the biggest consumers of oil in the world.

          If you haven’t yet embraced “Revenue Sourcing” for your planning to help you protect yourself from currency risk, now is a good time to do so.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Depression Parallels?

Depression parallels?

          Not a comfortable topic to discuss, to be sure.  But as my now oft-quoted history professor used to say, “those who don’t study history are doomed to repeat it.”

          The older I get and the more experience I acquire, the smarter my history professor becomes.

          Which brings me to this week’s “Portfolio Watch” topic – similarities between the period-of-time preceding the Great Depression and where we find ourselves today.

          I address this topic very briefly this week, acknowledging the fact that an entire book could be written on the topic.  In this brief narrative, I’ll discuss the wealth gap and consumerism excesses.

          For context, it’s important to understand the role that central bank policy played in creating the prosperity illusion of the Roaring Twenties and the prosperity illusion that we’ve more recently experienced.

          The central bank of the United States, the Federal Reserve, was founded in 1913.  Shortly after its formation, the central bank reduced the backing of the US Dollar by gold.  Prior to the establishment of the Federal Reserve, the US Dollar was essentially gold; the US Dollar was backed 100% by gold.  An ounce of gold was twenty US Dollars.

          Shortly after the Fed was set up, the backing of the US Dollar by gold was reduced from 100% backed by gold to 40% backed by gold. A little rudimentary math has us concluding that it increased the currency supply by 250%.

          While I am not a trained economist (since the majority of trained economists today are of the Keynesian school of economics, I count my lack of formal training as an attribute rather than a detriment as my common sense has not been compromised), I have learned from my study of history that when currency is created, it always has to find a home.

          While there are many eventual adverse outcomes as a result of currency creation, the two on which I will focus this week are income inequality (the wealth gap) and debt accumulation.

          Let’s begin with debt accumulation.  Here is an excerpt from an article published about consumerism and debt accumulation in the 1920’s (Source: http://athenaandkim.weebly.com/consumerism.html):

Consumerism in the 1920’s was the idea that Americans should continue to buy product and goods in outrageous numbers.  These people neither needed or could afford these products, which generally caused them to live pay-check to pay-check.  People bought many quantities of products like automobiles, washing machines, sewing machines, and radios.  This massive purchasing period led to installment plans.  These were plans for people in which they were able to purchase their products and pay for them at a later time in small monthly payments.  This was the reason why “80% of Americans during the 1920’s had no savings at all – they were living pay-check to pay-check”.  This consumerism later became a contributing factor to the start of the Great Depression because it greatly increased the amount of consumer debt in America.

          The Great Depression was largely caused by debt excesses, debt levels in the private sector that were too large to be paid.  As a result, many American citizens lived paycheck-to-paycheck. 

          We are now experiencing the same thing.  Almost 2/3rd’s of American households now live paycheck-to-paycheck.

          This from MSNBC (Source:  https://www.cnbc.com/2022/12/15/amid-high-inflation-63percent-of-americans-are-living-paycheck-to-paycheck.html):

As rising prices continue to weigh on households, more families are feeling stretched too thin.

As of November, 63% of Americans were living paycheck to paycheck, according to a monthly LendingClub report — up from 60% the previous month and near the 64% historic high hit in March.

Even high-income earners are under pressure, LendingClub found. Of those earning more than six figures, 47% reported living paycheck to paycheck, a jump from the previous month’s 43%. 

“Americans are cash-strapped and their everyday spending continues to outpace their income, which is impacting their ability to save and plan,” said Anuj Nayar, LendingClub’s financial health officer.

          While inflation, caused by excessive currency creation by the central bank, is a factor in the vast number of Americans currently living paycheck-to-paycheck, another factor is the level of debt that Americans have collectively racked up as a result of easy money policies and artificially low-interest rates.  Here is just one example (Source:  https://www.theatlantic.com/culture/archive/2023/01/buy-now-pay-later-affirm-afterpay-credit-card-debt/672686)

As familiar as Americans are with the concept of credit, many of us, upon encountering a sandwich that can be financed in four easy payments of $3.49, might think: Yikes, we’re in trouble.

Putting a banh mi on layaway—this is the world that “buy now, pay later” programs have wrought. In a few short years, financial-technology firms such as Affirm, Afterpay, and Klarna, which allow consumers to pay for purchases over several interest-free installments, have infiltrated nearly every corner of e-commerce. People are buying cardigans with this kind of financing. They’re buying groceries and OLED TVs. During the summer of 2020, at the height of the coronavirus pandemic, they bought enough Peloton products to account for 30 percent of Affirm’s revenue. And though Americans have used layaway programs since the Great Depression, today’s pay-later plans flip the order of operations: Rather than claiming an item and taking it home only after you’ve paid in full, consumers using these modern payment plans can acquire an item for just a small deposit and a cursory credit check.

From 2019 to 2021, the total value of buy-now, pay-later (or BNPL) loans originated in the United States grew more than 1,000 percent, from $2 billion to $24.2 billion. That’s still a small fraction of the amount charged to credit cards, but the fast adoption of BNPL points to its mainstream appeal. The widespread embrace of this kind of lending system says a lot about Americans’ relationship to debt—particularly among the younger borrowers who made BNPL popular (about half of BNPL users are 33 or under). “We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt. 

            Credit card debt is also reaching record highs.  This from “Zero Hedge” (Source: https://www.zerohedge.com/markets/flashing-red-alert-near-record-surge-credit-card-debt-just-average-rate-hits-all-time-high):

Another month, another glaring reminder that most US consumer spending is funded by credit cards.

The latest consumer credit report was published by the Fed today at 3pm and it showed that in November, total credit increased by $27.962BN to $4.757 trillion, above the $25BN consensus estimate, and a number which would have been bigger than last month’s pre-revision increase of $27.1BN, had it not been revised modestly higher to $29.12BN.

          As for the wealth gap, we are now once again seeing what was witnessed in the 1920’s.  This from the same article quoted above:

The income gap of the 1920’s was the difference in income between the top 1% of wealthy Americans and the rest of the average earnings.  Within this income gap, “60% of Americans earned below the poverty level.  The top 1% of wealthy American’s saw their incomes increase by 75% during the 1920’s… the other 99% of Americans saw their income increase by only 9%… not enough to justify the huge expenditures on consumer products that most Americans were making”.  This shows that there was a great split between those who earned an average income or less compared to the wealthy who earned a considerably larger amount of money.
          Fast forward to today.

          The wealth gap or income inequality gap is wider in the United States than in any other G7 country.

          According to “World Population Review,” the top 1% of earners in the United States have an average earned income of $1,018,700 annually.

          The bottom 50% have an average income of $14,500 annually. 

          If one peels out the top 10%, the average annual earnings are $246,800.

          This is what currency creation and artificial markets do.

          But artificial markets don’t last forever.  History teaches us that this will end badly.

          If you haven’t yet taken steps to protect yourself, now is the time.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Welcome to 2023 and the US Dollar Losing Favor

This week, I want to highlight some of the currency shifts that are taking place presently.  Not surprisingly, the Chinese Yuan is gaining favor around the world at the expense of the US Dollar.

          This from Alex Kimani (Source: https://oilprice.com/Energy/Energy-General/Why-We-Shouldnt-Underestimate-Chinas-Petro-Yuan-Ambitions.html):

The de-dollarization of the global oil industry is in a treacherous mission creep phase. Things like this don’t happen quickly, but determinedly and gradually, not exactly fitting into today’s media headline game that only considers instant developments. But it is happening and the tide will not be turned based on current and near and medium-term geopolitical developments.  Credit Suisse’s Zoltan Pozsar recently warned clients, in essence, that the de-dollarization of the global oil industry is in full swing–even if we can’t see the final end game from here. 

And it’s all about China, of course. Pozsar does the OPEC math for us. 

Some 40% of proven oil reserves belonging to OPEC+ members is owned by Russia, Iran and Venezuela–all of whom are selling to China at major discounts, and all of whom are on board with Beijing’s petro-yuan plan. 

The countries of the Gulf Cooperation Council (GCC)–most notably Saudi Arabia and the UAE–account for another 40% of proven oil reserves, and they are increasingly cozying up to China. 

The remaining 20% is also accessible to China, and China is already the largest importer of crude in the world. 

What it all means is that de-dollarization is marching to the beat of a fairly steady drum. In terms of global trade, the yuan accounts for around 2.7% of settlements, while the dollar accounts for 41%. These are the numbers that prompt the new trend of instant gratification to suggest this is not an imminent threat to the dollar. They are wrong. The biggest threats take a significant amount of time to develop. From here on out, the pace will pick up momentum. 

China and the GCC

As Oilprice.com reported earlier in December, Chinese President Xi Jinping has pledged to ramp up efforts to promote the use of the yuan in energy deals, suggesting at a summit in the Saudi capital that the GCC countries should make full use of the Shanghai Petroleum and Natural Gas Exchange to carry out its trade settlements in yuan. 

The year we just exited should be considered the year in which the petro-yuan really took hold, as China forges a path of increasingly oil and gas purchases from places that are petro-yuan friendly. Russia’s war on Ukraine and the Western sanctions response has only acted as a further catalyst. 

In a note to clients carried by the Irish Times, Pozsar warns: “China wants to rewrite the rules of the global energy market”, and it will do it by first removing the dollar from the orbit of the Bric countries (Brazil, Russia, India, China) that have been affected by the “weaponization” of dollar foreign exchange reserves meant to punish Russia and keep Putin from filling his wartime coffers. 

What’s happened here is a window of enormous opportunity for Beijing, which has now told the Gulf countries that they are absolutely guaranteed buyers for oil and gas, for payment in yuan, with Xi promising to “import crude oil [and natural gas] in a consistent manner and in large quantities from the GCC”.

Xi’s trip to Saudi Arabia in early December was precisely about the yuan. This was the defining moment for the petro-yuan. It was an invitation, and it was well-received. China and Saudi Arabia signed over $30 billion in trade deals during the visit. That’s $30 billion in leverage that will only help further promote the petro-yuan plan. 

More than 25% of China’s crude imports come from Saudi Arabia, and it seems inevitable that the GCC will gradually adopt the petro-yuan, even if there will be a lot of roadblocks along the way due to their exposure to Western financing. 

What Western minds are banking on–quite literally–is the fact that China alone has $1T in U.S. Treasury bonds. And as for the Saudis, they are truly tied to the Western financial system and the petrodollar. De-pegging the riyal from the dollar, though it has been discussed very quietly (only from a purely research perspective), would be a rather dramatic shock for the Kingdom–one the Crown Prince won’t likely be willing to risk for a very long time. But he will actively discuss oil deals with China in yuan

The Chinese goal is much more patient than any Western mind can fathom. It’s about slowly chipping away at the dollar’s throne in oil and commodities markets, and as the reserve currency of choice. That is what Brics and the Shanghai Cooperation Organization (SCO) is all about. 

And with every geopolitical upset on the level of Russia-Ukraine, and with every tightening of the sanctions screws by the West, Beijing gets a little further with its petro-yuan goals. 

There won’t be any announcement. There won’t be any loud noise. It will happen gradually. It will happen very slowly. And the West will struggle to find its footing when a new global energy order emerges in the longer-term future. 

            I have been writing about this for several years.

          The Chinese Yuan is quickly gaining favor around the world.  Check out this recent development regarding the Russian sovereign wealth fund.  (Source:  https://www.zerohedge.com/news/2022-12-31/what-russia-doubling-its-gold-and-yuan-holdings-really-means)

On Friday, Russia’s Finance minister announced their National Wealth Fund (NWF) is now permitted to allocate up to 60% of its holdings in Chinese Yuan and up to 40% of its holdings in Gold Bullion. This is a doubling in permitted allocation percentages up from 30% and 20%.

Simultaneously the fund reduced its holdings of the British Pound and the Japanese Yen to zero.

Reuters reports from Moscow:

Russia’s finance ministry on Friday said the maximum possible share of Chinese yuan in its National Wealth Fund (NWF) had been doubled to 60% as it restructures its rainy-day fund to reduce dependency on currencies from so-called “unfriendly” nations. Source

The NWF had been recently used to finance the widening budget deficit in 2022 due in no small part to sanctions by the G7. The Fund stands at $186.5 billion according to Reuters.

The official statement out of the ministry read in part like this:

“The Russian finance ministry is continuing its consistent reduction of the share of currencies of ‘unfriendly’ states in the structure of the National Wealth Fund’s assets.”

The news agency notes these measures are in no small part a counter to the sanctions by western nations.

We would strenuously add that while this “counter” explanation is true, the circumstances creating the situation are not likely to reverse even if sanctions are lifted and Ukraine magically healed itself.

The world, in our opinion is very different. The trust is broken. Nations are countering existential threats (in their view), with increasingly mercantilist policies that fragment trade irreparably.

Would you trust currency of a country that confiscated your assets?

Stealing in Russia’s Eyes

You cannot confiscate (as opposed to just freezing) the assets of a nation as held at the IMF or other “safe” institutions as was done by the West, and expect that nation to continue to carry assets in your currency. This is not spite-work by Russia, it is economic survival. While this is a horrendous development, in their (Russia’s) eyes it is the lesser evil now.

People can debate if this is justified or not all they want. But it is happening, and there are global consequences that will manifest locally for everyone.

Establishing the Golden Yuan and PetroYuan

Reuters also goes on to add that Finance Minister Anton Siluanov said the trend will continue next year when Russia resumes growing that fund by allocating oil and Nat Gas revenues to this rainy day fund.

We would note again as a second-order knock-on effect: If sanctions do not work, and Russia is making money to be held in Bullion and Yuan; then the west must move from Financial sanctions to Commodity action. That means somehow they must get Oil lower to kill Russian revenues , as some suspect they have been doing with rehypothecation in WTI.

As Russia buys gold with oil revenues, it attempts to create a defacto Gold and Yuan peg. Our point is, law follows economic practice. If enough people use something, it becomes the standard. The announcement is made after the broad acceptance, not before.

          While 2023 may not be the year that the big shift from the US Dollar occurs, I expect there will be movement in that direction.  If you are holding all your wealth in US Dollar based assets, you may want to consider adding some precious metals to your portfolio.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Happy New Year – New Taxes Await

Happy New Year!  And, with the new year comes higher taxes, thanks to the Washington politicians.

          While I fully expect another difficult year for the economy and investing, the consumer spending-dependent US economy will have to withstand higher taxes in addition to record debt levels and inflation.

          This from “Zero Hedge” (Source:  https://www.zerohedge.com/political/heres-list-biden-tax-hikes-which-take-effect-jan-1):

When the Democrats finally passed the “Inflation Reduction Act” in 2022 (how’s that going?), they included several tax hikes set to take effect on Jan. 1, 2023.

Americans for Tax reform‘s Mike Palicz has conveniently compiled a list of them, along with his take on their intended effects:

$6.5 Billion Natural Gas Tax Which Will Increase Household Energy Bills   

Think your household energy bills are high now? Just wait until the three major energy taxes in the Inflation Reduction Act hit your wallet. The first is a regressive tax on American oil and gas development. The tax will drive up the cost of household energy bills. The Congressional Budget Office estimates the natural gas tax will increase taxes by $6.5 billion.

And, of course, this tax hike violates Biden’s pledge not to raise taxes on Americans making under $400,000 per year. According to the American Gas Association, the methane tax will slap a 17% increase on the average family’s natural gas bill.

$12 Billion Crude Oil Tax Which Will Increase Household Costs

Next up – a .16c/barrel tax on crude oil and imported petroleum products which will end up on the shoulders of consumers in the form of higher tax prices.

The tax hike violates President Biden’s tax pledge to any American making less than $400,000 per year.

As noted above, Biden administration officials have repeatedly admitted taxes that raise consumer energy prices are in violation of President Biden’s $400,000 tax pledge.

As if it weren’t bad enough, Democrats have pegged their oil tax increase to inflation. As inflation increases, so will the level of tax.

$1.2 Billion Coal Tax, Which Will Increase Household Energy Bills

This one increases the current tax rate on coal from $0.50 to $1.10 per ton, while coal from surface mining would increase from $0.25 per ton to $0.55 per ton, which will raise $1.2 billion per year in taxes that will undoubtedly be passed along to consumers in the form of higher energy bills.

$74 Billion Stock Tax Which Will Hit Your Nest Egg — 401(k)s, IRAs, and Pension Plans

Democrats are now imposing a new federal excise tax when Americans sell shares of stock back to a company.

Raising taxes and restricting stock buybacks harms the retirement savings of any individual with a 401(k), IRA or pension plan.

Union retirement plans will also be hit.

The tax will put U.S. employers at a competitive disadvantage with China, which does not have such a tax.

Stock buybacks help grow retirement accounts. Raising taxes and restricting buybacks would harm the 58 percent of Americans who own stock and more than 60 million workers invested in a 401(k). An additional 14.83 million Americans are invested in 529 education savings accounts.

Retirement accounts hold the largest share of corporate stocks, accounting for roughly 37 percent of the outstanding $22.8 trillion in U.S. corporate stock, according to the Tax Foundation.

In 2017, corporate-sponsored funds made up $4.45 trillion in market value; union-sponsored funds accounted for $409 billion; and public-sponsored funds, which benefit teachers and police officers, added up to $4.25 trillion.

A tax on buybacks could dissuade companies from doing so, and US companies will face significant compliance costs, which will – again, be passed along to consumers.

$225 Billion Corporate Income Tax Hike, Which Will Be Passed on to Households

American businesses reporting at least $1 billion in profits over the past three years will now face a 15% corporate alternative minimum tax, which will be passed along in the form of higher prices, fewer jobs, and lower wages, according to Americans for Tax Reform.

Tax Foundation report from last December found a 15 percent book tax would reduce GDP by 0.1 percent and kill 27,000 jobs.

Preliminary cost estimates from the Congressional Budget Office found the provision would increase taxes by more than $225 billion.

According to JCT’s analysis, 49.7 percent of the tax would be borne by the manufacturing industry at a time when manufacturers are already struggling with supply-chain disruptions.

Which industry will likely be most affected? According to the Tax Foundation“the coal industry faces the heaviest burden of the book minimum tax, facing a net tax hike of 7.2 percent of its pretax book income, followed by automobile and truck manufacturing, which faces a 5.1 percent tax hike.”

        There is really no such thing as a business tax.  When businesses are required to pay additional taxes, the business simply adjusts the price of the product or service that the business offers in order to cover the tax.  This means that consumers pay more when purchasing a product or service.

          As I write this, I just paid my natural gas bill, which is how I heat my West Michigan home.  The bill that I just paid was significantly higher than the bill from the same time last year.  Now, after this tax is implemented, I can expect another 17% increase in the cost of natural gas.  That increase will be solely the result of new taxes.

          These taxes come at a time when the average American family is struggling due to inflation.  Discretionary income in many households is now a memory rather than a reality.  Making ends meet has become a nightmare for many households, and it’s now about to get worse.

          Michael Snyder, an author, and prolific economic commentator, recently noted that almost 2 out of 3 American households are now living paycheck to paycheck.  (Source: https://www.silverdoctors.com/headlines/world-news/15-facts-prove-a-massive-economic-meltdown-is-already-happening-right-now/)

          This (Source:  https://www.cnbc.com/2022/12/15/amid-high-inflation-63percent-of-americans-are-living-paycheck-to-paycheck.html) from CNBC:

As rising prices continue to weigh on households, more families are feeling stretched too thin.

As of November, 63% of Americans were living paycheck to paycheck, according to a monthly LendingClub report — up from 60% the previous month and near the 64% historic high hit in March.

Even high-income earners are under pressure, LendingClub found. Of those earning more than six figures, 47% reported living paycheck to paycheck, a jump from the previous month’s 43%. 

“Americans are cash-strapped and their everyday spending continues to outpace their income, which is impacting their ability to save and plan,” said Anuj Nayar, LendingClub’s financial health officer.

Although consumer prices rose less than expected in November, persistent inflation has caused real wages to decline.

Real average hourly earnings are down 1.9% from a year earlier, according to the latest reading from the U.S. Bureau of Labor Statistics.

This leaves many Americans in a bind as inflation and higher prices force more people to dip into their cash reserves or lean on credit just when interest rates rise at the fastest pace in decades.

Already, credit card balances are surging, up 15% in the most recent quarter, the largest annual jump in more than 20 years.

At the same time, credit card rates are now more than 19%, on average — an all-time high — and still rising.

          As I stated last week, because of the actions of the politicians and the Fed, it’s my firm belief that severe deflation and economic pain lie ahead.

          Make sure you educate yourself and take action to protect yourself.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Economic Deterioration and Washington Excesses

          As the year 2022 comes to a close, and we look forward to next year, it is difficult to move ahead, anticipating a better year economically speaking.

          That might seem too negative since the year 2022 wasn’t great economically.  This past year saw negative economic growth in the first two quarters of the year, raging inflation, and now, as the year draws to a close, the evidence suggests that the economy is deteriorating despite the claims of some politicians to the contrary.

          We have been discussing the economy and investing markets in this publication each week all year, and some of what will be discussed this week is a review of past discussions.  However, this past week, Michael Snyder wrote a well-sourced piece documenting the strength of the economy as we move into 2023.

          Here is a bit from the piece (Source:  http://theeconomiccollapseblog.com/15-facts-that-prove-that-a-massive-economic-meltdown-is-already-happening-right-now/):

Economic conditions just keep getting worse.  As we prepare to enter 2023, we find ourselves in a high inflation environment at the same time that economic activity is really slowing down.  And just like we witnessed in 2008, employers are conducting mass layoffs as a horrifying housing crash sweeps across the nation.  Those that have been waiting for the U.S. economy to implode can stop waiting, because an economic implosion has officially arrived.  The following are 15 facts that prove that a massive economic meltdown is already happening right now…

#1 Existing home sales have now fallen for 10 consecutive months.

#2 Existing home sales are down 35.4 percent over the last 12 months.  That is the largest year over year decline in existing home sales since the collapse of Lehman Brothers.

#3 Homebuilder sentiment has now dropped for 12 consecutive months.

#4 Home construction costs have risen more than 30 percent since the beginning of 2022.

#5 The number of single-family housing unit permits has fallen for nine months in a row.

#6 The Empire State Manufacturing Index has plunged “to a reading of negative 11.2 in December”.  That figure was way, way below expectations.

#7 In November, we witnessed the largest decline in retail sales that we have seen all year long.

#8 Even the biggest names on Wall Street are starting to let workers go.  In fact, it is being reported that Goldman Sachs will soon lay off approximately 4,000 employees.

#9 The Federal Reserve is admitting that the number of actual jobs in the United States has been overstated by over a million.

#10 U.S. job cuts were 417 percent higher in November than they were during the same month a year ago.

#11 A recent Wall Street Journal survey found that approximately two-thirds of all Americans expect the economy to get even worse next year.

#12 A newly released Bloomberg survey has discovered that 70 percent of U.S. economists believe that a recession is coming in 2023.

#13 Inflation continues to spiral wildly out of control.  At this point, a head of lettuce now costs 11 dollars at one grocery store in California.

#14 Overall, vegetable prices in the United States are more than 80 percent higher than they were at this same time last year.

#15 Thanks to the rapidly rising cost of living, 63 percent of the U.S. population is now living paycheck to paycheck.

In a desperate attempt to get inflation under control, the Federal Reserve has been dramatically increasing interest rates.

Those interest rate hikes are what has caused the housing market to crash, but Fed officials insist that such short-term pain is necessary in order to tame inflation.

          If you’d like to learn more details, visit www.RetirementLifestyleAdvocates.com and view the 12/26/2022 “Headline Roundup” webinar where I go into detail on each of these 15 points.

          As I have discussed frequently in the past in this publication and on the “Headline Roundup” webinars, inflation cannot be brought under control until the Washington politicians balance the budget.

          Rather than taking inflation and the budget deficit seriously, the Washington politicians recently rammed through a 4,000+ page piece of legislation that will set the country back $1.7 trillion.

          True to form, given the time frame between the introduction of the bill and its passage and the sheer volume of the bill, there is not one politician that voted for the bill that could have read it.

          As I noted last week, the politicians are not only wildly spending on a deficit basis, they are also fabricating the reported deficit numbers.  Last week, in “Portfolio Watch”, I shared an excerpt from a piece written by Egon von Greyerz who noted that as the reported deficit was $1.4 trillion, the national debt increased by $2.5 trillion. 

          It must terribly frustrate Washington politicians that there are still citizens that can actually do the math.  Sigh, it’s probably only a matter of time before the reported debt numbers are also manipulated to make them seem more favorable.

          I liken this to the decades-old metaphor of re-arranging the deck chairs on the Titanic.  It might seem more comfortable for a brief period, but the ship is still going to sink.

          Michael Snyder, in the piece referenced above, comments:

This week, an abominable 1.7 trillion dollar omnibus spending bill is being rammed through Congress, but not a single member of Congress has read it.

The bill is 4,155 pages long, and U.S. Senator Rand Paul just held a press briefing during which he wheeled it out on a trolley…

After the grossly bloated $1.7 trillion Omnibus spending bill advanced in the Senate by a vote of 70-25, GOP Senator Rand Paul held a press briefing during which he wheeled in the “abomination” on a trolley and demanded to know how anyone would be able to read it before the end of the week.

Paul, along with the only other dissenting Senate Republicans Mike Braun, Ron Johnson, Mike Lee, and Rick Scott highlighted how ludicrous the fast tracking of the bill has been.

Unfortunately, this absurd spending bill has broad support on both sides of the aisle, and that just shows how broken Washington has become.

Our system of government has failed time after time, and our politicians continue to spend money on some of the most ridiculous things imaginable.

The following examples that were pulled out of the 1.7 trillion dollar omnibus spending bill were discovered by the Heritage Foundation

-$1.2 million for “LGBTQIA+ Pride Centers”
-$1.2 million for “services for DACA recipients” (aka helping illegal aliens with taxpayer funds) at San Diego Community College.
-$477k for the Equity Institute in RI to indoctrinate teachers with “antiracism virtual labs.”
-$1 million for Zora’s House in Ohio, a “coworking and community space” for “women and gender-expansive people of color.”
-$3 million for the American LGBTQ+ Museum in New York City.
-$3.6 million for a Michelle Obama Trail in Georgia.
-$750k for the for “LGBT and Gender Non-Conforming housing” in Albany, New York.
-$856k for the “LGBT Center” in New York.

And have you noticed that our politicians often prefer to push these types of bills through just before major holidays when hardly anyone is paying attention?

            Ironically, the bill that established the Federal Reserve in 1913 was jammed through congress and signed into law just before the Christmas holiday as well.

          Because of the actions of the politicians and the Fed, it’s my firm belief that severe deflation and economic pain lie ahead.

          Make sure you educate yourself and take action to protect yourself.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Orwell and Gold

          In reading an article penned by Egon von Greyerz this past week, I was reminded of the prescient writings of George Orwell as it relates to where we now find ourselves economically and politically.

          While I would encourage you to read the entire article for yourself, let me share some excerpts with you (Source: https://goldswitzerland.com/us-doublespeak-will-not-stop-golds-imminent-surge/):

Propaganda, lies and censorship are all part of desperate governments actions as the economy disintegrates.

We are today seeing both news and history being rewritten to suit the woke trends that permeate society at every level, be it covid, the number of genders, the Ukraine war or government finances.

I have in many articles covered the explosion of money printing and debt which is an obvious sign that the global financial system is approaching collapse and default . The consequences will be  far reaching to every corner of the globe and all parts of society.

See my recent article“In The End The Dollar Goes To  Zero And The US Defaults” which outlines the probable course of events in 2023 and afterwards.

Later on in this article, I will look at the consequences in relation to markets and what ordinary people (investors?) can do to prepare themselves.

ORWELL PREDICTED THE FALSIFICATION OF HISTORY 73 YEARS AGO

“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.”― George Orwell, 1984

Let’s just look at government finances. As we are entering the end of an era with deficits and debts running out of control, the truth becomes an inconvenience to governments and must therefore be suppressed or rewritten.

If we just look at the US Doublespeak in regards to the 2021-2 budget deficit, we find that the US Treasury reported on Oct 21 this year:

WASHINGTON, Oct 21 (Reuters) – The U.S. government on Friday reported that its fiscal 2022 budget deficit plunged by half from a year earlier to $1.375 trillion, due to fading COVID-19 relief spending and record revenues fuelled by a hot economy, but student loan forgiveness costs limited the reduction. The U.S. Treasury said the $1.400 trillion reduction in the deficit was still the largest-ever single-year improvement in the U.S. fiscal position as receipts hit a record $4.896 trillion, up $850 billion, or 21% from fiscal 2021.

FANTASTIC!!

What an achievement by the Treasury Secretary Ms Yellen and her team to halve the deficit to only $1.4 trillion!

But let’s look a bit more closely what really happened.

If the deficit was “only” $1.4 trillion we must assume that the Federal Debt also increased by the same amount?

But ALAS, the debt increased by $2.5 trillion to $31T  in the same period and not by the assumed $1.4T. 

Hmmmm.

So again we can look at the 1984 Orwell quote above “Every record has been destroyed or falsified….”

The deficit wasn’t halved at all. Instead hal

f of it was stated below the line as a budget adjustment. So they can lie about the Budget Deficit but so far they are not lying about the level of the Debt. But that will certainly happen one day too. Remember that the Clinton so called surpluses in the late 1990s were produced with the same type of creative accounting. There were no real surpluses. They were just shuffled below the line since debt continued to grow.

Good old Mark Twain gave us the useful quote about lies and statistics:

So there we have it; 2022 seems more and more like 1984!

The clouds look extremely dark for 2023 and beyond.

As I have pointed out above, there is no attempt to reach a peace settlement in Ukraine. Weapons and money are pouring in to keep the war going. And the sanctions forced upon Europe by the US are having a devastating effect for the citizens of most European countries. Energy costs are up 2-3X or more for many consumers and food inflation in Germany for example jumped 21% year on year in November.

In the UK, many ordinary people cannot afford to keep their heating on or to eat properly. And this is before the cold winter sets in.

The situation in Ukraine seems to deteriorate and with Russia and the US involved, as well as China in the periphery, it could easily escalate.

But as I have spelt out numerous times, $300 trillion of global debt and $2 quadrillion of quasi debt in the form of derivatives can only end in currencies going to zero and sovereign borrowers defaulting.

A global sovereign default should be seen as an indisputable fact and it is only a question of how long it takes.

These events are normally a process. As Hemingway said, you go bankrupt “Gradually and then suddenly”.

The beginning can be a slow process and then at some point the shock comes so fast that no one will have time to react.

So no-one must believe that there will be time to get out once the early “gradual” phase starts.

Just to be clear, the gradual phase is here already although the world is in denial. The buy the dip mentality is still prevailing as evidenced by the partial recovery in stock markets.

Few realise that this is it and the next devastating fall in stocks is going to fool practically all investors. The majority will not get out but hope for a correction so they can exit at a higher level. And once the correction comes, they will be bullish again.

Once everyone is back into the market it will fall again. Most of the investors will be fooled most of the time until their portfolio is virtually worthless.

The Western world hasn’t experienced a real bear market since 1929-32. That time it took 25 years for the Dow to recover to the 1929 high.

The generosity of Central banks has made stock investments a one way game since the early 1980s.  But now the game is up and few will realise it until they have lost everything.

So the “suddenly” will be like an earthquake seemingly coming out of nowhere. It can come in 2023 or it might take a few years.

What is certain is that there will be no warning. As I said, we have already had plenty of warnings but gullible investors will not believe them. This is just like the curse of Cassandra. She was given the gift of predicting disastrous events. But her curse was that no one would believe her. I wrote about Cassandra in this article five years ago. In the same article, I also made a timely gold forecast which most investors sadly ignored.

Gold has risen strongly in this century although most investors don’t actually realise how strong it has been.

Since the beginning of the 2000s  gold has outperformed every major asset class including stock markets. But the move has been in two halves with the first 11 years being spectacular for gold which moved up 7X in dollar terms. Since then a strong dollar has made gold’s performance less spectacular.

But if we look at an annual chart of gold in US dollars it still looks very impressive.

Sanctions, energy prices, inflation, industrial production and many more  problems in Euroland, make gold a sine qua non (necessity) in order to avoid total wealth destruction.

Both fundamentally and technically gold now looks ready for another major move. The first target is $3,000 on the way to much higher levels. But as I often point out, gold must be measured in ounces or kilos and not in what will be worthless fiat money whether paper or digital.

          As I suggested last week, getting some of your wealth out of the fiat money system, given current world circumstances, is likely a good idea.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Inflation and Digital Currency

          The push toward central bank-issued digital currencies continues as inflation continues to demolish purchasing power around the world.

          This chart, published by “Visual Capitalist,” illustrates how the official inflation rate is now double digits in more than half the countries around the world.

          Not really all that surprising, given that politicians around the world overpromise and overspend while central banks subsidize their reckless monetary policies through currency creation.

          It’s also important to remember that the real inflation rate in these countries is likely much higher since the reported inflation rate is the official rate which is typically massaged to make it more palatable to the populace.

          As I have often stated, as we near the end of the currency-money cycle, there are currency changes that ultimately culminate with a currency being backed by a tangible asset like gold and/or silver.

          One of the currency changes being aggressively pursued in many countries is a central bank-issued digital currency.

          A digital currency would replace cash and allow for more controls by central bankers and politicians, including a social scoring system that may allow ‘model citizens’ more money privileges than those who score lower on a government-developed social scoring system.

          For those of you who are wondering how such a system might be implemented, you might be interested in what is now happening in the country of Nigeria.

          This from “NFCW” (Source:  https://www.nfcw.com/2022/12/08/380838/central-bank-of-nigeria-limits-cash-withdrawals-to-drive-cbdc-and-digital-payments-adoption/)

The Central Bank of Nigeria (CBN) is restricting the amount of cash that consumers and businesses can withdraw from ATMs to 20,000 naira (US$45) per day and 100,000 naira (US$225) per week.

It has also instructed banks to encourage customers to use the country’s eNaira central bank digital currency (CBDC) and digital payment channels — including mobile and online banking and card payments — instead of cash.

Cashback transactions at the point of sale will also be limited to 20,000 naira (US$45) a day, while over-the-counter cash withdrawals in banks will be restricted to 100,000 naira (US$225) per week for individuals and 500,000 naira (US$1,128) a week for business customers, a CBN directive to Nigeria’s banks and financial institutions states.

The central bank is introducing the revised cash withdrawal limits in January 2023 “in line with the cashless policy of the CBN” and, rather than withdrawing cash, “customers should be encouraged to use alternative channels (internet banking, mobile banking apps, USSD, cards/POS, eNaira etc) to conduct their banking transactions”, the directive says.

Customers will still be able to make in-person cash withdrawals above the revised limits “for legitimate purposes” and “in compelling circumstances, not exceeding once a month”, but will be charged a 5% or 10% processing fee per withdrawal and will be required to provide state-issued identity documents, a “notarized customer declaration of the purpose for the cash withdrawal” and written authorisation by the CEO of the bank approving the transaction.

Banks will also be required to report all such transactions on “the CBN portal created for the purpose”.

The CBN launched the eNaira in October 2021, announced in November 2021 that nearly 500,000 consumers had downloaded the eNaira digital wallet and in June this year began letting consumers use feature phones to make CBDC payments.

          Nigeria is forcing the use of digital currency.  Cash withdrawals are severely limited.

          While this is Nigeria, it is worth noting that as the end of the fiat currency cycle has been reached historically, currency changes appear more frequently and the changes are more dramatic.  This from “Mises.org”  (Source:  https://mises.org/wire/digital-currency-fed-moves-toward-monetary-totalitarianism):

The Federal Reserve is sowing the seeds for its central bank digital currency (CBDC). It may seem that the purpose of a CBDC is to facilitate transactions and enhance economic activity, but CBDCs are mainly about more government control over individuals. If a CBDC were implemented, the central bank would have access to all transactions in addition to being capable of freezing accounts.

It may seem dystopian—something that only totalitarian governments would do—but there have been recent cases of asset freezing in Canada and Brazil. Moreover, a CBDC would give the government the power to determine how much a person can spend, establish expiration dates for deposits, and even penalize people who saved money.

The war on cash is also a reason why governments want to implement CBDCs. The end of cash would mean less privacy for individuals and would allow central banks to maintain a monetary policy of negative interest rates with greater ease (since individuals would be unable to withdraw money commercial banks to avoid losses).

Once the CBDC arrives, instead of a deposit being a commercial bank’s liability, a deposit would be the central bank’s liability.

In 2020, China launched a digital yuan pilot program. As mentioned by Seeking Alpha, China wants to implement a CBDC because “this would give [the government] a remarkable amount of information about what consumers are spending their money on.”

The Chinese government is waging war on cash. And they are not alone. In 2017, the International Monetary Fund (IMF) published a document offering suggestions to governments—even in the face of strong public opposition—on how to move toward a cashless society. Governments and central bankers claim that the shift to a cashless society will help prevent crime and increase convenience for ordinary people. But the real motivation behind the war on cash is more government control over the individual.

And the US is getting ready to establish its own CBDC (or something similar). The first step was taken in August, when the Fed announced FedNow. FedNow will be an instant payment system and is scheduled to be launched between May and July 2023.

FedNow is practically identical to Brazil’s PIX. PIX was implemented by the Central Bank of Brazil (BCB) in November 2020. It is a convenient instant payment system (using mobile devices) without user fees, and a reputation as being safe to use.

A year after its launch, PIX already had 112 million people registered, or just over half of the Brazilian population. Of course, frauds and scams do occur over PIX, but most are social engineering scams (see herehere, and here) and are not system flaws; that is, they are scams that exploit the public’s lack of knowledge of PIX technology.

Bear in mind that PIX is not the Brazilian CBDC. It is just a payment system. However, the BCB has access to transactions made through PIX; therefore, PIX can be considered the seed of the Brazilian CBDC. It is already an invasion of the privacy of Brazilians. And FedNow is set to follow suit.

Additionally, the New York Fed has recently launched a twelve-week pilot program with several commercial banks to test the feasibility of a CBDC in the US. The program will use digital tokens to represent bank deposits. Institutions involved in the program will make simulated transactions to test the system. According to Reuters, “the pilot [program] will test how banks using digital dollar tokens in a common database can help speed up payments.”

Banks involved in the pilot program include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, US Bank, and Wells Fargo. The global financial messaging service provider SWIFT is also participating to “support interoperability across the international financial ecosystem.”

          If you needed another reason to get some of your wealth out of the fiat money system, here it is.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Long-Term Stock Forecast

While the overall stock market trend remains down, stocks did begin to show some signs of life last week, technically speaking.  As the chart below, a weekly chart of an exchange-traded fund that tracks the S&P 500, illustrates, the longer-term downtrend line in place since the beginning of calendar year 2022 may have been broken to the upside last week.

          From a fundamental perspective, stocks remain weak in my view, and as I wrote in my December 2022 client newsletter, I am forecasting more downside for stocks in 2023.

          Short-term, we will have to wait and see.

          Long-term, though, the outcome will be quite predictable in my view.  We will have inflation followed by deflation.  While stocks could rally in the inflation part of the cycle, when the deflation part of the cycle strikes, stocks and other financial assets will get hit.

          In a recent piece, Egon von Greyerz of Matterhorn Capital comments.  (Source:  https://goldswitzerland.com/in-the-end-the-goes-to-zero-and-the-us-defaults/)

Although US debt has increased virtually every year since 1930, the acceleration started in the late 1960s and 1970s. With gold backing the dollar and, therefore, most currencies UNTIL 1971, the ability to borrow more money was restricted without depleting the gold reserves.

Since the gold standard prevented Nixon to print money and buy votes to stay in power, he conveniently got rid of those shackles “temporarily,” as he declared on August 15, 1971. Politicians don’t change. Powell and Lagarde recently called the increase in inflation “transitory,” but in spite of their bogus prediction, inflation has continued to rise.

Since 1971 total US debt has gone up 53X, with GDP only up 22X, as the graph below shows:

As the widening Gap between Debt and GDP in the graph above shows, it now takes ever more debt to achieve increases in GDP.  So without printing worthless money, REAL GDP would show a decline.

So this is what our politicians are doing, buying votes and creating fake growth through printed money. This gives the voter the illusion of increased income and wealth. Sadly he doesn’t grasp that the illusory increase in living standard is all based on debt and devalued money.

Let’s also look at US Federal Debt:

Since Reagan became president in 1981, US federal debt has, on average, doubled every 8 years. Thus when Trump inherited the $20 trillion debt from Obama in 2017, I forecast that the debt would double by 2025 to $40t. That still looks like a valid projection, but with the economic problems I expect, a $50t debt by 2025-6 cannot be excluded.

So presidents know they can buy the love of the people by running chronic deficits and printing money to make up for the difference.

But if we look at the graph above again, it shows that debt has gone up 35X since 1981, but that tax revenue has only increased 8X from $0.6t to $4.9t.

How can any sane person believe that with debt going up 4.5X faster than tax revenue that, the debt can ever be repaid?

            When debt goes unpaid, it is deflationary; currency disappears from the financial system.

          Financial assets like stocks and real estate don’t react well to deflation.  Ultimately, I believe stocks will have to go much lower.

            As I have been suggesting, I believe that the Dow to Gold ratio will reach 1 or 2 in the end.  Presently, when taking the value of the Dow and dividing it by the price of gold per ounce, one finds the Dow to Gold ratio at 19.

          That’s more downside for stock and more upside for gold in my view, no matter what may happen short-term with stock rallies.

          If you are not yet using the Revenue Sourcing planning strategy to plan your retirement income and allocation, I’d suggest you check it out.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Stock, Retail and Housing Update

          Despite the recent rally in stocks, when analyzing longer-term price charts, it is my view that stocks remain in a downtrend at this point in time.

          As I have often stated in this publication, it is rare that any market moves straight up or straight down.  Instead, a downtrend is typically characterized by a series of lower highs and lower lows.  Note the price action on the weekly price chart of an exchange-traded fund that tracks the price action of the Standard and Poor’s 500.

          Notice the downtrend line that I have drawn on the price chart.  It is a textbook downtrend trendline.  As is easily seen by the price chart, there is a downward price trend channel on the chart.

          Until this downtrend price channel is broken to the upside convincingly, I expect more downside in stocks.

          From a fundamental perspective, stocks remain overvalued.  One of the most commonly used valuation metrics for stocks is a tool that is now known colloquially as “The Buffet Indicator” ever since the Oracle from Omaha stated in an interview it was his favorite indicator to use to determine if stocks are overvalued or undervalued.

          The chart reproduced here, from Advisor Perspectives (Source:  https://www.advisorperspectives.com/dshort/updates/2022/10/27/market-cap-to-gdp-buffett-valuation-indicator) shows the current valuation levels of stocks using this indicator.

          Notice that stock valuation levels are slightly lower than they were prior to the tech stock bubble imploding about two decades ago and much higher than at the time of the financial crisis.  As you probably recall, stocks fell more than 50% in both of those prior time frames.

          That tells us that despite the miserable year in stocks that we have just experienced, there is likely more downside ahead.

          Meanwhile, the economic news indicates a generally sluggish economy that is being adversely impacted by continued inflation.  Black Friday, the most anticipated retail sales day of the year saw most retailers struggling through what should have been their best day of the year.  The exception to this were stores that were deeply discounted merchandise.  This from “Breitbart” (Source:  https://www.breitbart.com/economy/2022/11/25/black-friday-disappoints-thin-crowds-and-desolate-stores/)

The busiest shopping day of the year is not as busy as retailers hoped.

Across the U.S., shopping malls are seeing only thin crowds, according to reports in business media. Inflation and depressed consumer sentiment appear to have dampened the holiday shopping spirit.

Reuters reported:

At Times Square in New York City, which was cloudy with occasional light rain, employees were seen waiting inside stores for crowds that so far had not arrived.

Outside the American Dream mall in East Rutherford, New Jersey, there were no lines outside stores. A ToysRUS employee was seen walking around the mall handing out flyers with a list of the Black Friday doorbusters.

Bloomberg reported:

Around 10:30am at Crossgates Mall in Albany, New York, the ultra-low-cost brands and the higher-end buzzy retailers had the most foot traffic, while the middle-market stores were desolate.

Gap Inc.-owned Old Navy, which was offering 60% off most items, had a line so long that some shoppers turned around as soon as they entered the store. Athleisure favorite Lululemon Inc., which had only a few racks of discounted merchandise, and American Eagle Outfitters Inc.-owned Aerie, a popular intimates brand among Gen Z shoppers, also drew big crowds.

Meanwhile, stores like Banana Republic, Macy’s, and Urban Outfitters had no lines at all, and only a handful of shoppers.

Overall, the National Retail Federation has forecast that retail sales will be up six to eight percent this year compared with last year. That is a big slowdown from last year’s 13.5 percent increase and the 9.3 percent rise in 2020. After adjusting for inflation, sales may actually be down. The Consumer Price Index is up 7.7 percent compared with a year ago.

November saw a significant decline in consumer sentiment, according to the University of Michigan’s survey. The index of consumer sentiment fell five percent below the October reading, reversing about one-third of the gain since the historic low in June. The gauge of current conditions dropped by 10.4 percent.

          That is bad news for a consumer spending-dependent US economy.

          While retail is slow, as I have forecasted, the housing market is continuing its slow-motion crash.  Homebuyer confidence is now at a record low going back to 1985 as the chart below from “Zero Hedge” shows (Source:  https://www.zerohedge.com/economics/housing-market-obliterated-pending-home-sales-post-record-drop-deal-cancelations-price)

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Is a Central Bank Digital Currency About to Become Reality?

          With the recent bankruptcy of the cryptocurrency exchange FTX, there has been a lot of renewed focus on cryptocurrencies.

          While there are many alleged improprieties relating to the failure of FTX, this week, I want to focus on the bigger picture and the ambitions of many policymakers and politicians when it comes to digital currencies.

          It is no secret that many of the ruling elite would love digital currencies for a number of reasons.  As a freedom-loving, libertarian capitalist at heart, I can’t think of anything more oppressive.

          Robert Aro wrote a piece on this topic for the Mises Institute this past week that I thought I’d share.  (Source:  https://mises.org/power-market/fedcoin-it-starts-trial-run)

A cashless society would be the nail in the coffin for liberty and freedom, offering centralization, the likes of which Marx could only dream. The existence of a government backdoor or spyware becomes a real possibility, and given the State’s track record, a real likelihood. Then, of course, the ability to track, freeze, and even set expiry dates on money, will be marketed as “features” to protect the public.

As for the 5.9 million Americans considered “unbanked,” i.e., those who have no checking or savings accounts, (the poor, weak, and vulnerable) they can expect life to get more difficult. This is the price we pay for free market intervention.

Earlier in the week, the Federal Reserve Bank of New York made the announcement:

Members of the U.S. Banking Community Launch Proof of Concept For A Regulated Digital Asset Settlement Platform

The explanation may only make sense for those well versed in crypto technology:

Members of the U.S. banking community today announced the launch of a proof of concept (PoC) project that will explore the feasibility of an interoperable digital money platform known as the regulated liability network (RLN). Using distributed ledger technology, the proposed platform would create innovation opportunities to improve financial settlements and would include participation from central banks, commercial banks of various sizes and regulated non-banks.

Basically, Fedcoin is advancing and is now in the testing stage:

The 12-week PoC will test a version of the RLN design that operates exclusively in U.S. dollars where commercial banks issue simulated digital money or “tokens” – representing the deposits of their own customers – and settle through simulated central bank reserves on a shared multi-entity distributed ledger.

Some of the largest financial institutions are involved in this 12-week program:

BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo.

Plus:

The technology is being provided by SETL with Digital Asset, powered by Amazon Web Services. Swift, the global financial messaging service provider, is also participating in the initiative to support interoperability across the international financial ecosystem.

From Bitcoin to Dogecoin, there seems little long term hope for those who love privacy and autonomy when the largest corporations and fintech firms work with the Federal Reserve to roll out a Central Bank Digital Currency (CBDC).

Would you like to know who else is was working with the Feds? Courtesy Coindesk:

Former FTX CEO Sam Bankman-Fried was, until last week, a major political donor – he gave $5.2 million to U.S. President Joe Biden’s presidential campaign If of the November midterm elections – and an influential figure in Washington.

Bankman-Fried regularly met with regulators and lawmakers, weighing in on how the crypto industry should be regulated. He was a vocal supporter of one bill, in particular: the bipartisan Digital Commodities Consumer Protection Act (DCCPA), a still-in-progress bill…

We know for certain CBDCs are coming, as well as more regulation. And given the trajectory of both, a cashless society is too. What is less certain is whether or not Sam Bankman-Fried, for his culpability in what may amount to one of the largest thefts of all time, will ever see jail time. 

          If you’ve been a long-time reader of “Portfolio Watch” and the monthly “You May Not Know Report”, I have been commenting on this periodically.

          This Fedcoin test program is not surprising given the executive order issued by Joe Biden in March.  This from “The Sun” on March 10, 2022 after Biden’s executive order  (Source:  https://www.the-sun.com/money/4867165/fedcoin-replace-cash-hurt-savers-gov-track-payments/):

A NEW “Fedcoin” digital currency could replace cash, hurt savers and allow the government to track payments, crypto experts have warned. 

President Joe Biden announced the move towards a US Central Bank Digital Currency (CBDC) on Wednesday in a historic executive order on cryptocurrency regulation. 

He gave the heads of federal agencies including the Treasury, Justice Department and Homeland Security 180 days to come up with a report on how the new digital currency would work.

Biden also asked the chairman of the Federal Reserve Jerome Powell to “develop a strategic plan for Federal Reserve and broader United States Government action” on CBDCs. 

It comes as governments around the world are scrambling to respond to the explosion in cryptocurrencies which are not state-controlled. 

But experts say there are worries the new CBDCs could pose a threat by allowing the government to program money to control how and by who it is spent. 

Alex Gladstein, chief strategy officer of the Human Rights Foundation and a well-respected voice in the Bitcoin community, told The Sun: “I’m concerned because there’s a lot of language about Central Bank Digital Currencies in the executive order and I think they are dangerous for civil liberties. 

“It looks like Fedcoin is coming and I don’t think that’ll be good for the average American.

“Fedcoin would replace cash, it would replace paper money and coinage.

“It would permit instant analysis of transactions, as opposed to the privacy that cash affords.

“It would also obviously allow for blacklisting of people that the government doesn’t like, which I’m sure would rotate through different administrations.

“These are concerning powers and they would also permit monetary powers that are concerning.

“Just like withdrawing from an ATM gives you the power to be private with your spending, withdrawing from an ATM also gives you the power to save in different ways.

“And if you don’t have an ATM, the government will be very easily able to do things like negative interest rates, expiration dates on money, stuff like that.

“I don’t think it’s gonna be great for savers, let’s put it that way.”

Gladstein added that he is concerned about how CBDCs would give the government even more power to keep spending and inflating the currency.

He said: “CBDCs pave the way for a truly expansionary monetary policy.

“It allows the central government and the central bank to do programmable stimulus, basically.

“They could just program credits like the stimulus checks that we saw post-COVID.

“It just lends itself to a lot more loose, easy spending.”

          There are two things you might consider.

          One, make your voice heard.  Let your representatives know that you are opposed to a digital currency.  Write and call over and over again.

          Two, protect yourself.

          Have some of your assets outside the US Dollar and outside the banking system.  Gold and silver are good options for many people.

          If you’d like to discuss, feel free to give my office a call at 1-866-921-3613.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.