The Shadow is a fictional character created by American magazine publishers Street & Smith and writer Walter B. Gibson. Originally created to be a mysterious radio show, it spread to other forms of media, including comic books, comic strips, serials, video games, and at least five feature films. The Shadow operated mainly after dark as a vigilante in the name of justice, terrifying criminals. The most famous line from the radio was: "Who knows what evil lurks in the hearts of men? The Shadow knows!"
I thought about this iconic quote when I wondered about my economic forecast for 2024. There are so many variables and unknowns, that it is hard to make any predictions. Who knows what will really happen? Perhaps the Shadow knows. In any event, let’s start by looking back on my 2023 forecast.
In my article, So Long Grandma, published on November 11, 2022, I wrote, in part, that “the interest on the huge US debt will continue to mount…It will be hard to curtail inflation, and interest rates should remain high. Gold has probably already bottomed and should move higher; and although equities got a big boost from this week’s lower inflation number, it is hard for us to believe that equities can maintain a strong upward trend.” How did that work out?
To start, my stock market prediction was way off, for the S&P 500 Index rose 19.5% from November 11 to the end of 2023. I do note, however, that 74% of that rally occurred in the last two months of 2023! My gold forecast was more on target; for the glittery metal rallied sharply, climbing as much as 17.3% before finishing the year 16.5% higher from the date of my forecast. As for interest rates, short-term rates moved even higher, with the 3-month T-Bill rate moving up more than 127 basis points before falling a bit in the last two months of the year. The rate on the ten-year Treasury Note made a new 16-year high, before it tumbled to finish just slightly higher at the end of the year.
In my article, Dumping Dollars, published on November 26, 2022, I wrote: “we predict that the Federal debt level will continue to grow unabated. This will eventually force the Federal Reserve to become much more accommodative, and when they pivot and start to buy more Treasuries again, it will ultimately result in a worse inflationary environment than exists right now. When that happens, the US dollar will lose value…How soon will all this happen? The recent sharp rally in the S&P 500 implies that this reckoning is not close at hand. Be careful with your investments. There should be lots of volatility ahead.”
How did those predictions work out? As you can see from the data below, US Treasury debt has exploded. One of the biggest factors was the massive increase in pandemic spending that started under former President Trump; and that, and spending for other purposes, continues today under President Biden.
$34 Trillion December 29, 2023 Biden Presidency
$33 Trillion September 15, 2023 Biden Presidency
$32 Trillion June 15, 2023 Biden Presidency
$31 Trillion October 3, 2022 Biden Presidency
$30 Trillion February 1, 2022 Biden Presidency
$27.7 Trillion December 31, 2020 Trump Presidency
$22.7 Trillion December 31,2019 Trump Presidency
Some analysts believe that the United States is rich enough that it can handle this level of debt. We do not agree, and we think it is important to note that, even though the pandemic emergency is over, the rate of increase in the US debt level is accelerating, with a $2 Trillion increase happening in the last six months. As a consequence, we believe that this increase in Federal borrowing will keep interest rates higher than they should be, and it will hurt economic development.
This is the major reason we do not want either Joe Biden or Donald Trump to be elected President in 2024. They are both big spenders, and as we have stated before, neither of them are willing to act to reduce the largest driver of federal spending – entitlements in the form of Social Security, Medicare, Medicaid and Obama Care.
In our opinion, President Biden is far worse in regard to uncontrolled spending. Take a look at the green energy subsidies that are embedded in his Inflation Reduction Act (IRA). These subsidies will need to be financed by even more federal borrowing. We’ll quote from an article we link here: The Crippling Economic Costs Of Green Energy Subsidies | ZeroHedge
“Under the IRA, the lion’s share of subsidies will be paid to wind and solar developers. The subsidies will not expire until electric industry carbon emissions fall by at least 75% below 2005 levels, after which they will gradually decrease. Even the most optimistic forecasts prepared by the U.S. Energy Information Administration (EIA) show that this will not occur until at least 2046. Thus, the subsidies for wind and solar will continue unabated for decades.”
What is going to happen in 2024? Maybe the Shadow knows, but in our opinion the biggest factor will be politics, for the winners this coming November will be able to enact policies that will determine the economic direction of this country for probably the next ten years. It will all start in just a few weeks, when our representatives in Congress and the President will be forced to come to either come to some sort of agreement on the federal budget, or continue to disagree and force a government shutdown. On top of that, we have wars waging and threatening in various parts of the world, with the United States becoming increasingly involved.
We have uncontrolled, illegal immigration that is overwhelming the ability of cities and states to provide for the migrants, let alone their own citizens. We also have a forthcoming, very bitter Presidential election, with one of the leading candidates being threatened by jail, and another possibly facing impeachment for corruption and other issues.
The only thing we are sure of is that Federal borrowing will continue unabated, and that the Federal debt level will continue to skyrocket. We think that should lead to higher interest rates and a defensive stock market, but market action in the last two months of 2023 argues otherwise. The Federal Reserve has indicated it will Iower interest rates, and investors have reacted by rushing into the stock market pushing the indexes higher.
What will happen? We’ll see soon enough.
Commentaires