Real wages are plummeting … traditional income investments aren’t bridging the gap … how Louis Navellier is helping investors make up for their cash-flow shortfalls

This morning, we learned that U.S. Gross Domestic Product fell 0.9% in the second quarter.

Given that the first quarter’s GDP came in as a decline of 1.6%, this means we’re in a recession by the common definition. However, many analysts and politicians are arguing otherwise.

We’ll dive into this back-and-forth in greater detail tomorrow. Today’s Digest has a different focus.

***Is your budget feeling the pinch?

If so, you’re not the only one.

According to a recent survey from Salary Finance, roughly 20% of employees are now regularly running out of money between paychecks. This percentage is up from 15% last year.

Even for the Americans without this degree of budget strain, sky-high prices are beginning to alter their shopping behavior.

From the New York Times:

…People around the country are changing their consumption habits.

Some are starting budgets and shopping at discount stores. Others are skipping red meat and fish, walking dogs for extra cash, canceling subscription meal kits or, like Harold Topper of Stamford, Conn., resorting to psychological tricks to blunt the pain.

These days, Mr. Topper fills up his gas tank when it dips by a quarter, because it costs just $25 to refill. In his mind, the price is more palatable than at the half-tank mark or worse…

In a recent poll conducted by the American Psychological Association, more adults ranked inflation as a top source of stress than any other issue asked about in the poll’s 15-year history. 

A few years ago, billionaire hedge fund manager Ray Dalio said: “Cash is trash.”

That may be true, but for millions of Americans today, cash is scarce and highly needed.

Bottom-line – there’s a cash-crunch.

***Checking in on the condition of the average U.S. paycheck

In recent months, some politicians have boasted about increased wages.

Of course, anyone with the slightest awareness of basic economics knows these boasts are smoke and mirrors.

The politicians are bragging about “nominal” wage gains – basically, the sticker price. This is different than “real” wage gains, which subtracts the inflation rate.

Real wages measure the buying power of your wages (and wage increases), which is all that truly matters. After all, a 5% raise isn’t all that great if your expenses are going up 10%.

Below, you can see what’s happened to real wages since the pandemic.

Prior to the pandemic, workers were seeing an increase in real wages of 3.2% per year.

Since then, they’re fallen at a rate of roughly 4.5% per year, thanks to inflation.

Translation: You need a 4.5% pay increase simply to break even with where you were a year ago.

Unfortunately, rather than getting a raise, a growing number of Americans are now looking at layoffs, hiring freezes, and rescinded job offers.

Yesterday’s Digest featured a lengthy list of companies that have already laid off employees or announced hiring freezes.

***But this theoretical discussion of inflation and real wages masks the actual pain being felt by many Americans

Earlier this month, Iowa State University published a paper titled “Impact of Inflation on Rural Household Expenses in the U.S., June 2020-2022.”

Here’s an excerpt, revealing just how damaging our current inflation is, especially to rural America:

Rural households are more vulnerable to inflation.

In 2020, rural household post‐tax incomes stood at $58,012. About 82% of rural incomes went towards expenses, leaving $10,661 in discretionary income for savings and unanticipated expenses.

However, by 2022, expenses rose by 18.5% overall. Earnings were not able to keep pace with inflation, rising by only 6.1%.

The net effect cut rural discretionary incomes by –49.1% between June 2020 and June 2022, reducing the cushion to only $5,426.

Expenses now consume 91% of rural take‐home pay.

These are brutal numbers.

***Traditional income investments aren’t able to help Americans offset the inflation losses

For decades, the traditional asset-allocation mix was largely stocks and bonds. It was the “60/40” portfolio, consisting of 60% stocks and 40% bonds.

Stocks provided the growth. Bonds provided the income and stability.

Unfortunately, bonds haven’t been a powerful income investment for a long time.

Below, we look at the yield on U.S. Treasury Securities at 10-Year constant maturity since 2015. This basically shows us the average yield of a variety of Treasury securities with different maturities – all on a real basis.

As you can see, the highest this average yield reached since 2015 was about 1.15% back in 2018.

Since then, it fell, actually going negative until very recently.

Today, given the surge in yields based on the Fed’s pivot toward hawkish monetary policy, we’re finally back to positive real yields. But don’t get too excited – it’s just 0.45% as I write.

Even the 10-year Treasury yield has been dropping in recent weeks after its surge earlier this summer. As I write, it yields 2.7%. For comparison, back in 2005-2006, it yielded in the 4% – 5% range.

So, what about stock dividends?

Historically, Americans have turned to dividends to help meet monthly cash-flow needs. I recall my grandmother warmly referring to her dividend checks as “mailbox money.”

The long-term average dividend yield for the S&P is 4.23%.

That’s clearly less than June’s Consumer Price Index figure of 9.1%, but it’s not awful – certainly not when compared to traditional yields from savings accounts.

Unfortunately, we’re nowhere close to “average” today.

According to Multpl.com, the S&P’s dividend yield today is just 1.61%.

Even if we look at some of the highest-yielding corners of the stock market today, they’re falling short of the CPI’s 9.1% burn-rate.

Historically, oil stocks have paid a healthy dividend. Today, Exxon and Chevron pay a 3.9% yield. BP comes in higher, with 4.7%. These are great relative to the S&P’s dividend yield, but nowhere close to inflation.

What about tobacco stocks? Over the decades, they’ve handsomely rewarded their investors.

Well, Philip Morris pays 5.2%. British American Tobacco comes in higher at 7.2%. And Altria is paying a juicy 8.2% dividend yield.

Again, all fantastic, but still below the inflation rate.

Finally, if we look to Master Limited Partnerships (MLPs) we see Enterprise Products paying out 7.3%, Magellan Midstream yielding 8.3%, and MPLX offering a 9% yield.

These are wonderful cash-flows, but the point remains: At best, these yields are just treading water relative to today’s CPI data.

And so, the cash-crunch remains.

What’s the answer then?

Well, legendary investor Louis Navellier has an idea that he’s revealing this afternoon.

***Join Louis today at 4 PM ET for a special event, appropriately called “Make Cash Now Project”

For newer Digest readers, Louis is a legendary quant investor. “Quant” simply means Louis uses numbers and algorithmic rules to guide his investment decisions. Forbes actually gave him the title “King of Quants.”

The decades have proven this is a powerful approach to the markets. Louis’ models have forecasted some of the biggest stock-market winners of the past 40 years. They identified Apple at $1.38… Oracle, when it was trading at only 51 cents per share… They even forecasted the rise of Amazon when its price was just $46.

Today, Louis is turning his algorithms toward a new goal – helping alleviate the cash-crunch.

From Louis:

We have a retirement crisis going on in America right now. And for most folks, it’s not their fault.

Folks have been misled by Wall Street and the financial media.

And it all boils down to one very important concept…the concept of cash flow.

Enter Louis, his quant-based market approach, and a bold new initiative to generate huge cash-flows in a way that Louis describes as “more quickly and with less risk than just about anything else I’ve seen in my career.”

Louis is looking at the potential for income returns that could 10X, 20X, or even 30X the yields of traditional dividend stocks.

He’ll be diving into all the details of this cash-flow solution this afternoon at 4 PM ET.

To join the Make Cash Now Project, just click here. It’s a free event, but a reservation is required.

If you’re feeling a cash-flow strain, I hope you’ll join Louis today.

Have a good evening,

Jeff Remsburg