Your “Fake” Stock Market Gains


The media is perplexed why Americans are unhappy … Main Street budgets are getting tighter … are stock market gains fake? … all of our analysts are bullish on 2024

Let’s begin with a handful of headlines, all from within the last few months:

US economy going strong under Biden – Americans don’t believe it – The Guardian

When will Americans stop worrying and learn to love the U.S. economy? – Washington Post

If the economic statistics are good, why do Americans feel so bad? – USA Today

Why the economy feels so bad when experts say it’s so good – Fortune

Why Biden’s strong economy feels so bad to most Americans – CNN

The Biden economy is strong. Why don’t voters agree? – MSNBC

Well, below is a chart showing why voters don’t think this economy is so great…

We’re about to look at Personal Consumption Expenditures percent change in blue, and Average Hourly Earnings percent change in red.

You’ll see these two lines remain relatively constant until 2021 when our government’s currency printing fiasco helped create the worst inflation in 40 years.

As you can see, what it cost Americans to live (in blue) exploded, while what they earned increased slightly relative to what they earned back in 2018. Those wage gains then leveled out and are now increasing at a rate well below the rate at which prices are climbing.

Chart showing PCE inflation and Average Hourly Earnings. Earnings not rising nearly as much as PCE

Today, even after inflation has fallen dramatically over the last year, Americans are still paying far more to live than they did just a few years ago – without a commensurate income bump.

That’s because falling inflation isn’t the same as falling prices. Remember, inflation simply measures the change between two prices. So, lower inflation doesn’t mean lower prices, it simply means prices are getting more expensive at a slower rate.

So, what’s the truth about absolute prices, not inflation?

They remain terribly high… Americans see it in their wallets and credit card balances… and that’s why they’re pessimistic about the economy.

They feel poorer.

In September, CNN (which, above, is perplexed at why Biden’s strong economy feels so bad to most Americans) covered a Bank of America survey that found 67% of employees say the cost of living is outpacing growth in their wages.

And how does this translate into real, Main Street budgets?

Here’s CNN (apparently, they’re not reading their own articles):

Even though overall prices aren’t going up as fast as they were in June 2022, they are still going up.

Everything from eggs and car rentals to a night out at a restaurant is significantly more expensive than before the pandemic.

The average family is spending about $700 more per month on the same goods and services relative to two years ago, according to Moody’s Analytics.

Let’s do the math here.

According to the Peter G. Peterson Foundation (a self-described “nonpartisan organization dedicated to increasing awareness and accelerating action on America’s long-term fiscal challenges”), the median U.S. household income is $74,580.

If the average family spending $700 more per month, that’s a yearly cost of $8,400. If we assume constant wages, that’s the equivalent of an 11.26% pay decrease for our median family.

In the spring, the U.S. Census Bureau conducted its Household Pulse Survey. Each year, the survey asks American adults if they’re struggling to make ends meet.

In 2021, 26.7% of respondents answered “yes” … in 2022, it rose to 34.4%… and this past spring? It clocked in at nearly 40% of all American adults.

Yes, it’s truly baffling why we’re not high-fiving each other about this economy.

Are you high-fiving about your investment returns?

A stock investor might read the above and think, “yep, this inflation has been bad on the average American family. Good thing I pushed all my chips into the market at the Covid-bottom. I’m up 101% and really growing my wealth.”

Chart showing the S&P up 101% since the 2020 low

Is such a conclusion accurate?

Last week, InvestorPlace’s CEO Brian Hunt sent an internal email to a few department heads.

He included a chart I’ll provide below. It shows the S&P 500 superimposed against the M2 Money Supply.

For readers less familiar, M2 is a broad measure of the money supply, including currency and various relatively liquid bank and money market mutual fund deposits.

While M2 has been growing for years, it exploded at a record rate during the Pandemic as the government sprayed the economy with freshly-printed dollars.

Now, as we look at these two lines together, does anything jump out at you?

The S&P is in green; M2 is in black.

Charts showing the S&P and the M2 money supply rising in parallel fashion

Here’s Brian’s commentary:

Stocks are not generating much real, hold in your hand wealth. They are simply repricing to account for the huge increase in currency units.

To show this in a different way, Brian suggested we look at the S&P 500 against the price of gold.

We’ll do that in a moment. But to give us some perspective, let’s begin with how the S&P has performed in a vacuum in recent years.

As you can see below, since mid-July of 2018, the S&P has climbed 61%.

Chart showing the S&P up 61% since 2018.

Pretty good, right?

Through this narrow lens, it seems that being in the market is, in fact, helping us grow wealth.

But let’s now rotate out of the dollar (sidestepping the colossal M2 Money Supply growth and inflation) and look at how the S&P has performed over the same period when priced in gold.

As you can see, it’s returned…zilch.

Chart showing the S&P flat in relation to gold since 2018

In real terms (adjusted for inflation), the purchasing power of stock investments are stagnating in the same way that Main Street consumers are struggling to stay afloat with their monthly budgets.

Back to Brian:

When measured in real money, stocks are flat.

Your “profits” in stocks won’t buy you any extra fuel, shelter, or food. That’s because those prices are way up as well. They repriced to account for the huge increase in currency units.

Let’s not misinterpret what this means

This isn’t a strike against the stock market – quite the opposite.

It’s evidence of why we must invest in the stock market, or other quality assets outside the dollar.

Yes, regular Digest readers know that I’ve leaned bearish for months even though I’ve recommended adopting a trader’s mindset to take advantage of 2023’s bullish conditions. But any concerns I have about the broad market pale in comparison to the concerns I have about the purchasing power of your dollars if you do nothing with them.

Today’s 5% savings accounts are great, but they’re not a “forever” solution (especially if the Fed will be cutting rates next year). So, we need robust investment vehicles that enable us to preserve and grow the purchasing power of our wealth.

These vehicles can take many forms: high-quality stocks that pay dividends, income-producing real estate, or hard assets that float atop the rising tide of inflation, to name a few.

And we’ll only need these vehicles more as our government’s financial condition worsens.

This past Friday, the billionaire founder of Bridgewater, Ray Dalio, sounded off on this

Dalio made many of the same points that we’ve stressed here in the Digest in recent months. He touched on the explosion in our national deficit since Covid, and the enormous rise in the cost to service that debt now that the Fed has pushed rates to more than 5%.

Let’s jump to CNBC:

The U.S. is $33.7 trillion in debt, a total that exploded by 45% since the Covid pandemic in early 2020, according to Treasury Department data. Of that total, $26.7 trillion is owed by the public. Last year, the government rang up a $1.7 trillion deficit as it sought to keep up the pace of spending.

As the debt built up and the Federal Reserve raised interest rates to try to tamp down inflation, the government spent $659 billion on net interest costs in fiscal 2023 to finance the debt.

Dalio said that is a recipe for trouble.

“The worse that gets, the more we are going to have that long-term problem,” he said. “You can see it in the numbers. It’s just a matter of numbers. We are near that inflection point.”

Along with the basic budget issues, Dalio also cautioned that foreign buyers, who make up about 40% of demand for U.S. Treasurys, have been backing off, creating a supply-demand problem.

So, what happens when we reach this inflection point?

Higher taxes… the Fed issues more bonds to pay for the black hole of spending… and the purchasing power of your dollar-denominated savings melts like an ice cube on a summer day.

Fortunately, our top analysts believe that not only can the stock market maintain the value of your wealth next year, but also that the 2024 bull market can explode it

Recently, our Editor in Chief Luis Hernandez (and fellow Digest writer) sat down on camera with Louis Navellier, Eric Fry, and Luke Lango to get their thoughts about the market in 2024.

I’ll bring you select parts of that round table discussion when it’s ready (and InvestorPlace Omnia subscribers will be able to access the entire video). But I’ll jump straight to the punchline…

All three experts are wildly bullish about 2024. Luke has even written that next year could be one for the record books.

Stepping back, it’s really no surprise as to why most Americans don’t feel great about the economy. In real terms, we’re poorer. And the current trajectory of our government suggests more of the same.

But three of the most successful analysts in our industry are all bullish about next year and the potential to create major wealth, even with today’s economic reality.

So, perhaps the best defense against our government is a fantastic offense through the investment markets. We look forward to bringing you our analysts’ top ideas on how to achieve this in 2024.

Have a good evening,

Jeff Remsburg

Article printed from InvestorPlace Media,

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