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Wall Street Sags as Americans Turn Focus to Real-World Problems
Federal Debt Tops $30 Trillion, Renewing Worries about Debt Service Costs
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
As market volatility continues to unnerve investors, a major rotation away from frothy assets and into quality assets appears to be playing out.
Over the past few months, overbought innovation stocks, overripe meme stocks, and overhyped cryptocurrencies have significantly underperformed. But Big Tech stalwarts like Apple have continued to hold up relatively well.
That may be changing. On Thursday, the parent company of Facebook now known as Meta suffered a staggering decline. Meta shares crashed over 26% on the day. The carnage wiped out $220 billion in market value – the largest ever single-day loss for any U.S. stock.
Facebook CEO Mark Zuckerberg has committed to refocusing the company on the so-called metaverse. The metaverse is supposed to immerse users in a virtual reality where they will spend their time on virtual experiences and their money on virtual gear.
But perhaps not as many people are interested in spending their lives inside Zuck’s metaverse as Silicon Valley developers had hoped. Instead, millions of Americans are struggling with real-world concerns. They are facing rising food and energy bills amid raging price inflation in the real economy.
They are fed up with the lies from officials in Washington who are responsible for creating the inflation problem. And they are tired of being pitched Brave New World utopianism by Woke corporations like Meta.
A return to what’s real and tangible could be a major investment theme going forward.
Raw commodities and energy stocks are top performers so far in 2022. Crude oil surged past $90 per barrel this week.
Turning to precious metals markets, they showed strength early this week. As of this Friday recording, gold is posting a weekly gain of 0.8% to bring spot prices to $1,813 an ounce. Silver is essentially unchanged since last Friday’s close to trade at $22.55 an ounce. Platinum is up slightly and currently checks in at $1,030. And finally, palladium prices are off 3.4% this week to trade at $2,327 per ounce.
Precious metals should prove to be a superior form of liquid cash reserves for households and investors as the U.S. dollar continues to depreciate.
The U.S. Dollar Index fell sharply this week. It wasn’t helped by a report from the Treasury Department showing that total public debt outstanding now exceeds $30 trillion.
Here’s how FISM News summed up the nation’s dire debt predicament:
FISM News Report: For the first time in history, the US national debt has topped $30 trillion according to the latest data released by the Treasury Department. The figure represents the government's total debt outstanding, which includes a whopping $23.48 trillion in debt held by the public, plus an additional $6.5 trillion in intra-government debt, such as federal trust funds and other accounts. Almost 8 trillion of the nation's debt is owed to foreign investors, which will have to be repaid with interest. The staggering debt figure report comes at a time when Americans are still grappling with persistent inflation exceeding wage increases. The Personal Consumption Expenditures Price Index, a key inflation gauge recently reported that it reached its highest level since 1983.
Inflation will persist as a tool for the government to eat away at the real value of what it owes. Our fiat monetary system enables perpetual debt growth through the powers of unlimited currency creation. The debt never has to get paid down or liquidated.
But rising debt servicing costs will pose a very serious problem within the federal budget, especially if interest rates begin to rise. Lately Uncle Sam has been able to keep the servicing costs of his extraordinary borrowing binge manageable thanks to artificially suppressed interest rates.
Despite talk of hiking later this year, the Federal Reserve continues to hold short-term rates near zero. It has also been actively intervening in the bond market to help keep a lid on longer-term Treasury yields.
Were rates to normalize relative to inflation, debt servicing costs would become a full-fledged budgetary crisis. It may only be a question of when the debt grows so large that it cannot be serviced – at least not using conventional methods.
Modern Monetary Theory would have the central bank pay the government’s bills directly, bypassing the need to issue new debt. The Fed could even facilitate proposed funding gimmicks such as buying trillion-dollar platinum coins from the U.S. Treasury.
One way or another, the coming debt crisis will morph into a currency crisis.
It would likely build in a vicious circle: rapidly rising debt levels and servicing costs require rapid expansion of the currency supply – which in turn causes inflation to pressure interest costs higher.
“Free” money from the Fed has a cost, of course. And that cost will be borne by holders of U.S. dollars and dollar-denominated IOUs who see their purchasing power steadily obliterated.
It’s already happening.
The government is issuing bonds with hugely negative real yields, sticking bondholders with the equivalent of confiscatory taxes on their holdings.
Wise investors can see the writing on the wall. They are taking steps to protect themselves now from the great currency debasement ahead.
The investing climate is likely to be volatile. Unfortunately, inflationary times tend to bring wild price swings in all asset classes.
The one asset class sure to lose value is bonds and cash. They promise steady returns for conservative investors, but in an environment of negative real yields they will conserve nothing.
The only “cash” with a proven track record of conserving purchasing power over time is hard money – gold and silver.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.