The Big, Beautiful Sellout

One of the most important data points to understand the coming years is debt-to-GDP.

Yes, you can argue about how to measure GDP. And there are some forms of debt, like those debts tied to entitlement programs, that aren’t even included.

But using the government’s own baseline numbers, things are getting ugly. And they’re getting worse, not better.

Turn Your Images On

History tells us that when a nation’s debt-to-GDP ratio reaches 130%, it is a point of no return.

Servicing that level of debt means lower systemic growth – making it even more challenging for those who want to ignore the debt and try to grow the economy out of the problem.

The latest spending boondoggle does nothing to change the trajectory, and the extension of the 2017 tax cuts and higher SALT deductions, among other goodies, will accelerate the timeline.

If the party of so-called “small government” is just looking to juice the private sector now rather than avert a crisis – then such a crisis has always been inevitable. Be prepared.

~ Addison

P.S. With out-of-control spending still the norm in Washington, two assets look attractive as safe havens: gold and bitcoin. With the dollar weakening on top of everything else, we see the potential for gold prices to soar far higher over the next 18 months. It’s also no surprise to see silver breaking higher, finally jumping past $35 and topping $36.

Meanwhile, with all the institutional interest in bitcoin, which is getting over 98% of the capital to the broader crypto market right now, it’s possible that bitcoin could also be on a similar trajectory in the months ahead as a crisis looks increasingly likely.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

One of the most important data points to understand the coming years is debt-to-GDP.

Yes, you can argue about how to measure GDP. And there are some forms of debt, like those debts tied to entitlement programs, that aren’t even included.

But using the government’s own baseline numbers, things are getting ugly. And they’re getting worse, not better.

Turn Your Images On

History tells us that when a nation’s debt-to-GDP ratio reaches 130%, it is a point of no return.

Servicing that level of debt means lower systemic growth – making it even more challenging for those who want to ignore the debt and try to grow the economy out of the problem.

The latest spending boondoggle does nothing to change the trajectory, and the extension of the 2017 tax cuts and higher SALT deductions, among other goodies, will accelerate the timeline.

If the party of so-called “small government” is just looking to juice the private sector now rather than avert a crisis – then such a crisis has always been inevitable. Be prepared.

~ Addison

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

Gold has led people to do the most brilliant, the most brave, the most inventive, the most innovative and the most terrible things. ‘More men have been knocked off balance by gold than by love,’ runs the saying, usually attributed to Benjamin Disraeli. Where gold is concerned, emotion, not logic, prevails. Even in today’s markets it is a speculative asset whose price is driven by greed and fear, not by fundamental production numbers.

Fresh GDP data — the Commerce Department revised Q2 growth upward to 3.3% — fueling the rally. Investors cheered the “Goldilocks” read: strong enough to keep the music going, not hot enough (at least on paper) to derail hopes for a Fed pivot.

Even the oddball tickers joined in. Perhaps as fittingly as Lego, Build-A-Bear Workshop popped after beating earnings forecasts, on track for its fifth consecutive record year, thanks to digital expansion.

Neither represents a bellwether of industrial might — but in this market, even teddy bears roar.

In modern finance theory, only U.S. T-bills are considered risk-free assets.

Central banks are telling us they believe the real risk-free asset is gold.

Our Grey Swan research shows exactly how the dynamic between government finance and gold is playing out in real time.

When we compare apples to apples—median home prices to median household income, both annualized—we get a much more nuanced picture. Housing has indeed become less affordable, with the price-to-income ratio climbing from roughly 3.5 in 1984 to about 5.3 today. In other words, the typical American family now has to work much harder to afford the same home.

But notice something crucial: the steepest increases coincide precisely with periods of massive government intervention. The post-dot-com bubble recovery fueled by Fed easy money after 2001. The housing bubble inflated by government-backed mortgages and Fannie Mae shenanigans. The recent explosion driven by unprecedented monetary stimulus and COVID lockdown policies.

Neither represents a bellwether of industrial might — but in this market, even teddy bears roar.

In modern finance theory, only U.S. T-bills are considered risk-free assets.

Central banks are telling us they believe the real risk-free asset is gold.

Our Grey Swan research shows exactly how the dynamic between government finance and gold is playing out in real time.