{"id":2462981,"date":"2023-04-21T19:33:39","date_gmt":"2023-04-21T23:33:39","guid":{"rendered":"https:\/\/www.valuewalk.com\/?p=2462981"},"modified":"2023-04-21T19:33:41","modified_gmt":"2023-04-21T23:33:41","slug":"investors-follow-the-money-while-politicians-fail-at-basic-math","status":"publish","type":"post","link":"https:\/\/www.valuewalk.com\/investors-follow-the-money-while-politicians-fail-at-basic-math\/","title":{"rendered":"Investors Follow the Money While Politicians Fail at Basic Math"},"content":{"rendered":"\n<p>For weekend reading, Gary Alexander, senior writer at Navellier &amp; Associates, offers the following commentary:<\/p>\n\n\n\n<p>Now that we are entering the heart of <a href=\"https:\/\/www.valuewalk.com\/earnings-season-is-more-important-than-inflation-data\/\">earnings season<\/a>, investors will \u201cfollow the money\u201d of first-quarter corporate earnings and revenue reports, along with their best projections for future quarters. Everything depends on the bottom-line profits a company can deliver. How different this is from the political world.<\/p>\n\n\n\n<p>Axios reported that math proficiency in Washington DC public schools, grades 3-12, decreased from an abysmal 31% in 2019 to a thoroughly rotten 19% in 2022, partly due to COVID closings.<\/p>\n\n\n\n<p>But it\u2019s even worse in nearby Baltimore, where the Maryland Comprehensive Assessment Program (MCAP) revealed that 23 elementary, middle, and high schools couldn\u2019t find even one student able to do math at grade level.<\/p>\n\n\n\n<div class=\"ca-widget\" data-token=\"k8f5c9ac62a4\"><\/div><script async defer src=\"https:\/\/secure.money.com\/embeds\/embedder.js?v=1\"><\/script>\n\n\n\n<p>Those serving in Congress can\u2019t do much better if you go by recent pronouncements and actions. Let me give you just four examples that aren\u2019t much in the headlines yet but will be big news by year\u2019s end. They cover the most important financial challenges we face \u2013 deficits, inflation, jobs, and the dollar.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Math myth #1:&nbsp;We\u2019re reducing the deficit.<\/h2>\n\n\n\n<p>In his 2023 State of the Union address, President Biden said, \u201cIn the last two years, my administration has cut the deficit by more than $1.7 trillion \u2013 the largest deficit reduction in American history,\u201d and, looking forward, he added, \u201cI just signed a law to reduce the deficit by $114 billion by cracking down on wealthy tax cheats.<\/p>\n\n\n\n<p>That\u2019s being fiscally responsible.\u201d Those are a couple of Whoppers. It\u2019s true that the post-COVID tax windfall brought in record tax receipts, but also record spending, so the deficit was lower than during COVID, but here\u2019s the truth for this Fiscal Year:<\/p>\n\n\n\n<ul>\n<li>In the first half of Fiscal Year 2023&nbsp;(October 1, 2022, to March 31, 2023), total federal spending rose by 13%, but&nbsp;<strong>revenues decreased<\/strong>&nbsp;3%, resulting in a $1.1 trillion deficit (a $2.2 trillion annual rate), according to the U.S. Treasury. The rush in new spending resulted in large part from the inflationary Cost of Living Allowance (COLA) for Social Security (+10%) and Medicare Spending (+14%), but especially the 41% increases in the cost of servicing the national debt, due to the Fed\u2019s rate increases.<\/li>\n<\/ul>\n\n\n\n<p>With that in mind, Congress faces a debate on raising the debt ceiling this June. <strong>They better get realistic about their deficit math equations by then, or we\u2019ll hear a chorus of \u201cJune is Busting Out All Over.\u201d<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Math myth #2:&nbsp;We\u2019ve licked inflation, so let\u2019s move on.<\/h2>\n\n\n\n<p>The March<a href=\"https:\/\/www.valuewalk.com\/cpi-ppi-and-retail-sales-a-big-week-for-economic-week\/\"> Producer Price Index<\/a> (PPI) was particularly soothing \u2013 down 0.5% in March and up only 2.7% in the past 12 months \u2013 pretty close to the Fed\u2019s 2% goal \u2013 but alas, that number is backward-looking. Instead, let\u2019s look at this April Fool\u2019s Joke:<\/p>\n\n\n\n<ul>\n<li>On April 1, OPEC+ cut their combined&nbsp;<strong>crude oil<\/strong>&nbsp;production by 1.2 million barrels per day, and the price of crude oil quickly rose 9.3%, from $75.67 to $82.68 per barrel in two weeks.<\/li>\n\n\n\n<li><strong><a href=\"https:\/\/www.valuewalk.com\/gold-price-outlook-for-april-2023\/\">Gold<\/a><\/strong>\u00a0shot up to near a record high, up 2% in April and\u00a0<strong>silver<\/strong>\u00a0is up 6% in April to $26 per ounce.<\/li>\n\n\n\n<li><strong>Sugar<\/strong>&nbsp;prices are at a 10-year high, up 20.5% so far this year, through last Friday.<\/li>\n<\/ul>\n\n\n\n<p>In addition, the Biden EPA has virtually guaranteed a huge rise, perhaps doubling, of the minerals needed for electric vehicles (EVs) and their batteries.<\/p>\n\n\n\n<p>Cobalt (70% coming from the Congo, often from small, hand-dug mines by children), lithium (60% from China), and copper (40% from Peru and Chile, and 47% of the smelting coming from China). These are not stable sources, and the demand will be super-high.<\/p>\n\n\n\n<p><strong>Commodity price inflation could revive soon<\/strong>. If so, the PPI will soar, followed by an equivalent surge in the CPI. This will catch politicians and the Fed by surprise, just as the \u201ctransitory\u201d inflation of 2021 did.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Math myth #3:&nbsp;The jobless rate is at an all-time low.<\/h2>\n\n\n\n<p>The U.S. unemployment rate hit a 53-year low of 3.4% in January 2023 and it has been under 3.8% for over a year now, but that number only counts those \u201clooking for a job\u201d who allegedly can\u2019t find one, even though over 10 million listed jobs were going unfilled during that time, unclaimed jobs. (That total is available in the JOLTS report each month).<\/p>\n\n\n\n<p>February\u2019s open job listings, according to economist Ed Yardeni, were in professional &amp; business services (1.8 million), health care &amp; social assistance (1.7 million), leisure &amp; hospitality (1.5 million), retail trade (829,000), state &amp; local government ex-education (535,000), transportation, warehousing &amp; utilities (488,000), financial activities (476,000), durable goods manufacturing (475,000), and construction (412,000).<\/p>\n\n\n\n<p>But the Labor Force Participation Rate, at 62.6%, remained below its pre-Covid 63.3% rate, as men of working age have been dropping out of the Labor Force for decades \u2013 particularly since 2008, mostly due to alternative living arrangements and the rising array of benefits available for not working.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"624\" height=\"230\" src=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-1.jpg\" alt=\"Math myth\" class=\"wp-image-2462998\" srcset=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-1.jpg 624w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-1-300x111.jpg 300w\" sizes=\"(max-width: 624px) 100vw, 624px\" \/><\/figure>\n\n\n\n<p>Businesses all over America need help, but workers don\u2019t want those jobs. How can there be a recession when jobs go begging? Until we reduce rewards for not working and value work, this trend will continue.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Math myth #4:&nbsp;The dollar is doomed.<\/h2>\n\n\n\n<p>But compared to what? With currencies, it\u2019s always a beauty contest, or rather a \u201cleast ugly\u201d contest. Einstein\u2019s Theory of Relativity applies. What paper money is better managed than the other guy\u2019s paper? The <a href=\"https:\/\/www.valuewalk.com\/the-us-dollars-impact-on-forex-trading\/\">dollar <\/a>may be over-printed, at the moment, but compared to the euro, yen, yuan, British pound, and other contenders, who manages their paper currency better?<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"624\" height=\"626\" src=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2.jpg\" alt=\"Math myth\" class=\"wp-image-2462997\" srcset=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2.jpg 624w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2-300x300.jpg 300w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2-150x150.jpg 150w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2-24x24.jpg 24w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2-48x48.jpg 48w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2023\/04\/Math-myth-2-96x96.jpg 96w\" sizes=\"(max-width: 624px) 100vw, 624px\" \/><\/figure>\n\n\n\n<p>In a greater sense, the world\u2019s leading currency usually reflects the world\u2019s strongest nation. As Dennis Gartman used to say at the New Orleans Investment Conference, \u201cThe U.S. has 11 aircraft carriers. China has just one. That\u2019s why the Dollar is King.\u201d<\/p>\n\n\n\n<p>Alas, his math no longer applies, as China is catching up fast in the Naval department, but that gain comes at a great cost. China\u2019s debt-to-GDP ratio exceeds ours, if you count all their ambitious off-the-books military expansion and Belt and Road managed economic projects.<\/p>\n\n\n\n<p><em>The Economist<\/em>&nbsp;reminds us (this week, in \u201cRiding High\u201d) that \u201cAmerica\u2019s dominance of the rich world is startling. Today it accounts for 58% of the&nbsp;G7\u2019s&nbsp;GDP, compared with 40% in 1990. Adjusted for purchasing power, only those in&nbsp;\u00fcber-rich petrostates and&nbsp;financial hubs enjoy a higher income per person.<\/p>\n\n\n\n<p>Average incomes have grown much faster than in western Europe or Japan. Also, adjusted for purchasing power, they exceed $50,000 in Mississippi, America\u2019s poorest state\u2014higher than in France.\u201d<\/p>\n\n\n\n<p>The Economist continues: \u201cAmerican&nbsp;firms own more than a&nbsp;fifth of patents registered abroad, more than China and Germany put together. All of the&nbsp;five biggest corporate sources of research and development (r&amp;d) are American; in the past year, they have spent $200 billion.<\/p>\n\n\n\n<p>Consumers everywhere have benefited from their innovations in everything from the laptop and the iPhone to artificial intelligence chatbots. Investors who put $100 into the\u00a0<a href=\"https:\/\/www.valuewalk.com\/sp-500-bears-missed-a-good-opportunity-sucking-in-buyers\/\">S&amp;P\u00a0500<\/a> in 1990 would have more than $2,000 today, four times what they would have earned had they invested elsewhere in the rich world.\u201d That\u2019s why the dollar still rules!<\/p>\n\n\n\n<p><em>The lesson is clear to investors \u2013 don\u2019t give up on America. Keep investing in home-grown companies.<\/em><\/p>\n ","protected":false},"excerpt":{"rendered":"<p>For weekend reading, Gary Alexander, senior writer at Navellier &amp; Associates, offers the following commentary: Now that we are entering &#8230; <a title=\"Investors Follow the Money While Politicians Fail at Basic Math\" class=\"read-more\" href=\"https:\/\/www.valuewalk.com\/investors-follow-the-money-while-politicians-fail-at-basic-math\/\" aria-label=\"More on Investors Follow the Money While Politicians Fail at Basic Math\">Read more<\/a><\/p>\n","protected":false},"author":21886,"featured_media":2456164,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[6640],"tags":[665017,665018,659036,665019,660659],"states":[],"acf":[],"modified_by":"Umair Tariq","_links":{"self":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts\/2462981"}],"collection":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/users\/21886"}],"replies":[{"embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/comments?post=2462981"}],"version-history":[{"count":1,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts\/2462981\/revisions"}],"predecessor-version":[{"id":2462999,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts\/2462981\/revisions\/2462999"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/media\/2456164"}],"wp:attachment":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/media?parent=2462981"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/categories?post=2462981"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/tags?post=2462981"},{"taxonomy":"states","embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/states?post=2462981"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}