Week Ending May 24, 2024

 

“Higher for longer”…FOMC members continue to communicate their willingness to keep rates higher for longer or even raise rates if inflation worsens.

What does it mean – Remember when Powell, Yellen, this administration and their “merry gang of bankers” tried to convince you inflation was transitory. Yikes!!

 

According to B of A’s transaction data…Small business payments toward loans have risen while payments toward payrolls have declined as hiring moderated.

What does it mean – As rates go up, more government bureaucracy and regulation equal higher costs for businesses, fewer jobs, and less innovation. The Fed and this administration are now dealing with the unintended consequences of bad policy forced on the American citizens.

 

New home sales decreased 4.7% month-over-month in April…On a year-over-year basis, new home sales were down 7.7%.

What does it mean – According to First Trust, “governments – federal, state, and local – have created extensive regulations on home construction, making it harder and more expensive to build. Environmental rules, zoning limits, historical preservation, the promotion of “smart growth” or “affordable housing” all impede a free market. On top of this, small businesses (which include many home builders) face incredibly complex and burdensome hurdles in managing payrolls, including taxes, rules, and regulations. COVID era policies widened the performance gap between small and big business.”

 

Big Macs and Burrito Supremes become luxury items…According to a recent non-probability survey conducted by Lending Tree, it found that nearly 80 percent of American consumers view fast food joints as an extravagant meal.

What does it mean – In 2019, a McDonald’s Big Mac hamburger cost $3.99. In just four years under this administration’s inflation inducing policies such as government handouts and student loan forgiveness, the greasy sandwich will set an American back $8.29 where I live and $7.49 on average in the U.S.

In the movie Demolition Man Taco Bell wins the franchise wars. But that’s not the real story. Demolition Man may have been the instructional manual for Big Government socialists who are hell bent on destroying free markets and capitalism. Demolition Man is filled with a stream of never-ending virtue signaling, and restrictions on speech and individual liberty, Hollywood may have created Klaus Schwab’s favorite movie and playbook. Watch the below clip. Demolition Man literally brings alive the World Economic Forums (WEF) agenda in roughly two minutes. https://www.youtube.com/watch?v=p-7zED_o62w

I guess I am going to have to re-watch the entire movie again. Here is a look at how inflation has hit  McDonald’s and Taco Bell.

According to Bloomberg, Goldman Sachs Axes Bet on July Fed Cut…Higher for longer even at Goldman.

What does it mean – While not wanting to say it out loud, one of the biggest cheerleaders for lowering rates back in December and the first part of this year is only now realizing that government policy is in conflict with Fed policy. A perfect example of bureaucracy. The right hand does not know what the left hand is doing or realizing that the Fed is stuck between massive government spending, student loan forgiveness, and increasing regulations and bureaucracy that grows government and is inflationary and a housing market that is not budging, war in the middle east causing keeping energy prices high and massive illegal immigration that they are now saying is inflationary as it increases demand on housing and resources. It is all inflationary and bad policy has created this.

Stagflation? Far worse than expected…Q1 GDP increased at adjusted annual rate of 1.6% and was just updated and actually worse than expected at 1.3%. The GDP Price Deflator, on the other hand, did not soften. It was up 3.1% versus 1.6% in the fourth quarter.

What does it mean – The key takeaway from the report is that it conveyed a disappointing combination of much weaker growth and higher inflation. While this meets the definition of “stagflation,” the White House, CNN, MSNBC, ABC, PBS, CBS and even FOX are now silent or trying to redefine stagflation or ignore the reports completely. Yet even Media Matters quotes Jamie Diamond who says, Americans should be worried about stagflation and that it’s “on the list of possible things”.

According to David Donabedian, chief investment officer of CIBC Private Wealth US, “This was a worst of both worlds report – slower than expected growth, higher than expected inflation,” He goes on to say, “We are not far from all rate cuts being backed out of investor expectations. It forces Fed Chair Jerome Powell into a hawkish tone for next week’s Federal Open Market Committee meeting.”

 

The standard of living widens…Since 1970 there have been no real gains in the living standard of the poor.

What does it mean – According to Macro Economic research firm, Gavekal Research, “there has been a widening gap in living standards between higher and lower income groups.” Here is a graph detailing the reality.

Not even Lyndon Johnson’s dream of a “Great Society” and the $ trillions you and I have spent on social programs here at home and abroad have eliminated poverty. In fact, the more the government got involved the worse it got and more expensive it got. These programs have led to massive debt, more social programs, and have failed the most vulnerable in our society. Like a drug, it has created a generation “hooked” on entitlement programs. It has caused massive divides in society to the point that we cannot even debate the merits of these policies, discuss the waste or eliminate the duplication of them like food programs that are overseen by 4 different federal agencies. They have become the “third rail.”  Worst of all, those who support these failed programs get away with vilifying success and demonized those who speak out against the growth of government at the cost of personal freedom and economic opportunity for every citizen.

It is the definition of insanity. We expect different results but keep electing the same people who are supposed to oversee our treasury and protect our freedoms. Not “hook” the weakest and most vulnerable on handouts and a life dependent on government.

The untold $ trillions of your tax dollars spent by the government have created an entirely new industry built on the backs of taxpayers. It has enriched politicians through campaign contributions by unions and social service NGO’s that benefit from government entitlement programs and large mandated spending programs demanding union workers. The vicious circle of creating a solution for a problem yet defined has become an art form in the halls of congress and the darkest corners of DC. It has led to massive duplication of programs and out of control costs that are suffocating free markets and capitalism through excessive regulation, taxes, and outright blackmail so that government can fund its out-of-control growth.

Allowing unelected agencies to form rules and regulations is equivalent to the mafia showing up at your business and telling you that you need to pay them for protection from a problem you, nor your employees, or customers have. And like the mafia, these agencies send out a warning that you need to comply with a new regulation to solve a problem you did not know you had. Reminds me of a few executive orders we have seen released over the last few months.

And like these agencies left unchecked, the very next day the mafia shows up at your place of business. Your store or business is robbed or vandalized. The police can’t react due to budget cuts or won’t because if they did arrest the perpetrators they are immediately released by the DA. All of these actions (executive orders) result in driving up the cost of business and adding to inflation and less services in the communities that need them the most. Justy look at SF, LA, NY, NJ, Chicago, and several other major cities and states that have fallen for this chaos.

The cool thing now is CA has a cool new industry too. I am sure it will spread to a state where they defund the police, George Soros backed DA’s and provide sanctuaries for illegal immigrants.

In CA It’s known as “burglary tourism.” Our “friends” visiting from foreign lands have created a new industry and California has even given it a name. According to NBC news in San Diego, it is easier for foreign visitors to apply for tourist visas online and rely on what investigators consider a “weak vetting system” to get approved and enter the U.S. These burglary tourists then carefully select the home. Watch carefully from rented cars that blends into wealthy neighborhoods and even use game cameras that are camouflaged and hid in the homeowners’ bushes to provide 24-hour surveillance of the home. This way they know when the homeowner leaves and can avoid any risk of alarming the homeowner. You get what you vote for.

 

Let’s roll America!!!

Doug De Groote, CFP®, MBA, CTC
Managing Director

De Groote Financial Group, LLC is a federally registered investment adviser that maintains a principal office in the State of California. The information contained in this message is confidential, protected from disclosure and may be legally privileged. If the reader of this message is not the intended recipient or an employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any disclosure, distribution, copying, or any action taken or action omitted in reliance on it, is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by replying to this message and destroy the material in its entirety, whether in electronic or hard copy format.