Unbelievable but understandable. The Fed cut 50 basis points and if this trend continues into the rest of ’24 and into ’25 then we will truly be repeating the inflation pattern from the 70s as written about here. This is the chart we created and we’ll be updating it now that we have a solid change to the fed funds rate.
Following the trend, then we can expect inflation to continue to “deflate” into 2025 but late into 2025 or early 2026, we expect inflation to re-ignite and rocket back up barring any black swan events.
The Perfect Storm
In 1991 there was a “perfect storm” formed by a Nor’easter, a cyclone and a hurricane that developed into a very damaging storm that came out of nowhere. A movie was subsequently made about it that was a box office hit.
Today, we have a financial “perfect storm” forming within the borders of the United States. The three things coming together are: demographics, debt, and indifference.
Demographics
We’ve written about this endlessly, we have 80 million people projected to be collecting $145 billion / month in social security benefits by 2030. That’s just social security, medicare and medicaid and other social programs are likely on the same order or higher.
Debt
The U.S., as of the time of this post, has $34 trillion in debt. You can find the real-time debt clock here. That amount is for September 18, 2024 and one can only wonder how much it will be in 2030 but at the current rate it will be $43.9 trillion.
Indifference
Neither political party seems concerned about debt or demographics as it is rarely mentioned by anyone in Congress or the Executive branch so don’t expect anyone anywhere to do anything about the issue anytime soon.
What Next?
As the fed continues to cut, we expect the markets to be volatile so our best move at the moment is to dump our T-bills as soon as they mature and hold cash but trade strategically using covered calls to be simultaneously long and short for brief periods of time.
Stay tuned, stay profitable and stay solvent…