The U.S. Government Created a Financial “Sugar Rush”

LONDON, ENGLAND – A friend sent me a chart book last week, put together by analysts at Deutsche Bank. They titled it “US recovery at one year. Late cycle already?”

They filled it with 46 pages of charts of things like unemployment, inflation, GDP growth, income, consumption, wealth, housing, etc.

I printed it off and studied it over the weekend. My conclusion:

We’ve just witnessed an epic sugar rush financed by the sovereign (the U.S. government and the Federal Reserve).

I’ll show you what I mean below…

Great Comfort

Greetings from London, where my family and I have interrupted our nomadic adventure to deal with my mother’s death…

Before we got here, I was worried it would be very uncomfortable to be surrounded by “Mum”… That her house and her things would be painful reminders of what we’ve lost.

Actually, it’s been three-and-a-half months since we got here, and we have found the opposite. Being here has been a great comfort to us. In the meantime…

The garden is looking beautiful. Here we are having our dinner outside last night…

Dusty (13) has a job (he works in a botanical garden, pulling weeds for £5 an hour) and a place on the local cricket team (he bats at number nine for Chiswick juniors).

The administration of Mum’s estate is almost done. We should have everything tied up next week.

And I’ve put in an application to the Home Office for the children to get British citizenship.

Major Case of Nostalgia

Not much other news. It’s been difficult emotionally. Mum’s death is very hard to accept and we miss having her around terribly.

On the other hand, we love it here and we’ve been having a great time.

We’ve been to loads of museums and tourist attractions. We are seeing lots of friends. We went to Wimbledon. We went to the Lord’s Cricket Ground. Kate even found a great homeschooling group nearby and she’s been going to lots of meetups.

Here’s Dusty watching cricket at Lord’s…

We’re not going to stay here long-term. So we have to decide what we’re going to do with Mum’s house and all her beautiful things.

It’s like an antique shop in here, and I’m very attached to everything. You could say I have come down with a major case of nostalgia.

Oh well. At least we don’t have to rush. COVID-19 is still affecting travel and we don’t have anywhere pressing to be.

In the meantime, our poor car and all our things are still sitting in a parking lot at the Idaho Falls airport in the U.S.

We’ll have to deal with that soon… and we’ll also need to get our passports stamped so we can stay in the U.K. for another six months… which means more quarantine and more COVID-19 tests…

Sugar Rush to Sugar Crash

Back to the chart book I read this weekend…

When the government injects cash into the economy, economists call this “a transfer payment.” They usually do this by giving money to consumers.

The transfer payment they initiated in 2020 and continues today was the greatest transfer payment in history… about $4 trillion, which is equal to 20% of annual GDP.

I particularly like this chart below. It shows 130 years of real property prices…

Notice that real property prices traded in a range from 1907 to 1997, then zoomed higher.

Kate, the kids, and I got around in a circle yesterday and looked at it and thought, “Uh oh, we need to sell this house ASAP.”

The other chart I liked was this next one below. It shows we are at retail sales levels we weren’t supposed to be at until the year 2026! Wow…

The problem with a sugar rush is the rush turns into a crash. That’s what I think is about to happen… And that’s what the chart above suggests is already starting.

This next chart shows the Citi Economic Surprise Index…

This index measures whether economic data is beating or missing analyst expectations. As you can see above, it’s at negative 19 today – the lowest it’s been in almost a year.

A positive reading means that various economic statistics are coming in hotter than analysts expect. A negative reading – like the one today – means that various economic statistics are surprising analysts with how weak they are.

It may also be what bond yields are suggesting. Take a look at this next chart. It shows the spread (or difference) between the 2- and 10-year U.S. Treasury bonds…

The yield curve has started to flatten again. That’s when the spread between long- and short-term bonds gets smaller. In the chart above, it shows up as a decline back down toward 0.

This often indicates a slowing economy. You can see the last few times the yield curve flattened, a recession (grey bars) followed a few years later.

Do the Right Thing

What will the feds do about it? Feed consumers more sugar, of course.

If I’m right about all this, we will soon see news coming out of new and bigger transfer payments to consumers and more quantitative easing (QE) by the Fed. Stay tuned.

“But Dad,” Dusty asked, “what happens when the sovereign runs out of money?”

“Exactly the point, son. That’s what we’re all waiting for.”

But… No one knows when that will be. It’s beyond prediction.

We can only do the right thing by holding gold… and hope it doesn’t take too long.

The feds will do whatever it takes to avoid defaulting. This means the same thing it always means in these situations. They’ll have to devalue the currency.

– Tom Dyson

Praise and advice from fellow homeschool families on education and limiting screen time… a plea for Tom… and a first-time reader shares their thoughts…

Reader comment: I’m sending these as an encouragement to you as homeschool parents (and as a proud momma). Thanks for all you do to encourage our investment education!

Reader comment: I’ve written before and feel compelled to drop a note again as a veteran single homeschool mom. My suggestion is based on a tried-and-proven strategy regarding screen time. Both my children were taught music by personal tutors in guitar and piano. That ensured practice and pure enjoyment time consumed hours a day. And physical strength training for establishing a lifestyle mentality, rather than just playing sports. Playing sports has benefits, but the long-term lifestyle mentality seems to be a sustainable investment of time.

And finally, my children were encouraged to be “makers,” as in learning to design and sew doll clothes, quilting, personal clothing, and costumes, woodworking, clay sculpture, and several other pursuits. Both children have actually taken a few hobbies and now have side hustles using those fun hobbies. TV and screen time was (and is) used primarily to Google and watch YouTube for instructions and ideas.

My daughter incorporated her interest in clothing design into a boutique business and my son is a furniture builder on the side. Both are avid “DIY project addicts” for the pure satisfaction of creating, repairing, and learning something new.

Also, we all engage in lots of charity work. Knitting, crocheting, and quilting blankets for children removed from their homes in emergency crisis situations is a most satisfying way to double down on TV time or travel time. Portable project, too. Once a blanket is done, we drop it off to a local police station and the blanket will likely be given to a child within the same week.

That’s my 2 cents’ worth on alternate options to encourage children to work on creating something, rather than numbly staring at a screen. We also love listening to audiobooks while creating.

Reader comment: In line with what you have been saying about the time you have left with your father and with Kate’s parents, it will never make sense to hold on to material possessions if it means sacrificing time you could be spending with the people you say you hold dearest.

Good for you for going to spend time with your dad. Just remember to also spend time with Kate’s parents, too, in the future.

Reader comment: I’ve had the Postcards appear on my phone and I read it for the first time today. I love it! Had no idea the knowledge, welfare, and concern of all the world, all of us who live here and beyond and love, which speaks volume in words and actions. Very enlightening! Thank you for all you do.

Tom’s note: As always, thank you for sharing your insights and perspectives with us. We read every message you send us. Please keep writing us at [email protected], and I’ll do my best to answer your questions in a future Friday mailbag edition.