Amid dismal deficits, gold glitters
Dow gains ~0.4%, S&P 500 edges green, Nasdaq off ~0.5%
Financials lead S&P 500 sector gainers; Tech weakest group
Dollar down; bitcoin off ~3; gold edges up; crude up >2%
U.S. 10-Year Treasury yield edges down to ~3.62%
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AMID DISMAL DEFICITS, GOLD GLITTERS
Economic theory would suggest that deficits are run when economic times are tough in an attempt to pull the economy out of recession. Likewise, when the economy is thriving, fiscal surpluses would be the norm and these surpluses would create a rainy day fund for the next recession.
However, as Philip Palumbo, founder, CEO, and CIO of Palumbo Wealth Management, sees it, one of the economic oddities of the last several years is the U.S. running a growing fiscal deficit during a robust economic period.
"The latest fiscal data was released on Friday and it was more of the same… much more. The deficit for the month of August was $380 billion – ouch," writes Palumbo in a note.
Palumbo argues that debts must be paid or there must be a default. However, he says default is not really an option since it would destroy the dollar and our economic system.
That brings us to the two ways to pay for the debt.
In Palumbo's view, the best way to pay for a growing debt burden is to foster economic growth. However, he believes that for growth to make a difference, it will need to be much stronger than has been seen for quite some time.
The other option is money printing.
According to Palumbo, printing more money might appear to work for a while, but he believes that process would be destined to end in failure, more specifically inflation.
Although rumblings about continued large fiscal deficits are rarely heard these days, he says the issue is not going unnoticed by markets, even if it is unnoticed by most.
Palumbo's bottom line is "All the talk this year has been the rise of the stock market, but gold is the top returning asset class thus far in 2024 with a return of roughly 21% as opposed to the S&P 500 at about 14%. As long as deficits continue to run wild, we would expect gold to continue to perform well."
(Terence Gabriel)
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