by Gary Alexander

April 20, 2021Herbert Hoover Statement

There are some “inside Las Vegas” terms for gamblers who have lost all rational restraint and are headed for a wipe-out. They may have come with $5,000 in hand, but now they have lost that stash, maxed out their credit and debit cards and are betting cab fare on a last roll of the dice or turn of the roulette wheel.

In Vegas lingo, a loser “chases his losses,” or will “tilt” until he “craps,” or “taps out.” Congress would be in that position now except they never have to worry about tapping out. There’s always more paper at the Bureau of Engraving and Printing – and they stopped worrying about the Debt Ceiling long ago, in 2019.

This is not the time to run up huge government deficits based mostly on transfer payments, yet that is what they’re doing. As economist Ed Yardeni wrote last week, “Washington has gone bonkers. Deficit-financed government spending has soared beyond belief.” Here are some of the new statistical realities:

  • The March budget deficit came in at $660 billion, a record high for the month and 455% above the $119 billion deficit last March. Outlays were $927 billion vs. income of only $268 billion.
  • April won’t be much better because, once again, the IRS postponed the tax deadline into May.
  • The deficit for the first six months of Fiscal 2021 (starting last October 1), reached a record $1.7 trillion, a 130% increase over the $743 billion deficit for the same six months in Fiscal 2020.
  • The U.S. federal budget deficit totaled a record $4.1 trillion, over the past 12 months, through March. Outlays increased by $3 trillion (+65%) to $7.6 trillion, with no real growth in receipts.

Half of the growth in Outlays (+$1,459 billion) in the last 12 months was for Income Security payments, or personal transfer payments (“Peter paying Paul”). The percent of Outlays spent on all forms of income redistribution rose from 62.5%, at the end of 2010 to 68.4%, at the end of 2019; then it leaped to 77.8% at the end of 2020, due mostly to three rounds of individual payments and other pandemic relief programs.

If such numbers make your eyes glaze over, here are some of those statistics in graphic form, thanks to Ed Yardeni. Check out the cascading waterfalls and vertical hockey sticks of 2021 government spending:

Figure 1 US Federal Government Budget Balance

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Figure 2 US Federal Government Outlays & Receipts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Figure 7 US Federal Government Outlays on Redistributing Income

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

I’m no absolutist on balanced budgets. There is a time and place for red ink. Last April and May, the rescue checks for those in need were vital. Targeted help for those still in need is still vital. But sending $1,400 checks to 80% of Americans, when over 90% of us are employed, makes no sense. Passing two $2 trillion stimulus packages within two months makes no sense when the U.S. economy is growing faster than at any time since the mid-1980s, and nearly every economic statistic reflects what Jamie Dimon calls a “Goldilocks Moment,” or Louis Navellier calls “Economic Nirvana.” A report from LPL Financial said these are the “best business conditions of the 21st century.” Both the ISM Manufacturing and Services PMIs have hit their highest levels in decades. Unemployment is down to 6%, and GDP is rising by 6+%.

With vaccine distribution going better than expected, the economy could open up by summer, pushing the GDP growth rate up to 7% or higher this year. Economists now expect employers to add 7.1 million new jobs in 2021, the largest December-to-December gain ever recorded, and up sharply from the 4.9 million jobs projected for 2021 late last year (“Forecasters Brace for Uncharted Liftoff,” WSJ, April 12, 2021).

We’re starting to travel more – a lot more. As of April 12, more than one million people per day have been flying commercial airlines in the U.S. for 30 straight days, for the first time in a year. Restaurants are opening up, and their biggest problem is finding enough workers. Americans want their lives back!

Can We Avoid Paying the Piper for this Debt? Maybe, If…

The economy is booming. There is no need for over-spending now, but that is almost beside the point. The Biden Administration is determined not to “waste this crisis,” so it is launching many of its dream programs in its first year, when its legislative leverage is at its peak. (The fiscal hangover comes later.)

The S&P 500 is up 2,000 points in a little over a year, from 2,191 in March 2020 to 4,191 in April 2021. That’s +91% in 11 months. NASDAQ and the Russell 2000 are up over 100%. The stock market gave us plenty of warning of economic nirvana ahead. Someday soon, it will warn us about the morning after.

We may be able to dodge a bullet by keeping interest rates super-low forever, while keeping inflation low by a magical combination of disciplined buying behavior and rational market buying choices, but how often has that combination of human restraint been evident on a global basis in human history? Not often.

Cartoon Townhall and Cartoon Stock

As for President Hoover’s three solutions to rising debt (taxation, repudiation or inflation), it’s highly unlikely that the U.S. government will default on any bond coupons, even though most governments have done so in history – even many of the established European democracies of the 20th Centuries after World Wars I or II. That leaves taxation and inflation as the civilized solutions. “Monetization” is the more accurate term for inflation, in that, more money is printed to pay for debt service, increasing the money in circulation, devaluing each unit by the percent of newly created money, like diluting the shares of a stock.

We’re seeing a great deal of asset inflation in everything from real estate to Bitcoin to stocks, and now in commodities, especially industrial metals related to manufacturing supply chains, like Platinum Group Metals for catalytic converters, cobalt for lithium batteries, and now we’re seeing some secondary consumer effects. I’m pricing rental cars for a July trip and find that $200 per day is the minimum in a certain city, and other cities have no cars at all. A Wall Street Journal survey (“Where Did All the Rental Cars Go?” April 15) explains that some were sold off in the pandemic, and now there is a “car shortage.”

Inflation shocks will continue over the next year. Be prepared for tax increases and price increases. There is no free lunch for government over-spending, but if we are very careful, we might avoid serious fallout:

  • If interest rates – both short-term and long-term – stay low (say, below 3%, long-term); and
  • If most Americans don’t become manic buyers of consumer goods, bidding prices up too fast; and
  • If Congress and the President quit drafting multi-trillion-dollar transfer-payment programs; and
  • If any tax increases are limited in scope and target their goal toward pro-growth measures; then…

perhaps we can escape serious market setbacks or morning-after debt hangovers. That’s a lot of IF’s. A final If is this: If the Democrats don’t learn from their mistakes, fast, the voters will chasten them in 2022.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.