America-Wake-Up

The Ross Rant™ 2024

Where from here in 2024? It is going to be a very rough and historic year. There is no way to predict what is going to happen in the world or the economy. As I have noted prior, the consensus is that 2024 will see a stock market that is flat to down. Stock prices have surged far more than anyone predicted, and the gains were mostly in a small number of stocks driving the indexes higher than they really should be when you look at the equal weighted SPX vs the market price weighted. In other words when you eliminate the Magnificent Seven massive percentage in the market weighted, and just treat them equally, then the gains are much lower. The P/E ratios are now too high in some cases and the market P/E is high, so the likelihood is we are now over the normal Santa Rally and back to a more normal trading market. The real risk I have mentioned over the past several weeks are only getting worse. Israel is now doing what the US should have done, but Biden was afraid to do- they have killed top officers of the Iranian army, and they are going after Syrian anti-air weapons likely to prepare the way for many more attacks on Iranian assets. This is going to result in a much bigger confrontation at some point. Israel is doing what Biden should be doing. Maybe Israel will also take out the Houthi rockets and command centers since Biden is afraid to. In any event, the risks are growing, and anything could happen at any moment. Just think back to WWI- they shot the archduke and that triggered the explosion that was waiting to happen. It is the same now. Nobody can predict what might happen next. So, I remain conservative, and will be happy with a 5% return in 2024.

Why was everyone wrong about a recession and lower stock prices? In my opinion, nobody realized the magnitude of the impact of the flood of government spending being so overwhelming that the Fed increase in rates were offset. This flood of cash into all levels of the economy kept the job market strong once the economy reopened, along with all the cash that had been handed to consumers during Covid. The amount of the fiscal spend, over $6 trillion, has been unprecedented, and due to all the Covid excess savings of $3 trillion, the economy became awash in cash. Add to this, the mass payoff of credit cards and debts during the lockdowns and consumers had excess cash, lots of unused credit, and a lot more paper equity in their home. To compound things, most people have a 3%-4%, mortgage so their personal debt service is lower than in the past, thereby freeing up more cash to spend. Combine that with the supply disruptions, and inflation rose, but so did spending, and so creating more labor demand, so unemployment has remained very low, meaning more spending. Covid and rising home equity caused many more to retire than otherwise might have happened, and so we had labor shortages while consumers went on a spending spree with all that excess cash. What has probably compounded the labor shortage is the retirement of experienced, efficient, hardworking employees, who are being replaced by unproductive young people who are not interested to work nearly as hard, nor are they as well educated in many cases given the woke indoctrination in schools. In summary, the amounts of cash floating around the system at the consumer level was unprecedented. It began to feed on itself. More government spend, led to more excess savings, led to more consumer spend, led to more labor shortages and higher wages, led to higher prices and more spending. The problem is now the real price has to be paid for all the excess.

The job market is not really growing as much as we hear. Yes, jobs are being added, but the majority-56%- of them are welfare and healthcare related jobs and due to migrants having to be dealt with and more homeless. It is mainly concentrated in the big blue states, NY and IL lead the pack.  NYC spends $143,800 per migrant per year. Medicaid, a Pelosi and Schumer priority, is the biggest area of wasted spend, with social welfare also adding a lot of jobs due to woke ideology. Of net new jobs added due to healthcare and welfare, these jobs in CA were 61% of new jobs, NJ 81%, OR 89%, MI 113%, IL 113% and the winner was NY121%.  It means MI, IL and NY actually lost private sector productive jobs. Compare these numbers to TX 34%, SC  37% FL 41%, GA 48%. NY spends 2.5 times as much as TX on Medicaid per capita. TX has a $18 billion budget surplus. CA has $75 Billion deficit. NYC has to cut cops due to the migrant influx. So, were it not for the open border and the massive spend on Medicaid, job growth would be very small, and the budget deficits of these blue states and the federal government would be far lower, so taxes would be lower, which would grow the economy faster.  In case you wondered what the difference is between states run by Republicans and those run by Dems, this explains it. Blue states waste far more on migrants and social welfare, and so have to raise taxes, so the real taxpayers leave, making the situation even worse. If you were to not have the massive waste of subsidies on EV’s, battery factories, and new Solyndras and other wasted spend on climate, from the climate industrial complex, we would have far less of a problem with the deficit. This also gives you a far better understanding of the real jobs market. It also shows the massive cost of open borders in not just drugs and potential crime and terror issues. It is huge deficits and higher taxes, more crime, and fewer cops.

Government debt is now $34 Trillion, a number that we cannot afford. Debt service is now rising at a rate that it will soon overwhelm the budget, which is why the big fights in Congress. We are rapidly reaching the break point which will show up when the primary dealers find it too hard to sell the $9 Trillion of paper they have to sell in 2024, and rates beginning to rise again no matter what the Fed does. The Dems seem not to understand any of this, or their intent is to keep spending to keep the economy going so by November it looks better than it really is. We have dug a hole so deep there may be no escape, and we will be digging ever deeper unless there is a major reduction. This is why I continue to caution about a fiscal crisis arising this year. CA is the canary in the coal mine. They keep adding entitlements and regulation. Result is a $75 billion budget deficit that is going to $110 billion in 2024. Consider that when unemployment is very low, and consumer spend is high, their deficit is skyrocketing. That is counter intuitive. Consider what will happen when the economy slows, and more taxpayers leave. They had a large surplus before. They will have to raise taxes, more large taxpayers will leave, and so the deficit just gets worse, and the hole gets deeper, so more taxpayers leave. Same for NY. When they tally the number of New Yorkers leaving by using moving van counts, they far understate reality. Many New Yorkers continue to have a home here, but they do not pay taxes here, and they use FL as their tax home, so the hit to the government revenue is far worse than net migration data suggest since it is the wealthier taxpayers who do this, and they were the taxpayers. CA has the same problem as does NY City. It is not head count that matters, it is large taxpayers who matter. The real taxpayers are the ones who can afford to have the second home which becomes their tax home. In CA and NY, and Chicago, the taxpayers are being replaced by migrants who are costing billions that the states and cities have no money for. That is why NYC is in a death spiral now, as is CA. The longer the border stays wide open, the worse the fiscal disaster being created.

The decline in CRE values is continuing and will continue for a while, especially in multi. Different product types will decline more, or less, and will bottom out at differing points. Multi still has a way to go toward a 20% decline, while industrial is likely not to suffer very much. As in all real estate, it is location and condition of the asset that matters a lot. It is also if the mortgage is floating or fixed, and what is the term. If it is a very good and reasonably new asset with a 10-year term on a low leverage mortgage at 3%, then that asset will decline in value a lot less than the older asset with a floater or a near term maturity. So don’t just take general averages when assessing the value of a real estate asset. If you are invested in a multifamily asset and you can survive until 25, you are likely OK. Most markets will recover at least a portion of the lost value as new supply dries up, and as mortgage rates and possibly insurance move back down a little. Since the consensus is that the ten-year will not go much lower from here, and could go higher, don’t expect to refinance at some very low rate like we had before 2021. Expenses are up, especially insurance, occupancies are down, rents are flat or down, and NOI is down in most cases. That is not going to change much for a long time in the south. You are in survival mode now. Hotels will soon follow as the spending on US travel will slow this year, and as more travelers go abroad or on cruises post Covid.

One of the biggest changes in the world economy is the decline of China which was the driver for much of world economic growth over the past 10 years. That is now in reverse with major consequences for everyone. The Chinese stock market declined 11% this year while the rest of Asia had very good stock markets. The new economic report from China shows the PMI-purchasing managers index to have fallen into negative territory. The entrepreneurs are disappeared. The pollical bureaucrats have taken over, and the anti-corruption drive continues to hamper business. Capital is flowing out now. The state is now even more in charge of the economy. That means a lot of bad business decisions and inefficiency. Xi is destroying what had been the economic driver of the world. Consumers are pulling back after the large losses in their real estate and stock market investments. In short everything is going in the wrong direction. This is why Germany, which was heavily dependent on sales to China, is in recession which has follow on impact on the rest of the EU. The US will have less growth than expected as China continues to falter. This represents a major shift inworld economic trends. Pay attention. Lyric Hale and her EconVue report continues to be the best place to keep tabs on China. You should subscribe.

A lot is going to change this year in the wars. Ukraine cannot sustain the level of battle for a lot longer due to the loss of so many fighters and the delays in receiving weapons and ammunition. Zelensky is likely to get replaced at some point. Russia is using its same strategy as in WWII and other wars. Just feed hundreds of thousands of men into the battle and ignore massive losses until the other side can no longer maintain the fight. Russia has lost closing in on 400,000 dead, wounded or captured, but Putin could not care less. There are more where they came from, and now he has the momentum on his side. This is not going to end with victory for Ukraine.  In Gaza, Israel is going to continue its massive attack until they kill the leaders and as many fighters as they can locate. They claim they have killed 8,000 Hamas fighters and many top leaders. They have another 17,000 to go. As the Israelis control more areas, and destroy more tunnels, and close in on more concentrated areas where the Hamas fighters will get pushed, many more Hamas fighters will die more quickly. Sometime in this year it will be over. The question then is does Hezbollah pull back or attack, and does Israel wipe out the Houthis and the Iranians in Syria in the process. The real issue is, does Israel destroy the Iranian nuclear facilities in the next few months before they build the bomb after Israel wins the war. With Biden in office and the election, Israel will have to do it on its own. My bet is yes, they destroy the nuke facilities. They cannot ever allow Iran to have a nuke. Then the Mideast explodes, and oil goes through the roof as Israel will likely also take out the oil fields. This will be the ultimate black swan, and it is why I am staying conservative in investing. There is no way to predict what may happen geopolitically, nor in the election. We can only hunker down in your investing and wait to see how things play out this year. Better to miss some of the ups than to risk suffering a 30% possible sudden decline. Anyone who claims they can predict this year with any degree of confidence is just mouthing off.

What most are unaware of is, the ME Secretary of state has also tried to prevent No Labels from getting on the ballot. This is not just a stop Trump effort. It is part of a nationwide effort by the far left and Dems to keep Trump and No Labels off the ballot and to sideline RFK Jr. In short, the Dems and their allies on the radical left are trying to take over the government and ending democracy at the ballot box. It is that simple. You will be hearing a lot more on this in January. This is not about Trump. Democracy is at stake. This is not just the usual election games. It is an all-out attack on the constitution and the moves against Trump are only what you have so far heard about. A few weeks ago the far left and their allies like Mark Elias held a strategy Zoom call to plan ways to destroy No Labels including threats against potential NL candidates that they should not even consider running. It got recorded so we know what was said, and who was there. If you think mail in ballots and ballot harvesting was bad, what is happening now goes to the heart of our democracy.  The press has so far ignored what is happening, but that is going to change in January. If the Dems and the far left were to succeed, they would assure Biden to be reelected and then they would have total control by controlling him. It is Obama and Mark Elias who are behind the curtain on much of this, along with Schumer.

Haley was correct in her response. The Civil War from the view of the south was all about their economy and way of life, and who gets to decide about slavery. Slavery was the manifestation and basis of the economic system and the whole culture of the south. To southerners, they were fighting to maintain their way of life and economy, and what they believed was their states rights to decide on those things. Slavery was the key to all of that. The north was fighting to obtain federal control, and end slavery.

Massachusetts is considering setting up a government trust to give every “poor” kid a trust account to pay for various things. They admit that really means low-income black kids who they say will get priority. Other jurisdictions have implemented minimum income and now NY State is considering setting up a reparations commission. The left just does not understand that giving people money just because they are poor or black is a counterproductive policy. That is the whole basis as to why we have many ofthe social and crime problems we now have. They have created a dependent culture where kids are taught from a young age that they are ”victims” of white oppression, and therefore, they are “entitled” to be given money instead of earning it. They get promoted to the next elementary school grade even if they failed reading and math.  They get into Harvard and Penn just because they are black, and they become doctors and lawyers despite doing poorly in professional school. Doctors are now reporting that this has resulted in situations where medical mistakes are being made. Single women are told they will get various forms of payments if they have a baby.This all began with LBJ and the various poverty programs implemented in the sixties and seventies. If you want to destroy the drive to work in order to eat and pay rent, as I and most of my now wealthy friends had to deal with when young, then just hand out money to people of color. If you want to end the concept of self-reliance, just give people money because they are of color and are “victims”. Many decades ago, before welfare and other entitlements, 80% of black babies were born to two parent families.  Now the number is 30%. The whole word entitlement is one of the real problems. Nobody is “entitled” to get money from the government without doing something to earn it. We should get rid of the word and replace it with free hand out, which is what it is. Many blacks are now recognizing that the whole welfare state has been the worst thing that has happened to blacks since reconstruction.  The other problem now is the woke ideology being taught to kids as young as 8 in elementary school. They are taught “never trust a white man.” So, when a white manger or someone in a position to try to help a young black man with mentoring they are often rejected as not being trusted. In pro sports these black athletes are suddenly paid huge salaries and have no concept of how to manage that money. They often end up blowing it all one or two years after they stop playing. It is not their fault. They don’t have the teaching how to save and invest, and they were taught from a young age, don’t trust the white managers who try to mentor them. So, the cycle continues, and the culture issues never improve. The whole idea that hard work, a nuclear two parent family, education and law abiding is shunned by groups like BLM and rap artists. Thus, we have a culture that is destructive and actually harms the young blacks who they claim to be helping. Tough love always works best. For those of us starting out before the sixties, there was no choice other than to get a job, and work hard to get ahead. Nobody gave us anything but the opportunity.  My biggest fear that drove me when I started work was that I would end up homeless and hungry. It drove me to work hard since nobody gave me anything and I had nothing.

Harvard is destroying itself by refusing to fire Gay. The more we learn, the more her appointment becomes clear it was not based on merit. Now the truth is out. She plagiarized extensively, and her research in some cases was flawed and inaccurate. The board has dug itself a hole and continues to dig even deeper. This will get worse the longer they keep her. Clearly, they are afraid of the far-left pushback from professors and are just compounding the problem they created by hiring her.  This is the classic case of once you hire based on DEI, the harder it is to fire someone. The president of Penn is white. This is the perfect example of DEI and woke making things much worse, just like Disney and Bud and Target. Even the NFL is suffering lower ticket sales with their woke agenda. DEI and woke policies are very costly, and now everyone can see how DEI instills division and hatreds and the end of free speech. 2024 will see the beginning of the end of DEI in corporations and many other places. The Harvard SCOTUS decision and the explosion of anti-Semitism are the triggers for this to happen. Oct 7 will have world ramifications far beyond Gaza. It will change everything by the time it is over. It was the equivalent of the assassination of the archduke in modern times. Just like Europe in 1914, the Mideast was on the verge of all-out war for many years, and now the lid blew off. This is why it is so important to study history, to learn its lessons.

Next up is the revelation of how much foreign money has gone to universities like Penn and Harvard. It is billions, and with that money comes influence. China, Qatar, and other Arab nations have bought undue and unreported influence. Academia, especially Ivy schools, are now totally corrupt, and they have hidden these contributions despite the law requiring that the money was to be reported. Major change is coming to academia now that the three presidents’ testimony has exposed the reality of anti-Semitism, DEI, total lack of free speech and thought, and foreign influences. The big donors are doing a great service to the nation by forcing change. Congress needs to pile on now. They need to end the indoctrination of a generation, and bring back merit and free speech to campus. They need to end the foreign money. This goes far beyond firing the president of Harvard. SCOTUS took the first step by ending affirmative action admissions.