How the Biggest Wealth Transfer in History Happened Right Under our Noses

From the desk of Roger Michalski, publisher, Eagle Financial Publications:

Welcome to the Wealth Whisperer… the newest publication from our team of investment experts here at Eagle Financial. Each Monday and Thursday, you’ll get Whisperer delivered to your email inbox — with each issue offering our fresh take on the markets, along with insights from your favorite Eagle “gurus” — from Dr. Mark Skousen and Jim Woods… to Bryan Perry, Jon Johnson and Bob Carlson.

One more thing. Wealth Whisperer comes with our compliments. We’ll never ask you to pay for this content. All we ask… is that you let us know what you think from time to time!

To your wealth,

Roger

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For years we’ve been spoon fed a lie…

Big Tech = Big Jobs

Is it any surprise that the liberal darlings from Google to Meta shed jobs like the snake skin that covers them?

Experience teaches us that bubbles inflate and burst.

What separates the investors from Tik Tok desk jockeys is knowledge…

Knowledge that these bubbles can and do last far longer than many expect or realize.

Cue the Federal Reserve and the ultra-low interest rates flooding markets with cheap financing for over a decade.

But as Mohammed El-Erian once said… “sugar highs” always come with a crash.

While CNBC parades Cathie Wood and her dim-witted bulls across the screen like a dystopian dog and pony show, we at Wealth Whisperer want to offer a different take…

…One grounded in facts and experience, something sorely lacking among today’s so-called ‘investment class.’

As Eagle colleague and noted economist Mark Skousen highlights time and again, hard assets and companies that exploit them store value and wealth far better than even the largest tech companies.

You don’t have to take our word for it.

Here’s the evidence laid bare.

The interest rate cudgel

Correlations quantify the connection between the movement of two assets measured on a scale from -1 to +1.

• -1 denotes two assets moving in perfectly opposite directions
• +1 denotes two assets moving perfectly in the same direction
• 0 denotes two assets that move entirely independently of one another

While correlation doesn’t mean causation, it can help us infer causality.

A meta-analysis of data provided by the Federal Reserve yields the following correlations to the fed funds rate:

• S. Dollar (1973-2020): 0.558
• Oil (1986-2022): -0.635
• S&P 500 (1973-2022): -0.648

Unsurprisingly, lower rates boost asset performance. The line plot below of the Fed Funds Rate (blue) and the S&P 500 (red) illustrates this perfectly.

But watch what happens when we compare the global energy index to the Fed Funds Rate…

It turns out that although a correlation exists between energy prices and the fed funds rate, on a broader scale, the two operate fairly independently of one another.

As you probably guessed, the best determinant for energy prices is good old economic activity.

The graphic below plots the energy index but now brings in the weekly economic index.

Outside of the fracking technology shift in 2014, energy and economic activity are tightly connected.

None of this should come as any surprise.

But let’s highlight two important takeaways before moving on:

• Interest rates move inversely to stocks
• Energy prices, although negatively correlated to interest rates, move largely independently over longer time-frames and align better with economic activity.

You know what they say about assumptions…

We assume interest rates will rise further and remain high potentially through 2025, if not beyond.

The 1970s taught us that incompetence at the Federal Reserve extends stagflation so long as regulations and outside controls stymie business activity…

In layman’s terms — governments create the problem, not solve it.

OPEC countries, poor planning, high unemployment and a bloated war budget put the United States behind the eight ball back in the disco era.

Sound familiar? It should.

While not as obvious, the largest wealth transfer in history happened right under our noses in 2020. We just called it the ‘C.A.R.E.S. Act’… so cheeky.

Overnight, $4 trillion was added to the federal deficit, sending checks and loans to people and individuals with little oversight, leading to what we now know to be as much as $60+ billion in fraud and waste.

Coupled with minimum wage hikes, we disincentivized workers and packed their wallets, driving a massive supply/demand imbalance.

Consumers waited weeks for everything from roofing shingles to couch cushions.

Only now are we grappling with the inflationary fallout.

And it’s not over… not by a long shot.

However, there is one key assumption we make that others have yet to wrap their minds around.

We do not expect economic activity to markedly curtail in the next 12-24 months.

Housing has already begun to show signs of bouncing back after a fairly shallow slowdown.

The federal government seems hell-bent on incentivizing, if not outright paying for, manufacturers to establish factories closer to home.

And let’s not forget the wealthy consumers… at least wealthy in nominal terms.

Many wealthy consumers continue to spend money on goods and services without a care in the world.

Yes, Microsoft may be axing folks to start the year.

But job opening reports like JOLTS show worker shortages still exist in critical industries such as energy, construction and transportation.

That’s on top of the chasm of staff desperately needed in leisure and entertainment.

Simply put, we don’t see economic activity dropping even if a recession is in the cards.

Our Thesis

Taken together, that leaves us with a bullish case for energy.

Disruptions driven by Russia only feed the supply shortage.

Yet, in its infinite wisdom, our federal government thinks doubling down on green (expensive) energy is the way to go.

But here’s a fun fact – energy is up 44% in the past year while nearly every other sector is down.

If green energy were so popular, how is it that Arch Resources (ARCH), a coal company, gained 57% over the last 52 weeks…

Or master limited partnership (MLP) Energy Transfer (ET) is up 37.5%?

Markets simply don’t agree with Swedish environmental activist Greta Thunberg.

You can’t convince a family of five in West Virginia to drop a dime on solar panels when they struggle to put food on the table.

That’s not conjecture, it’s reality.

And let’s face it — history is on our side.

You can get off Facebook any time you want.

But see how long you can go without heating your home in the winter.

Until next time,

The Wealth Whisperer Team

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In Case You Missed it… Heard This Week Around Eagle Financial

One tech company just invested billions into a game-changing technology… a tech that could destroy Google – and send this company soaring.

Get the whole story here in this new dispatch from Jim Woods, Don’t Fear The AI Reaper.

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