American Consumers Are In Financial Pain

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To investors,

American consumers are feeling immense financial pain. I started thinking about the problem after I saw this post from my friend Balaji Srinivasan showing credit card debt hit a record $1.21 trillion:

If you dig into the data further, you see that the average credit card balance is $21,000 and Americans are paying an average of 28.6% interest on that debt. This is insane. Imagine paying 28.6% on your debt — you would double your debt in about 30 months.

But credit cards are only part of the story.

Home affordability is at the lowest levels in four decades. The median US home price has gone from ~ $280,000 in 2016 to more than $400,000 today. There is a decreasing amount of people who have the cash laying around to make a downpayment, let alone the increasing wages to keep up with this level of real estate appreciation.

Home prices accelerating are helping the boomer generation who have around 50% of their net worth in their primary residence, but it is pricing out the younger generations who have become a renter generation.

We can also see this financial pain for the American consumer in their spending behavior. Retail sales in January fell 0.9% and has caused a number of stocks to fall in recent days — retailers are calling out the weakened consumer demand as a significant headwind.

Not only is the consumer frustration showing up in spending patterns, but we are now seeing the sentiment surveys come in negatively for President Trump and his administration. Here is the data:

“According to a recent Gallup poll, Trump's approval rating on the economy stands at 42 percent. This is lower than any president's first-term February reading in recent history, Gallup notes, including those for Joe Biden (54 percent), Barack Obama (59 percent), George W. Bush (53 percent) and Bill Clinton (45 percent).”

Economies don’t turn around overnight obviously. But the American consumer bought into the campaign promises of inflation coming down and a strong, growing US economy. Vice President JD Vance said Americans should expect the positive impacts to “take a bit of time.”

Another data point worth paying attention to is the rising prices of gold and bitcoin. Both assets benefit from sound money principles and operate outside the system. They serve as a safe haven for investors who are nervous about the economy or seeking protection from inflation.

Gold continues to hit new all-time highs and sits right below $3,000 per ounce. The precious metal is up more than 50% over the last 12 months. Bitcoin is also on a tear. The digital currency has doubled in the last year, while continuing to hover around $100,000 per coin.

Consumers are feeling the pain of 3% year-over-year inflation (if you believe the official government metrics). They are starting to contract their spending. They can’t afford a home and they are living on credit more frequently. Plus investment capital is seeking assets that benefit from inflation.

These various trends lead back to one big idea — the American consumer is in financial pain.

Thankfully, we don’t have to spend all of our time complaining. There are solutions we can pursue. First, we need DOGE to be successful in slashing government spending. This will act as a deflationary force on the economy and help keep inflation under control. Second, we need the private sector to create the products, services, and companies necessary to get GDP growth cranking higher. This will also create a deflationary force that leads to more economic gain for the average American family.

Citizens can’t impact the political apparatus until the next election, but we can focus our time and effort on making sure that GDP is growing faster. The future will be bright if we can do that.

Grow our way out of the problem.

Until then, people will continue to use bitcoin and gold as a way to store their hard-earned economic value. Stocks and real estate will also benefit from the high inflation environment. Investors are winners in today’s economy and savers are losers.

Crazy situation. Let’s hope the new administration is successful for the sake of all Americans.

Hope you all have a great day. I’ll talk to everyone next week.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

Will Bitcoin Generate Yield?

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