Summary
Phil Anderson raises concerns about U.S. public finances as federal debt reaches $36 trillion (120% of GDP) and deficit spending runs at historically elevated levels even during good economic times. He argues that heading into the real estate cycle peak, excessive public sector leverage — rather than private sector leverage as in 2008 — may be the primary catalyst for the coming bust. The email also covers several portfolio updates including a stop raise on EVN and SKWD, and an exit from TLC.
Key Claims
- U.S. federal debt stands at 23 trillion in early 2020), with a debt-to-GDP ratio of 120% vs. 63% heading into the 2007 cycle peak — confidence: high
- U.S. interest payments on debt relative to GDP are running just under 5%, nearly double the next closest developed economy (Greece at 2.5%) — confidence: high
- Annual deficits are projected at 2.7 trillion per year over the next decade, potentially rising further by $3.8 trillion if the Republican tax and spending bill passes — confidence: medium
- Deficits running at these levels during good economic times is abnormal and limits the government’s ability to act as a stabiliser during the coming bust — confidence: high
- The 2008 recession was primarily driven by private sector (household) leverage in real estate; this cycle’s downturn may instead be catalysed by public sector leverage — confidence: medium
- DXY is breaking below the key 100 support level, consistent with the pattern of dollar peaking in the second half of the real estate cycle — confidence: high
- The stock market can continue to rally even as DXY falls — confidence: medium
- Currency debasement is a tailwind for gold and silver — confidence: high
- A breakout in 30-year Treasury yields above 5% would be a further warning sign for U.S. government finances — confidence: medium
Mex Pete References
- TLC (Lottery Corporation, Australia): Stock broke out of a Mexican Pete base but quickly reversed and fell back into the base. Anderson identifies this reversal into the base as a sign of weakness and exits the position at approximately a 4% loss. Falling back into the base “shouldn’t happen.”
Stock Picks / Signals
| Ticker | Name | Exchange | Action | Detail |
|---|---|---|---|---|
| EVN | Evolution Mining | ASX | Stop raised | New stop: $8.40 (raised to take advantage of gold price strength) |
| SKWD | Skyward Specialty Insurance Group | US | Stop raised | New stop: $58 (near breakeven; rising rates are a tailwind for insurers) |
| TLC | Lottery Corporation | ASX | SELL / Exit | Fell back into Mexican Pete base; exited at approx. −4% loss |
| SLV | iShares Silver Trust | US | Watching | Monitoring for breakout; potential position add flagged — not yet entered |
Predictions / Forecasts
- DXY (U.S. Dollar Index) to continue declining below the 100 level, with accelerating downside as a potential signal of growing concern over U.S. fiscal outlook
- Stock market likely to continue rallying even as the dollar weakens — consistent with second half of real estate cycle behaviour
- Gold and silver prices expected to remain supported / trend higher on currency debasement
- 30-year Treasury yields breaking above 5% flagged as a key warning level to watch
- A real estate cycle bust concurrent with already-elevated deficit spending could severely constrain the government’s fiscal response capacity
Notable Quotes
“During the last real estate cycle, excessive leverage built up in the private sector (households) to speculate in real estate were a big driver of 2008’s recession. Perhaps the primary catalyst for this downturn will come from public sector leverage.”
“Falling back into the base shouldn’t happen and is a sign of weakness, so I’m removing that position from the Mexican Pete portfolio for about a 4% loss. We don’t hold non performers.”