Ten Important Macro Economic Metrics

 1.) S&P 500:

Also known as the Standard and Poor's 500, the S&P 500 is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States. This index includes approximately 80% of the total market capitalization of U.S. public companies, with an aggregate market cap of $50 trillion as of March 31, 2025. The S&P 500 is a capitalization-weighted index with the Magnificent Seven composing roughly 30% of the market capitalization of the index. In other words, for every $1.00 an investor plunks into a S&P 500 Index Fund, $.30 is allocated to the likes of Nvidia, Microsoft, Alphabet, Amazon, Apple, Meta, and Tesla. Because it is broad and capital-weighted, the S&P 500 is far and away the most relevant stock index to follow. The Dow Jones Industrial Average only consists of 30 companies, less than 10% of the number of companies in the S&P 500 Index. The S&P 500 is reviewed and potentially adjusted every quarter. Dogs tend to be drop-kicked with up-and-coming new companies taking their places. Around 20-25 stocks are typically replaced on an annual basis.

2.) Debt-to-GDP Ratio:

Debt-to-GDP measures the financial leverage of an economy. The debt-to-GDP ratio is the ratio of a country's accumulation of government debt relative to its gross domestic product (GDP). For example, if the United States owes its creditors $36 trillion and its economy is generating total annual GDP of $30 trillion, the debt-to-GDP ratio would be 120%. A ratio at that level would be considered high, and if it isn't already, should be setting off some alarm bells. Also, with the exception of Japan, a ratio of 120% is higher than any of the other major economies in the world. The U.S. has not seen this level of debt relative to its economic output since the end of World War II. Besides posing a greater risk of default, elevated debt-to-GDP ratios will act as a drag on the growth of our economy.

3.) U.S. Dollar Index (DXY):

If you haven't done so yet, I recommend adding Ticker Symbol "DXY" to your Iphone "watch" list. Referred to as the "Dixie," it is an index of the United States dollar relative to a basket of foreign currencies. The Euro and Japanese yen are weighted at 70% of the total, while the Pound Sterling, Canadian dollar, Swedish Krona, and Swiss franc compose the remaining 30%. This metric was established in 1973, soon after the demise of the gold standard and the Bretton Woods system. The Index goes up when the U.S. dollar gains value compared to the other currencies. The opposite is the case when the dollar loses value. At its start in 1973, the value of the U.S. Dollar Index was 100.00. It has since traded as high as 164.72 in February 1985, and as low as 70.69 on March 16, 2008. The value as of July 11, 2025, was 97.95. The value of the dollar normally correlates with global interest rates. Also, because most commodities are traded in U.S. dollars, a drop in the dollar's value often results in higher commodity prices.

4.) 10-Year U.S. Treasury Yield (TNX):

Bar none, the most important financial metric in the world is the yield on the 10-Year U.S. Treasury note. Media and investors tend to focus on the Fed Funds (overnight) interest rate range that the Federal Reserve Bank can control and modify, but the 10-year rate is the more relevant indicator of economic conditions. It is also a benchmark for various financial products such as mortgages and corporate debt. Higher yields mean higher borrowing costs for consumers and businesses. Additionally, when yields rise, investors may find Treasury securities more attractive than stocks, potentially leading to a decrease in stock prices. Conversely, lower yields can encourage investors to seek higher returns in the stock market. Fluctuations in the 10-year yield can have significant implications for the long-term sustainability of government debt. Higher yields translate to increased interest payments on the national debt.

5.) National Financial Conditions Index (NFCI):

This index is generated by the Chicago Fed on a weekly basis. It provides an update on conditions in money markets, debt and equity markets, and the traditional and "shadow" banking systems. Basically, the level of the NFCI reveals the extent of liquidity in the financial system. Positive values of the NFCI have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions. Levels of liquidity are a vitally important factor when determining risk-asset valuations. Bull markets will constrict and eventually croak when liquidity evaporates.

6.) There are multiple Price Earnings (PE) ratios published for the S&P 500. My personal favorite , which I believe is most indicative and relevant, is the Shiller PE Ratio. This particular Price Earnings ratio is based on the average inflation-adjusted, earnings from the previous 10 years. It is also known as the Cyclically Adjusted PE Ratio (CAPE Ratio). The minimum historical Shiller PE Ratio was 4.78 in December 1920. The maximum would be 44.19 in December 1999. The historical mean is 17.25, with the historical median at 16.04. The Schiller PE is presently at 37.90, which is 40.6% higher than the recent 20-year average of 27. The recent 20-year low is 13.3 and the recent 20-year high is 38.6. The implied future annual return is 2%.

7.) Credit Spreads:

Credit spreads are considered a canary in the coal mine for near-term economic conditions. When used in the context of bond investing, they refer to the difference in yield between corporate bonds and U.S, Treasury bonds with the same maturity. U.S. Treasury bonds are considered virtually risk-free because they are backed by the U.S. government. Corporate bonds, on the other hand, carry the risk of the issuing company defaulting on its debt obligations. To compensate investors for this additional credit risk, corporate bonds generally offer higher yields than Treasury bonds with comparable maturities. This extra yield is the credit spread. Narrower spreads suggest economic optimism and a lower perceived risk of corporate defaults, leading investors to favor corporate bonds for their higher yields, thus tightening the spread. Wider spreads often signal economic weakness and increased risk aversion among investors. This is because in uncertain times, investors seek the safety of Treasury bonds, driving their yields down and widening the spread.

8.) U.S. 10-Year/3- month spread:

This metric refers to the difference between the yields of 10-Year Treasury constant maturity securities and 3-month Treasury bills. A positive spread indicates a normal, upward-sloping yield curve, while a negative spread (when short-term rates exceed long-term rates) suggests an inverted yield curve. An inverted yield curve, particularly when the 10-year/3-month spread turns negative, has historically been a reliable indicator of potential economic recession. As of July 3, 2025, the 10-year./3-month spread was at negative 0.07%. The spread was negative 1.11% a year ago. Look for this spread to widen and be inverted even more as the Fed lowers short-term rates and the bond market does fall in line on the long end.

9.) Consumer Price Index (CPI):

The CPI is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. In other words, the annual percentage change in the CPI is used as a measure of inflation. The data is released on a monthly basis by an agency of the federal government. Similar to the monthly unemployment data, the CPI information is deeply flawed and biased in favor of making government policymakers look good. The formula has changed over the years and is now riddled with multiple assumptions in lieu of simply using the hard data. I normally look at the published inflation rate and multiply by 1.40. So, if inflation is disclosed at 3.0%, my computations say it is actually closer to 4.20%.

10.) The Buffett Indicator:

Named after legendary investor, Warren Buffett, the Buffett Indicator expresses the value of the U.S. stock market in terms of the U.S. economy. In the formula determining the ratio, the numerator is the total value of the stock market, and the denominator is the Gross Domestic Product. Itemized below are Buffett Indicator ratio ranges and how they are classified:

Ratio                                       Classification    

less than 86%           -             Significantly Undervalued    

86% - 111%             -              Moderately Undervalued

111-135%                -                Fair Valued

135%-160%            -                Modestly Overvalued

greater than 160%    -               Significantly Overvalued

The Buffett Indicator is currently at a staggering 209.5%. This is a historical high, practically off the charts. Gees, what could possibly go wrong?                                                                                                                                                

Is Social Security A Ponzi Scheme?

 Although it shares a couple of rough similarities with infamous financial scams conducted by the likes of Bernie Madoff and Charles Ponzi, the Social Security program is definitely not a Ponzi Scheme as claimed by some. It makes for a great soundbite and garners instant attention, but it's a fundamental mischaracterization. A Ponzi Scheme is a form of financial fraud that lures investors with a promise of high returns, in many cases, extremely high and way above-market returns. Instead of earning those returns through legitimate investments, the scheme pays earlier investors using money collected from newer ones. Eventually, the model collapses when there aren't enough new participants (suckers) to keep it going, leaving most people with significant losses. Social Security, on the other hand, does not promise high returns, it promises a modest, inflation-adjusted monthly benefit to support retirees, people with disabilities, and surviving family members of deceased workers. The program is fully transparent and participants know exactly where the money is going and know what to expect when benefits are distributed. They also know that the program is funded by payroll taxes that total 12.4% - 6.2% taken out of each paycheck and 6.2% simultaneously contributed by the employer.

Like practically everything else in our polarized age, the future of the 90-year-old Social Security program is both cloudy and a source of contention among various political factions. Regardless of points of view - cold, cruel math indicates that Program reserves are projected to run dry by 2033. If Congress does nothing, benefits will be automatically cut by at least 22%. Long-term, the balance of the century, Social Security is facing an estimated $30 trillion funding shortfall. When the time comes when benefits that are due exceed the proceeds from payroll taxes, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. As detailed previously, that "time" is projected to arrive in less than a decade.

Social Security has received a surplus of attention and wild claims as it steams toward insolvency. Since it's the largest expense item in the federal budget at $1.5 trillion per year (22.4% of federal outlays), that is not surprising. Some crackpots have claimed undocumented workers are eligible to receive benefits, or that Congress has stolen funds from the Social Security system. Neither of those rash statements are remotely true. There have also been claims that millions of dead people are receiving benefit payments. False. While fraud at Social Security does exist, it's not rampant and widespread. Only a small percentage of payments are considered improper, and a significant portion of these are due to administration errors rather than intentional fraud. Improper payments represent less than 1% of total disbursements.

Next, we'll look at the actual culprits contributing to the approaching crisis in the funding of Social Security. Far and away the most glaring issue would be the changing demographics. In 1950, there were about 16 workers paying into Social Security for every retiree. Today, that number has dwindled to just 2.7 workers per retiree, and it's projected to fall further to 2.4 workers per retiree by 2035. Besides a lower worker-to-beneficiary ratio over time, life expectancies have risen. Meanwhile, the U.S. birth rate has been in steady decline for years and even accelerated post-pandemic. The birth rate currently stands at 1.6 births per woman, well below the replacement level of 2.1. This trend has profound negative implications for the economy and Social Security. The system relies and will continue to rely on a healthy level of net legal immigration into the United States. The Trump Administration in conjunction with Congress would be wise to triple legal immigration on an annual basis. Still another factor has been more earned income escaping taxation due to increasing income inequality. In 1985, 88.9% of all earned income was subject to payroll taxes. But as of 2022, only 82% of earned income was applicable to the payroll tax.

Besides the huge challenges posed by changing demographics, the United States Congress, acting in the true fashion of politicians, has contributed greatly to the present problem. Congress has a long history of both expanding benefits for Social Security recipients and expanding the pools of people eligible to receive benefits. This has especially been the case come election time. A couple of the more popular, and expensive, expansions of the program involved adding spouses and survivors of workers. Early beneficiaries of Social Security made out like bandits starting in 1940. The first person to receive a monthly Social Security payment was Ida May Fuller, who received her first check on January 31, 1940 at age 65. Ida lived another 35 years, hitting the century mark. She also received 1,000 times what she had paid in payroll taxes. Seniors have historically claimed they "earned" their benefits. They have not. They only paid for part of what they have gotten. They have redistributed tens of trillions of wealth to themselves from those younger.

While not a Ponzi Scheme, in many respects, politicians, program administrators, and the media have misled the public about certain aspects of Social Security. We hear about the sacred Social Security "Trust Fund." Sorry, but whatever label is affixed to this pot of assets will not alleviate the fund from being drained. The link between the payroll tax and benefit payments is part of a disingenuous game to convince the American public that what the SSA calls a social insurance program is equivalent to private insurance. Claims are made that "the workers themselves contribute to their own future retirement benefits by making regular payments into a joint fund." Bullshit! Taxes paid by today's workers are used to pay today's retirees. The Social Security Administration avoids using the term "guarantee" for benefits, preferring the word "obligation." The term "obligation" implies that benefits are determined by current law. Social Security benefits are not a legally binding contract or property right, but rather a statutory entitlement. At any time, Congress can modify the program's provisions, potentially impacting benefit levels or eligibility.

As the Titanic (Social Security) approaches the iceberg (fiscal cliff), anybody with half a brain can see that entitlement reform is requisite, and not optional. The United States should emulate recent developments passed by the Danish Parliament. Currently, the state pension age in Denmark is 67. A new law will raise that age to 68 in 2030, to 69 in 2035, and subsequently to age 70 in 2040. The reasoning is sound - consistent increases in life expectancy. I also believe it makes sense to consider reducing survivor benefits to a worker's spouse and/or dependents. It seems ridiculous that even an ex-spouse could be eligible for benefits at the death of a retiree receiving Social Security benefits. Another suggestion would be to introduce a process that helps alleviate abuse of the system in terms of disability benefits. My next suggestion to help "save" Social Security will be controversial, but I believe absolutely essential to the long-term survival of Social Security. I opine that there needs to be a means test - a financial assessment to determine if an individual qualifies for benefits, and if he or she does, the level of the monthly benefit as determined by previous employment parameters. There should be a transition away from an earnings-related benefit to a poverty- targeted benefit. It is time to confront the painful but necessary truth that no matter what story politicians have told, Social Security has always been an income transfer program, not a savings system. 

Yes - Another Gold Blog, Perhaps Timely

My late father was unashamedly a Gold Bug. I think it might have had something to do with his father railing against FDR when he issued Executive Order #6102. This decree issued by the President on 5/1/1933 required U.S. citizens to turn over their privately held gold coins and gold bullion. I don't believe I have reached Gold Bug status, but I find my interest waxing in that precious yellow metal that we can now legally buy and hold. Gold has experienced dramatic valuation increases over the past couple of years, but I believe there are both short-term and long-term tailwinds to further support higher prices. I detail these factors below:

Short-Term Factors -

1.) Due to the impact of the 2008 Global Financial Crisis on banks, a policy known as Basel III was introduced to improve the banks' ability to handle shocks from financial stress. Effective 7/1/25, under Basel III, gold will be classified as a Tier I Asset, joining cash and government bonds under bank capital regulatory requirements.

2.) The annual BRICs Summit will be held July 6th and 7th in Rio de Janeiro. Representatives from Brazil, Russia, India, and China, as well as representatives from another half-dozen member countries, will be in attendance. It's anticipated that work will continue with the development of an alternative to the U.S. dollar for settlement of global trade. This new currency would be backed by a basket of commodities, primarily oil and gold.

Long-Term Factors -

1.) The average American retail investor holds less than 1% in gold in his investment portfolio. The big buyers of gold in recent years have been the world's central banks and Asian (primarily Chinese and Indian) investors. With a prod from Wall Street, I expect at some point more American retail investors will increase their holdings in gold.

2.) With the failure of DOGE and the apparent inability of the Trump Administration and a Republican-controlled Congress to rein in profligate government spending, the United States economy continues on a collision course with a reckoning. The only question that remains is when it finally goes off the rails. It doesn't take a rocket scientist to see where this is headed. The powers that be will be faced with two choices. The first option would be a direct default on government debt. Owners of U.S. Treasury bills, notes, and bonds would receive a "hair-cut" and not receive the full amount of principal and interest promised in the debt instruments. Although this would be the preferable approach, our leaders will not choose this route. No, they will opt for a gutless, sneaky, indirect default. The playbook that will be used is familiar to those who closely follow the capital markets. The Fed will reintroduce ZIRP (zero interest rate policy), followed by a couple aggressive rounds of Quantitative Easing (QE). The Fed's balance sheet will go from $6.5 trillion to something like $15 trillion. This flood of liquidity and boost to the money supply will goose risk asset (primarily equities) valuations to super-bubble levels. Financial repression and yield control measures will be imposed by The Fed and U.S. Treasury. Although nominal interest rates will be extremely low, real interest rates will be positive, and maybe significantly positive. The creation of inflation and the continued debasement of our currency offer an escape hatch for the gross negligence perpetuated by our government. A few years of artificially repressed interest rates combined with high inflation can do wonders for a country's unsustainable debt levels. Creditors, especially holders of long-duration U.S. Treasuries, will take it on the chin. The government will never accept responsibility for a situation that it alone created. Like the 1970s, the dollar could lose 75% of its purchasing power over the decade of the 2020s. Gold and other hard assets that can't be printed will shine.

As I wrap up this diatribe, it would be a good idea for me to issue a couple of final comments, or maybe disclaimers would be a more fitting word. I am not taking the position that everybody should run out and buy gold and/or gold derivatives. Different people have different investment preferences at different times for their respective portfolios. What I am saying, however, is that it would be advisable to at least have a conversation with your financial advisor concerning the pros and cons of gold. Lastly, some investors hold gold for speculative (make money) reasons, and some investors hold gold for insurance purposes. Homeowners insure their residence in the event it burns to the ground. Some investors, including me, hold gold in the event the American dollar burns to the ground.