To The Moon

Post election, strong optimism for the US economy and stock market in 2025 was abruptly replaced with simmering dread, following the last FOMC meeting in Dec 18-19, 2024.

Specifically, news on inflation projection for 2025, was raised from 2.1% to 2.5%; raising concerns about the actual state of the economy as well as about the actual fruits of regulatory efforts.

Furthermore, there has been no shortage of worrying data both before and after the press conference.

The latest possible danger to come to public attention is the state of American banks and (state of) their investments.

$329 billion losses - Insolvency Risk ?

Recently, the Federal Deposit Insurance Corporation (FDIC) shows that the finance sector is facing $329 billion in unrealized losses, making the situation precarious for some of US most important financial institutions. (see above)

Total unrealized losses of $364.0 billion decreased -$148.9 billion (-29%) from the prior quarter. 

This is the lowest level of unrealized losses for the industry since first quarter 2022. 

However, should longer-term interest rates increase over time, the financial implications to these improvements in unrealized losses can become severe.

Just to be clear, though unrealized losses, no matter how large, are not necessarily a road to catastrophe, the March 2023 regional banking crisis made the public wary of such information.

For the current issues to materialize into a catastrophe, additional adverse developments, eg. a major ‘bank run’ like in the aforementioned crisis, would have to unfold.

Also, as dire as the $329 billion appears to be, it is to be noted that the situation is better than approximately 6 months ago, when Finbold reported banks were facing > $500 billion in unrealized losses.

The situation remains precarious (still), as numerous factors putting the financial sector and the broader economy in danger have been growing more dire and more numerous. 

US 2025 Economy at Risk ?

Besides the banks’ significant unrealized losses and heightened expected inflation, US market’s gains in the past 12-month is a point of contention. 

• This is because most of the spectacular gains were concentrated in a handful of companies only.

• Only 10 technology companies accounted for $6.6 trillion in gains in 2024. 

The Buffett Indicator.

• Additionally, the “market cap-to-GDP” ratio” (aka the Buffett indicator), have estimated that US stock market is extremely overvalued. (see above)

• For the past 3 years, US’s stock market capitalization-to-GDP ratio have consistently been above 137%, that is Overvaluation.

Again, none of these factors have caused a major crisis yet, but they all contribute to long-standing problems.

US debt clock as of 12 Jan 2025

US National Debt.

For example, the US national debt, at approx. $36.34 trillion (and growing), is a major concern.

Many have differing views on whether it's a result of:

• Bad spending decisions.

• Unnecessary spending.

• Problems with how the government collects and spends money.

Nevertheless, it is a ticking time bomb waiting to explode.

Returning President Breaks US Economy ?

Donald Trump's re-election is oft seen as positive for US's economy.

However, it is important to consider the geopolitical tensions with allies like Canada and Denmark that he has antagonized even before re-taking office.

Additionally, Trump's tariffs are a significant risk, especially with the expected rise in inflation.

The issues extend beyond traditional economic measures.

California's ongoing fires highlight many dangers facing America.

Taken at face value, it’s about:

• Exposing a Governor's (Gavin Newsom) failures in California state management.

• Showing the incoming administration's willingness to sacrifice protections for endangered species.

• Allowing Tesla to build a Lithium plant in the driest part of Texas that requires 8 million gallons of water per day. Ironical isn’t it.

My viewpoints: (mine only)

After reading about the $329 billion paper-losses in the financial sector, I cannot help but wonder if this piece of information helped Warren Buffett to make up his mind and sell his Bank of America stake ?

He is too astute and experienced to be ‘blinded’ by ‘hidden’ information unmentioned in the public space.

With the Big banks reporting their 2024’s last quarter earnings this week (see below), it will be the litmus test to see if the unrealized losses continue to improve or take a turn for the worse ?

Wed, 15 Jan 2025.

• $JPMorgan Chase(JPM)$ - am.

• $Wells Fargo(WFC)$ - am.

• Citigroup(C)$ - am.

Thu, 16 Jan 2025.

• $Bank of America(BAC)$ - am.

• $Morgan Stanley(MS)$ - am.

This should help investor decide whether to (a) continue to hold onto bank stocks or (b) exit stage left.

I read with dismay too, the chaos the outgoing President is inflicting in quick sessions before his final exit from the White House. (see below)

To me, they are bringing chaos for the incoming adminstration, that is already doing a fabulous job in sowing a lot of discord with its neighbours - far & wide. (see below)

The difference this time round is :

• The world (and its government) is “mentally prepared” on how to engage the returning President, in a non-engaging manner that would not stir nor heighten tension with the angst-ridden President.

• The world economies (themselves) will begin to organize amongst themselves on how to improve each other’s economies, away from the clutch of the US.

At a bird’s eye view, it is about money-politics and how the new government might take shortcuts to push US economy along until it’s beyond the breaking point and crash.

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