Deficit Mania, Interest Rates & Inflation Up, GOT, ZEFI
Trump is certainly inheriting a mess and a lot of problems. I mentioned that Biden was trying to spend as much as the budget as he can and here are the latest numbers. The U.S. government posted an $87 billion budget deficit in December, reduced partly by a shift of benefit payments into November (the $87 deficit was reduced by $51 billion by the calendar benefit shift). The result is a record $711 billion deficit for the first three months of the 2025 fiscal year, the U.S. Treasury Department reported on Tuesday.
The Treasury, releasing its final budget report before President-elect Trump takes office next week, said that the $711 billion October-December deficit was $201 billion, or 39% higher, than the $510 billion deficit in the same period a year earlier as outlays grew sharply and revenues declined slightly. At this pace the annual deficit would reach a whopping $2.84 trillion.
According to the Cato Institute, Government spending as a percentage of overall GDP is roughly 2-½ times larger than it was in 1971. Note the rise since 1971 going off the gold standard to the government purely fiat system.
Trump has big spending plans and given the current situation this will clash with the market further. Interest rates continue to rise and will soon reach new highs.
I Have Some More Good Company
I have good company now with my warnings on stagflation and the bond market. Bond king Gundlach says investors have ‘left the bus’ as yields spike during Fed cuts. That “bus” reference, refers to a concept from Neil Howe’s book “The Fourth Turning.
“The Fed looks like Mr. Magoo, driving around, bumping into things.” While the Fed succeeded in bringing down inflation, it’s been reacting too much to short-term data and not being strategic over the last five years.
Another warning from him: “In 40 years we haven’t had a recession that didn’t include the long bond yield declining. Don’t count on that now. This time is different. We have left the bus. We’re in a new environment.”
He notes that during past Fed cutting cycles, the 10-year Treasury has never gone up, yet now it has by 100 basis points. “Something is different this time,” he adds. I agree, I call it stagflation.
Today the headline increase in consumer prices in December was not all that good. A 0.4% increase driven by household staples such as food and gas. The cost of food rose 0.3% last month due to higher prices for flour, pork and eggs. And the cost of energy jumped 2.6% after a rise in oil prices. Since then oil prices have jumped a lot higher so we are going to see even higher numbers that I think will eventually spook the markets.
It seems today the market focused on the core rate that rose a milder 0.2%. Shelter costs - rent, housing and hotels - continued to moderate some. That's been the biggest source of recent inflation. I think it will now shift to energy and food as well as what get's driven by tariffs.
Manufacturing activity is collapsing in New York State, according to the Empire State Manufacturing January survey. The diffusion index for General Business Conditions fell nearly 15 points to -12.6. Way worse than the forecast of 2.7.
The 3 month average smooths out volatility but even so this index has been down and out for 2 years. Perhaps it is painting more of a far left NY State problem?
More data tomorrow/Friday that will help paint how the holiday season went, retail sales tomorrow.
Goliath — - -TSXV:GOT - - - - - - - Recent Price - $1.46
Entry Price - $1.22 - — - - - - - - Opinion - buy
I have updated GOT a number of times highlighting that I wanted to see a break out on the chart, it finally happened. Perhaps a slow reaction to strong results I highlighted Monday . I think this stock is still cheap and can easily get up to $3.00 and more. Around 80 more drill holes to report.
Zefiro Methane - - - - - C:ZEFI - - - - - - - Recent Price - $0.62
Entry Price - $1.60 - - - - - - - Opinion – strong buy, average down to $0.90
ZEFI's subsidiary, Plants & Goodwin (P&G), has been awarded eight projects by the state government of Ohio. The work includes Zefiro's environmental remediation specialists plugging 50 oil and gas wells located across the state to mitigate an array of potential public health threats.
The effort to seal these potentially noxious sites has been led by Zefiro senior VP of business development Luke Plants. P&G crews have already plugged 20 per cent of the sites that comprise this initiative and currently have four full-sized rigs deployed in communities throughout Ohio to help remediate the project's remaining wells.
Zefiro's continuing work in Ohio is the latest in a series of commercial initiatives that the company has undertaken to expand its operational footprint across North America. This includes opening a new operations facility in West Virginia, completing strategic acquisitions of Ohio and Pennsylvania-based entities that bolster the company's client service capabilities, and working with numerous government partners throughout the continent, including the U.S. National Park Service, the State of New York, the Commonwealth of Pennsylvania and the Province of Alberta, on numerous landmark well remediation initiatives.
The company is growing very fast but the market has not caught on to this new company yet.
The chart looks very good, the stock is down near support and a wedge pattern has developed where I expect an upside break out. I expect the stock will fill the gap going to about $1.10 and we will see from there. Buying an equal $$ amount here will average our initial entry level down to about $0.90.
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