Why 5% Matters

The Best Way To Understand Today’s Risks? Look To The 1970s

In today’s Daily Journal, a free e-letter from Porter & Co…

• Porter’s Essay: Why 5% Matters. To Understand Today’s Risks, Look To The 1970s.

• Trump walks back Greenland grab

• ChatGPT is following the Netscape trajectory… What happens next?

• The unloved energy sector is poised to outperform

• Chart Of The Day: Natural Gas Prices Are Soaring

• Mailbag

Pension-fund managers must be reading my newsletter.

Two days ago, the Danish national pension-fund manager announced it was selling 100% of its U.S. Treasuries.

As I’ve been warning, the U.S. federal government – with almost $40 trillion in debt – has entered a fiscal “box canyon.” Congress cannot possibly finance its legislatively mandated spending: mandatory spending plus interest is locked in at around 37% of GDP before a single discretionary dollar is spent.

No one seems to realize what’s about to happen: a massive 50% decline in the major stock indexes. But I can show you the exact trigger: 5%.

The last time the U.S. was in a similar position was in the 1970s.

In 1968, we spent 9.1% of GDP fighting communism in Southeast Asia. And then we spent the next decade bankrupting ourselves by installing it at home.

The Vietnam War was an expression of U.S. foreign-policy arrogance. President Lyndon Johnson’s “Great Society” programs (passed between 1964 and 1968) were a matching expression of U.S. hubris in domestic affairs.

We declared “war on poverty” – and you’ll never guess what happened next. It’s like anything else, if you provide incentives, you’ll get more of it. Want more poverty? Spend more money on it.

Federal laws like the Economic Opportunity Act of 1964, the Housing and Urban Development Act (1965), and the establishment of Medicare and Medicaid through the Social Security Amendments of 1965 led to a profound structural shift in our economy. Vastly larger amounts of our GDP would be administered by the federal government, with almost no oversight and with absolutely no economic accountability.