🏙️ Why Are American Cities So Broke?

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What’s on the Menu 🍴

It’s no surprise that people are feeling the squeeze with higher prices and lower wages…

But what about cities in the USA?

They’re struggling too.

And today we’re taking a look at the week ahead, and why so many cities are struggling.

• What to Watch This Week 👀

• Why Are American Cities So Broke? 🏙️

• Why Is The S&P 500 Bolting For New Highs? 🤔

Today’s newsletter is a 5 minute read.

What to Watch This Week 👀

It was a mixed performance for risk assets last week, with stocks and metals putting up positive returns while crypto lagged.

This week it’s all eyes on economic data, with the ever important PPI and CPI inflation reports on deck.

The current consensus forecast for year-over-year change in the April CPI is +3.5%.

We’ll also have a US retail sales report in the mix, so investors will be looking for signs of stagflation risks.

Earnings season is slowing down, but key retailers such as Home Depot and Walmart will report this week, as well as Chinese tech giants Alibaba and Baidu:

The macro calendar also includes:

• UK unemployment (Tues)

• Germany economic sentiment (Tues)

• US PPI (Tues)

• US CPI (Wed)

• US April retail sales (Wed)

• US building permits (Thurs)

• China retail sales (Thurs)

• China industrial production (Thurs)

Bitcoin has made a series of lower highs in recent weeks, but remains well above its 200-day moving average (~$51K level):

We’ll keep an eye on crypto’s relative performance this week, as well as the following assets & sectors:

📈 Rising Recently:

• Utilities (XLU)

• Materials (XLB)

• Gold Miners (GDX / GDXJ)

• Silver (SLV)

📉 Falling Recently:

• Cleantech & Solar (TAN / PBW)

• Biotech (XBI)

• Crypto (BTC / ETH / WGMI)

Why Are American Cities So Broke? 🏙️

American cities themselves are strapped for cash.

That's right, folks—53 of the largest cities in the U.S. are flunking basic budgeting, failing to cover their expenses.

A dive into the fiscal deep end shows these urban areas aren't just struggling with cash flow; they're up against a spending spree hangover.

With a staggering $595 billion in debts, double their assets, it's no wonder streets aren't as clean and services aren't as slick as they used to be.

The real kicker?

Many cities are underreporting their financial woes, making their books look better than they are—classic misdirection. This creative accounting keeps the public in the dark about how deep the money pit really goes.

For instance, New York City owes double what it reports.

So much for transparency!

Now, let’s break it down: when a city can't pay up, it either hikes taxes or cuts spending.

Either way, the quality of life for residents takes a hit. The roads crumble, public services wane, and your wallet feels lighter. Not exactly the urban dream.

But here’s a twist—cities aren't just victims of circumstance. They’ve got tools at their disposal, like municipal bonds, which are basically the city’s way of borrowing from Peter to pay Paul, just on a larger scale.

These bonds fund everything from schools to sewers, but it's a delicate balance. Borrow too much, and you're just digging a deeper hole.

So, what's the way out?

It starts with getting real about the numbers and making some tough calls on spending. It’s not rocket science, but it does take guts.

Think your city has what it takes to turn things around?

Join the conversation and let’s hash it out. Because when it comes to financial fitness, every city needs to be in shape.

Why Is The S&P 500 Bolting For New Highs? 🤔

The stock market is pulling a fast one on investors.

Remember when “stagflation fears” were surfacing, and the S&P 500 was looking a little shaky?

Well, as the saying goes, “nothing like price to change sentiment.”

Now, the S&P 500 stock index is less than 1% from making a new all-time-high.

A staggering low bar for price to get over!

What has been the driving force behind all of this buying?

It’s been a mix of things in my opinion.

First of all, as I’ve mentioned on the We Talk Money podcast often, there’s a lot of people who missed out on the run from October 2022.

The S&P 500 has run roughly 50% since then.

It’s easy to forget … but, people were insanely bearish thinking the market was going to keep rolling lower. Many avoided investing or even 🫣… pulled their money out of stocks completely!

When the market refused to head lower, it led to a lot of FOMO (and perhaps a lot of investors sitting in cash, unsure what to do as the market ripped higher).

With all of the cash on the sidelines in money market mutual funds, the recent correction was one I had a hunch could be shallow and short lived.

People wanting to put capital to work after seeing the run they missed out on could have contributed some.

Another contributor could be Jerome Powell crushing the “stagflation” narrative that was going around.

Stagflation = periods of high inflation and high unemployment. It makes for a nasty economy.

He addressed in his press conference that he doesn’t see the “stag” or the “flation” considering today’s economic data.

I agree, the fears felt a little too early. Jerome Powell even addressed what periods of stagflation look like in terms of the data, and how far we are from being close to these numbers today.

This could have put the market at ease a bit.

Another driver of this run in the market is likely earnings season.

Many individual stocks like Airbnb (ABNB), Starbucks (SBUX), Uber (UBER), Shopify (SHOP), and others gapped down big on earnings reports. However, when you look at earnings expectations for the entire S&P 500, they’re still on track to be growing very healthily (+11% for the year).

So, the market could be shaking off economic data softening (if it’s “good enough”) in exchange for the earnings expectations.

Not only that! As I wrote about last week, bad news is good news. So, weakening economic data is now a boon for the stock market as they expect the Federal Reserve to cut rates in the face of softening.

So, it’s quite a soup of different factors contributing to the S&P 500 “shaking it off”.

Now, with the market back to all-time-high range, we may even be back to worry about the “wealth effect” contributing to pesky inflation.

Anyone else feel like we’re running on a hamster wheel here? 🐹

Food For Thought 🧠

"A budget tells us what we can't afford, but it doesn't keep us from buying it.”
- William Feather

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.