Postcards: Congress Covers Its Ass on Inflation Again (Plus The Russell Tests Its 200 SMA)

One of the dumbest possible ideas to address rising costs across America is to tempt the population with early withdrawals from their retirement account. Guess which Body Politic approved that gem?                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: Congress Covers Its Ass on Inflation Again (Plus The Russell Tests Its 200 SMA)]( One of the dumbest possible ideas to address rising costs across America is to tempt the population with early withdrawals from their retirement account. Guess which Body Politic approved that gem? [Garrett {NAME}]( Nov 30   [READ IN APP](   Market Update: As I said in the Republic Risk Letter, we were looking for the breakout to start on the Russell 2000, and we made a quick race to the 200-day moving average in the opening hour. But we pulled back ahead of the PCE Index and an update from OPEC. Conditions are positive, but it’s clear that money is rotating to the Small Cap Space. The Direxion Daily Small Cap Bull 3X ETF (TNA), my preferred bull fund for the Russell, popped 4.2% in the early session before rolling back. We’ll see if it can continue testing tomorrow. Dear Fellow Expat: Recently, we drove to four Italian restaurants on a Tuesday night. All of them had a 50+ minute wait. What exactly is going on here? Expats! The latest estimate says the average daily number of people moving here is 1,218. That’s ridiculous… a small army, if you will. At the third restaurant, my five-year-old daughter asked, “Daddy, isn’t Florida closed?” She’d heard me say this on my podcast and joke about it with my wife. She wasn’t offering any comedic timing, though… which made the question funnier. But… Yes. I said that Florida was closed.  But my warnings aren’t considered. We’re now fully in season, and the next five months will turn a typical 20-minute drive to downtown Naples into an hour-long affair. Housing prices remain elevated. Buyers continue to flock here. And you’d hardly know that the consumer is slowing down. We had to settle on Japanese cuisine at a place I’m sure is a front. My daughter had a luxurious peanut butter and jelly sandwich, a staple demand.  The retired consumer isn’t slowing down. Or… are they? Fidelity Warns on Hardship For 18 months, I’ve waited for consumers to hit a wall. I’ve discussed the sheer number of people making between $200,000 and $400,000 trying to keep up with the Joneses and running themselves into enormous debt during this inflation wave. And that’s at the 96th percentile to 99th percentile of income. What’s happening to the bottom 95 percent? You don’t need me to tell you since you’re likely living this experience. While the government brags that they’re bringing down inflation, I remind you that inflation compounds. So, a 3.1% increase in October 2023, on top of 7.7% in October 2022… means that prices have increased by 11% in two years. (1.031*1.077) Inflation isn’t “coming down.” It just means you’re permanently damaged by the reckless monetary and fiscal policy efforts these clowns in Washington bestow upon us. How many people in Congress can read a balance sheet? Now, ask how many understand the machinations of stimulus and its role in inflation. Exactly. And if you think it’s not good for retirees now, wait until you hear what Washington is cooking up for their accounts. Just Charge It In 2024, Congress has authorized that Americans under 59.5 years old can withdraw up to $1,000 from their retirement accounts to meet unforeseen or immediate financial needs without a penalty. Americans can take the money out and have three years to pay it off. And if they don’t pay it off, no problem. Just wait three years, and you can do it again. It doesn’t sound like much - $1,000 per retirement account. After all, half of Americans don’t even have a retirement account. But every withdrawal has an opportunity cost, particularly the compounding potential of every dollar set aside. This is just a bad policy to address the ongoing cost of living crisis. Rather than fix the problem they created… Or slash regulation that would increase the supply of products and services (and tame prices) Or encourage MORE healthy savings for retirement… Congress is telling people to withdraw their money and move on… This temptation to withdraw money compounds upon a more disturbing trend revealed this week. As I noted in the Republic Risk Letter this morning, Fidelity released a report showing that the average 401(k) balance dropped by 4% in Q3 2024. The average account at the brokerage fell from $113,800 in Q2 to $109,600. Sure, we can look at the chart of the S&P 500 from July to September and think that the market’s performance is responsible. But that’s not the problem. What’s happening? Hardship withdrawals. Americans can withdraw money without paying a 10% penalty if they can prove their money was dedicated to hardship expenses. Those expenses are primarily: - To pay medical bills - To purchase a primary residence. - To avoid eviction or foreclosure - To address losses linked to natural disasters. Fidelity says these withdrawals are mainly coming to cover medical bills or to prevent an eviction or foreclosure. Bank of America - which owns brokerage Merrill Lynch - backed up these claims. The average American is yanking $5,000 out of their retirement accounts. This is a disturbing trend, and it’s sure to rise with the ability to pull money from accounts starting next year. Americans are engaging in a “Doom Spending” practice - where people spend regardless of their concerns about the U.S. economy or ongoing global geopolitical tensions. And Intuit CreditKarma says that 96% of Americans are worried about the economy. First, who are these other 4%, and where do we get their dosage? Second, the government will take its foot off the gas regarding deficit spending. The cost of everything has officially surged by double-digits over the last two years, and those prices will remain elevated, especially for people living on fixed incomes and high home costs from 2020 to 2022 purchases. The fiscal recklessness will make the inevitable pullback much worse. And then - and only then - will the Fed buy back assets while economists who got us into this situation start calling for stimulus checks to reinvigorate the economy. Rinse, repeat. Your retirement account is your clearest path toward better days ahead. Don’t sacrifice it. Don’t be tempted. Stay the course, and stay invested. But most of all… Stay positive, Garrett {NAME} Secretary of Defense You're currently a free subscriber to [Postcards from the Florida Republic](. For the full experience, [upgrade your subscription.]( [Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()