😵 Setting the Stage 2025

Hey there,

Happy New Year and welcome to 2025!

While many are still recovering from last night’s celebrations, our investments are hard at work keeping the pay clock rolling.

Our investors? Likely doing the same thing today as they always do—pursuing new goals, enjoying well-earned moments with family, and reflecting on how they’ll make 2025 truly world-class.

This is one of the indirect advantages of working with Rust Belt Capital: the network. High-end, high-achieving people who are otherwise difficult to cross paths with.

Starting 2025 we’d like to update you on where the economy currently is via a few charts:

Since September, the Federal Reserve has cut the Fed Funds rate (short term rates) by 100 basis points or 1%. Generally, interest rates such as those for 30-year mortgages follow interest rates set by the Fed. However, since September, interest rates have had a near 100% negative correlation with the Fed’s actions. This is very NOT normal.

Higher interest rates should put downward pressure on asset prices (Think stocks, houses, real estate). They are inversely correlated.

Yet the stock market just notched another 20+% year of gains in 2024 bringing it to a roughly 82% increase since COVID… or nearly 15%/yr (extremely high annual returns for normal equities):

Consider that these gains have occurred all while the S&P now has an extremely high P/E valuation relative to historical norms and is paying out a disrespectfully low cash dividend.

Does any of that make sense???

Actually, YES it does.

Here’s how.

Take a look at the US GDP over the last 5 years. It’s up about 27% since 2019. Normally this would be a healthy amount for a developed country like the US… BUT

Look at the growth of the overall national debt… it grew by nearly 31% over this same time period. That’s an astronomical number. Truly. Huge.

Acknowledging the measurement of GDP includes government spending:

Then the economy is unlikely to actually have had meaningful organic sustainable economic growth. The economy may have been limped along by government spending. 

If you don’t believe that simply look at the cumulative median wage growth for an American since 2019….

It’s just over 20%, far lower than the recorded GDP growth figure AND government debt figure..

Here’s the point.

It makes sense the stock market valuation growth has nearly TRIPLED the growth of the economy, given, the growth of the US debt.

It has had abnormal growth accelerated by government spending…. Because government spending devalues the dollar - i.e. inflation. Investors are essentially shorting US cash.

Interest rates are rising with a near 1:1 negative correlation to Fed cuts in anticipation of this inflation. Similarly, the stock market is rising for many of these reasons as well even with ridiculous P/E ratios.

Since government spending is included in the GDP calculation it makes some economic numbers appear better than what “normal” people experience. This is exemplified by the chart showing cumulative wage growth at only ~20%…. hence why many people are “tight” financially.

This is the stage setting we’re at as we enter 2025. I do not know what will happen going forward.

However, all of the above exemplifies WHY we like multifamily. Less volatility than stocks, reliable inflation-resistant cash flows, a hedge for purchasing power, and a durable product in the event of broad economic weakness.

Questions always welcome!

Nate & Steven
Rust Belt Capital, LLC

www.rustbeltcapital.com

_Disclosure:
Rust Belt Capital, LLC is not a Registered Investment Advisor. Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data we use from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of data provided by investors or other third parties. Rust Belt Capital, LLC does not provide tax advice and does not represent in any manner that any outcomes described herein will result in any particular tax consequence. This is not an offer to buy or sell any security. Offers to sell, or solicitations of offers to buy, any security can only be made through official offering documents that contain important information about investment objectives, risks, fees, and expenses. Prospective investors should consult with a tax, investment, or legal adviser before making any investment decision. Distributions or profitable investments cannot and are not guaranteed. Not intended to be tax advice and should not be solely relied upon to make an investment decision.