Global Bank Issues Dire Warning

“ Global Bank Issues Dire Warning ”
Ty J. Young Editorial

Global banks are worried.  One such global bank is Great Britain’s Royal Bank of Scotland (RBS), and they have issued a dire warning through their monthly client advisory that said “sell everything except high quality bonds” and this would be a “cataclysmic” year for markets.  We have never seen such extreme language and inflammatory words from a bank used in printed advisory notes to clients.

Many of their fears are based on a double dose of bad news for markets – debt and retiring workers.  The bank found these two factors in particular most troubling – global debt is growing and the working population needed to pay for it is not.

I. Global debt is killing economies and stock markets.

  1. Total global debt up 25% since 2009.
  2. Global debt at $250 trillion and counting. The U.S. makes up $60 trillion of the global debt and it keeps increasing. That is almost 25% of the global total.
  3. Global debt has increased by $57 trillion since 2009. The increase in debt has occurred mostly in mature Western markets such as the U.S., Japan, Europe, as well as China.  This is a rapid jump in total debt issued, and an unsustainable pace.
  4. Debt is now 286% of global GDP! Global debt is now 2.5 times global GDP (Gross Domestic Product), and there are not enough producers to pay it back.
  5. Payments on debt are killing economies and markets. Growth is stagnated because so much income is used to service debt payments. This is unsustainable.  Stock markets do not perform as well as they could with private money being used to pay down debt.

II. Aging populations are retiring and not paying into the system

  1. Baby Boomers retire: As more retire, fewer are working.  Less and less of the population is available to service the debt that government budgets are struggling to contain.
  2. Other groups are feeding at the trough: Western governments, including the U.S., are paying more for social welfare as it becomes easier to get, and more illegal immigrants gain access to the system.  Americans have historically benefitted from immigration to help with population growth, but immigration that is illegal, not assimilated, and of low skill is not the way to grow the tax base.
  3. As populations age and workers retire, the tax base shrinks: With more of the population retired, it takes even more workers to pay into the tax base.  That is the vicious cycle – there are less workers and therefore less economic growth to fund budgets, which in turn satisfies higher payments on debt loads.  Debt increases as tax receipts also decline.

Growing debt and slowing demographics … you cannot pay your way without a workforce large enough to contribute.  This is a global problem for Western countries.  A debt bubble could cause a far greater crisis than the Financial Crisis of 2008.  Markets are already struggling under the weight of consumers who have little left in their budgets for expanding their portfolios.  Government budgets are strained under the weight of always-increasing debt service payments.

Bottom LineWestern countries, including the United States, have too much debt and too little natural-born population growth.  The combination of those factors means little, if any, economic growth for the foreseeable future.  Without growth, profits shrink. When profits shrink, stock markets follow. Your portfolio can and will be affected by an expanding debt market and a shrinking pool of workers.  Will it be cataclysmic? To borrow the phrase from the RBS … seek shelter from these risks.   Contact us to find out how. 877-912-1919.




Market Downturn Predictable

“ Market Downturn Predictable ”
Ty J. Young Editorial

It is not too hard to predict markets – they either go up or down, and eventually do both. It is hard, however, to explain that when the market was going up over the past several years, it was an artificial gain, and when the market goes down, it will be painful.

That is what the start of this year has been for many investors – hard and painful.

The media reported any number of reasons for the market correction. Most of those reports are the same, conventional thinking that has had the country mired in stagnation since 2008. What is the media telling the public, and what is actually happening?

I. What is the media saying are some of the primary reasons behind these huge sell-offs?

  1. Drop in U.S. Crude Oil Production: We have said many times, markets follow oil. So this would make perfect sense. But a drop in production should increase the price of crude, since it signals there will be less of it.
  2. Fed Rate Hike: The December rate hike, with signals that there are more to come, has been the consensus boogeyman for the stock market. Tightening rates means tightening access to credit. This means tighter money supply which means lower stock market.
  3. December Retail Sales Down: Less sales equals less earnings and less profits. December ended the weakest year in retail sales since 2009.
  4. Massive Chinese Stock Market Losses: China seems to be the media lead since Chinese economic problems have been a recurring story for months. The media believes the weakening currency is the primary culprit and is sending a signal about slowing demand. That’s true, and represents part of the real reasons behind the U.S. stock market sell-off.

II. What are the real reasons for the market sell-off, and why aren’t they prominent on the 6 o’clock news?

  1. Slowing Demand Globally: Growth rates are slowing in Asia, stagnant in the U.S., near contraction in Europe and contracting a great deal in Latin America. There is simply not enough demand for goods and services, and that will hit earnings. Lower earnings means lower stock price.
  2. Market Rise was Artificial: The stock market rise over the last 7 years was a recovery from the previous collapse, but it was artificial in nature. Previous bull markets were the result of some underlying economic improvement – the industrial age, the information age, pent up demand from the depression and Reagan tax reduction. Since 2008, no such improvements occurred. The upward movement of the stock market since 2008 was price inflation due to the Fed printing money. Since the Fed supported the market, and has now withdrawn the support, there is nothing left to keep prices afloat.
  3. Chinese Economy Also Artificial: The media will report the issues regarding the collapse of the Chinese stock market, saying they have their own debt bubble and have manipulated their currency. What we believe they will not focus on is that China’s numbers are falsified. There is no way for an investor to actually know how anything is performing in China, because the numbers seem to be cooked. The Communist government either did not provide access to competing information, purposely hid negative information, or did not offer data that runs counter to the State’s official record.
  4. Over-regulation is Cratering Business: Dodd-Frank has reached 19,000 pages and counting. New coal regulations out in the last month will make mining virtually illegal. Rules on international financial transfers and accounts are shutting down much of the productive investment and commerce. The media often does not report that regulations are hammering business – costing pay raises, more benefits, and preventing business expansion.

While it is our belief that the issues not prominent in the media are the issues which have the best chance to impact the global economy moving forward, it goes without saying that all of the issues and more pose negative risks for the 2016 stock market. It is impossible to have Fed intervention, oil price collapse, and an over-regulated American economy and somehow believe things will turn out well.

Markets go up and markets go down. It does not have to be hard and painful when the market goes down. You can participate in the gains of the market and protect yourself from the losses when the market goes down, which has been the case at the start of 2016.

Call us to find out how! 877-912-1919


Worst Market Start in History … Time for a Reality Check

“Worst Market Start in History … Time for a Reality Check”
Ty J. Young Editorial

The market had its worst start ever in 2016. “The Standard & Poor’s 500 and Dow Jones Industrial Average fell by 6% and 6.2%, respectively,” in the biggest ever drop for the first five days of January. It was the worst market decline for any week since September 2011.

So we ask the question for what seems like the 100th time over the last several years – is the bull market coming to an end, and are we entering bear market territory? What we know is that markets go up and markets go down. But we have suggested in previous blogs that the evidence suggests we are in 2008-crisis territory, not just the traditional swings of the stock market.

Here is what the Bulls and Bears are saying right now as we look at 2016:

I. What the “Bulls” are saying? (A “Bull” is someone who believes the market is going up)
1) Strong Job Growth: The bulls say we have 5% unemployment and dropping. There were 292,000 jobs added in December, and 50,000 upward revisions expected in November and October. That would suggest the corporate world and Main Street are doing well, so stock market investment should follow.
2) Housing Prices Going Up: The bulls believe housing provides a nice return on investment. Prices are up 4.9% in November and 4.6% in October. There seems to be no slowing in the housing price increase, and this is in spite of the Fed rate hike in December.
3) Oil Prices Remain Depressed: Bulls are cautious due to how a lot of investment goes into energy companies, but there is simply no way to overstate the benefit low oil prices have had on the economy. Lower gas prices means more consumption, and consumer spending means a blacker bottom line for corporations. Lower gas prices mean lower transport costs for businesses, which is also positive for the bottom line.

It is hard to predict a coming bear market, since the evidence and the historical data suggests we should have already been hit by a substantial market decline. The “bulls” have had it easy now for 7 years. But the tide always has to turn. Why do the “bears” believe that the tide has turned and it is looking like a tidal wave heading toward the market?

II. What are the “Bears” saying? (A “Bear” is someone who believes the market is going down)
1) Job Growth is Superficial: Bears do not believe a word on real job numbers that come from the government. Jobs are up in December with a decline in wages? Can anyone say part-time Christmas hiring??? Productivity is up, but hours per week are down. That is a statistical wash. 5% unemployment? 6 million Americans in part-time work are seeking full-time work and cannot get it. The labor participation rate is at a 36 year low. Americans know the government’s job numbers are questionable. Bottom line? Bears believe Americans can’t find work like previous post-recession environments, and those who have jobs are not seeing real wage growth.
2) Housing is a Bubble: Much like the 2007 pre-crisis collapse in housing, which precipitated the January 2008 collapse of Bear Stearns, the take-over of Fannie Mae and Freddie Mac that summer, followed by the Lehman Brothers collapse in September, which led to the stock market collapse over the next several months … the housing bubble peaked in 2006-07 which started the significant long-term decline in the Dow. Bears believe housing has reached its peak.
3) Markets Follow Oil: Oil is a leading indicator for where the market is heading. U.S. markets were down for 2015. They are down for 2016 so far, and oil has been dropping for over a year.
4) Corporate Profits could be Down in Q4 2015: Markets have almost always gone down after two consecutive quarters of drops in corporate profits. Analysts are split on what quarter 4 will show, since the Christmas season usually provides a boost. The bears believe the precipitous 3rd quarter decline ($33 billion in lower corporate profits) means we are in for another negative report for the 4th quarter as well.
5) Globally, not much looks good: The Chinese stopped trading twice in the first week of 2016 because of the massive losses in their stock market. Europeans are in crisis because they have let in millions of unassimilated migrants from the Middle East … are we next? Latin Americans are facing corruption scandals and contracting economies. So, there is not much on the horizon which suggests a high growth environment.

What are the betting odds for 2016? It depends on the question. Are we heading into a recession? Will there be a significant market downturn? Is there a black swan event that could trigger a greater sell-off than what we have seen recently? There are even hints that the Fed will raise rates again in January, and not wait until their quarterly meeting in March. Why? The “bears” are whispering that the Fed recognizes what a predicament we are in, and they need rates higher so they have room to “lower” them if another crisis hits. If true, what could that indicate for markets and for your portfolio?

Markets are down and volatility is up. For many, now more than ever, it is clear that protecting what they have earned is a high priority. You can still earn a reasonable rate of return, while protecting your money from market loss. Call now! 877-912-1919