Weekly Article 01-08-2019
I got a kick out of Germany’s Finance Minister- Olaf Scholz who was lamenting that the “fat years” in which Germany has had budget surpluses are over. In an interview with Bild Am Sonntag newspaper “The good times in which the state kept taking in more taxes than expected are coming to an end” Scholz said. According to the article the German government has spent less than it has received in tax revenues in every fiscal year since 2014 as a result of strong economic growth, high wages and record low unemployment.
Now, I am not pretending to know if any financial “massaging” has taken place like the numbers we get from our own government which are reported not to give us an accurate assessment of how things are actually going but to make sure that we are all aware that ALL is well- ALWAYS!
One thing I can say, however, is that if an economy IS actually performing well you would expect to see the exact scenario that has reportedly played out in Germany. If, indeed, you have strong economic growth, high wages and record-low unemployment you WOULD expect to see budget surpluses, rising wages and contentment among the population. It is far more likely, in my opinion, that Germany has actually been performing quite well until recently. It appears that they are being dragged down by the slowing global economy along with everyone else. Hence, the lower taxes being paid and less largesse for the government. As a matter of fact, the German government just reported that German Industrial activity plunged the most since 2009, confirming a weak factory orders report from Monday. According to Bloomberg, industrial production contracted in November -1.9% month over month and -4.9% year over year. The report showed weakness in everything from consumer goods to energy. New orders also dropped 1% from October and 4.3 year over year.
On the other hand, we here in the USA are REPORTED to have record low unemployment, strong economic growth and rising wages. If these numbers were true (which we all know they are not) we should have expected to have budget surpluses, rising wages and contentment among the population right? What do we actually see?
I see over 37 million people who can’t afford to feed themselves and are collecting food stamps. I see 96 million people who are able to work but are not counted in the “record low” unemployment numbers because they have given up hope of finding a decent job.
Possibly the most telling statistics are the debt numbers. The fiscal deficit is projected to be over $1 trillion for the first time in our history. This is obviously a BIG deal and does not show financial health but reveals a financial disease. If the government had to report their numbers like all US businesses do that fiscal deficit using GAAP (Generally Accepted Accounting Principles) would be over $6 TRILLION in fiscal 2019. (Statistics from US DEBTclock.org)
Is there ANYONE out there who has the illusion that our population here is in any way content or happy?
After years of rising prices, stagnant wages and now a lack of opportunity for a majority of our younger population even all of the debt being created globally is not masking the reality of the situation.
Those who are able to “print” money and their many cohorts who are paraded on the financial game shows daily and who profit from the “printing” either directly or indirectly are having a grand old time. Times have NEVER been better for those at the top. This is likely one of the reasons that virtually all of the talking heads are always so bullish. It is also likely that they have NO CLUE what the general population is having to do in many cases to simply survive.
Unfortunately, as all of the wealth is concentrated in a few hands there are many suffering and life for those who are not in the “in” crowd have found that even going deeper into debt will not allow them to continue in a lifestyle that they have become accustomed to. This is likely why America has become so divided and angry just as has happened across Europe and many parts of South America and Africa.
Many times I have said that the entire economy is an illusion based upon ever-increasing debt to give this illusion of normalcy, solvency and well-being that, if the curtain is pulled back, we will see cannot be maintained without massively increasing debts and deficits. ANY pullback in credit creation would likely result in an implosion of asset prices.
Actually, it would only APPEAR to be an implosion- it would actually likely just be the markets determining fair value for the first time in decades.
If you believe, as I do, that a day of reckoning is coming then the time to take action is here. It is obvious to me that the “all is well” mantra is starting to fall on deaf ears. I reported years ago it would when the chasm between the “massaged” numbers and the actual experience of the lives we are all living can no longer be reconciled. The riots in Europe and the discord here in the USA along with the implosion of many economies around the world lead me to believe that the time of reckoning is not far away.
If indeed, the debts and deficits can’t be stopped without a drastic change in prices then doesn’t it make sense to prepare for both scenarios- either the “printing” continues and national currencies lose a lot (if not all) of their value over time or sanity takes over and the illusion is exposed and prices reset to what they should have been without the massive interference from the “printers”?
Keep in mind that, just as financial assets have been artificially propped up by these interventions other assets have been held back like gold, silver and other metals. Other assets, like oil seem to be manipulated for not only financial but for political and geopolitical reasons.
Since we cannot know what an actual “fair” price may be for virtually any asset at this time it appears to me that the only logical plan is to have assets in every asset class and in many different jurisdictions.
While those “in charge” may have stemmed the tide- if only for a while in the stock and bond markets- it just may be a good time to review your winners and pare back your risk going forward. It is obvious to me that the world economy is slowing meaningfully and asset prices are being managed to give an illusion of normalcy- even though the attitude of this market has seemed to change to bearish in the past few months.
Mike Savage, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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