As expected, the Fed left rates unchanged in yesterday’s meeting. You may have also heard that they described the economy as “strong”.
I have said many times that this “strength” is an illusion based upon ever-increasing debt and the spending of that debt into the economy which is making up for the lack of demand from those that used to spend when they had a wage that could actually buy more than necessities.
Let’s not forget the stats that over 50% of Americans can’t come up with $400.00 in an emergency without selling an asset or putting it on credit. Let’s also not forget that 50% of wage earners are at $30,000.00 or less. (Money GPS)
If we see spending going up it is also important to see where that spending is going. More is going for energy, food, healthcare, healthcare premiums (a national disaster in my opinion), education, etc.
People may be spending more but much of this spending is being done with government transfer payments and increasing debt as opposed to earnings.
Actually, the Fed believes the economy is so “strong” that a .25% increase in rates was too much for the economy to bear. Let that sink in!
I thought a quick look at the headlines on Zerohedge on 8-2-2018 would also provide some insight as to how “strong” our economy actually is …
“Multi-Billion Fund Manager Freezes Redemptions at Bond Funds” This wouldn’t happen if things looked good. By the way, the Japanese Central Bank got a dose of reality when they decided to let the market have more of a range in the Government Bond Sector. They were forced to intervene late yesterday to stop a rout in that market. (Reuters 8-1-2018) This is another reason I don’t buy QT for any length of time. The central banks ARE the “market”.
“Buffet’s Favorite Indicator Exposes a Stock Market More Primed For a Crash Than Ever”
“The Number of American’s Living In Their Vehicles “EXPLODES” As The Middle Class Collapses” Add this to the article last week about so many homeless in San Francisco that there is no way to dispose of the waste.
There is also an article in there about President Trump wanting to raise the tariffs on Chinese exports from 10-25%. This is because the Yuan has depreciated enough where the tariffs have become meaningless. There are many levels to this game.
There are other headlines that let it be known that this economic pain is being felt globally. It is not more apparent anywhere than in Venezuela where their leader Maduro has admitted that the “Socialist Model Has Failed”.
In Greece, where they have been battling a problem of too much debt with more debt for the past 10 years they have a headline on Zerohedge “Greece’s Greatest Depression”.
Keep in mind that Iceland and Greece went virtually bankrupt together in 2008. Iceland kicked out the IMF, put bankers in jail and went through a few years of rough times and couldn’t borrow internationally.
Greece, on the other hand has been playing along with the “authorities” and are getting not only deeper and deeper into debt but deeper and deeper into trouble. By the way, Iceland has very little debt, a thriving economy, and is able to raise capital in international markets.
Hopefully, our “leaders” will be astute enough to take the Iceland model next time and get us back to a place where we can start over and have an economic system that will be sustainable and growth-oriented over time.
It is pretty obvious to me that the promises made to our pensioners are in dire shape. It is obvious that even the debts that the government admits to will likely never get paid off- at least not with a dollar being anywhere near its current value anyway. It is also clear to me that any interruption in credit-creation and higher debt levels could lead to a situation where 2008 looks like a walk in the park. It truly appears we are in an “inflate or die” trajectory.
If you, like me, don’t believe debts can go on rising forever, there is a day of reckoning at some point in the near future. Having said that, does anyone really believe that you can, in this environment, keep investing the same way you have been in the recent past? Would it maybe make sense to open your mind to some new ideas and other asset classes other than traditional stocks and bonds at this time?
While I continue to believe we need to have assets everywhere I can’t help but think about how generational wealth has been passed on throughout the centuries. The truly wealthy have passed on legacy wealth generally through real assets- namely gold, art and real estate.
It occurs to me that these assets always have A value while financial instruments can, and do, go to zero.
It appears to me that there may be more upside in this “market” if you call a debt-induced central bank buying spree a “market” but I believe it has an expiration date. When I can’t know but with all of the passengers on one side of the boat there is a strong possibility of a rollover.
Mike Savage, ChFC, Financial Advisor
Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Any opinions are those of Mike Savage and not necessarily those of RJFS or Raymond James. Expressions of opinions are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do n ot guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. There may be sharp price fluctuation even during periods when prices are overall rising. Precious metals, including gold are subject to special risks, including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.
Diversification does not ensure gains nor protect against loss.