Is our economy is as good as it was going to get? Mike Savage looks at stock numbers, home and auto sales, bank shares, and more. How will this affect our economy going forward? Read advice and opinions from a financial planner in Pocono Summit. Contact Mike with any questions regarding your own financial future.
Weekly Article 10-25-2018
Like him or not, Donald Trump has no trouble saying what is on his mind. A few months ago he pointed to a rising stock market, record low unemployment numbers and record high small business enthusiasm as proof that his economic rebound plan was working. As a matter of fact, he stated: “This is as good as it gets”. It appears he was correct in that assertion. After all of the increased spending, tax breaks, repatriation of overseas cash back to the USA, etc. the economy does indeed look like it reached its high water mark a few months ago. Indeed, it was likely as good as it was going to get- maybe for a long, long time.
Since that time all of the major averages are far lower than they were a few months ago. Institutional money managers (generally considered as “smart money”) have removed $24 billion from equities in the last quarter. Insiders in corporations have been selling their shares in record numbers also. In the last few weeks the markets have been trading in wide ranges. This is generally more common in bear markets than bull markets. (Volatility).
According to Zerohedge 70% of S&P 500 stocks are already in correction territory (10/24/2018)
Other Zerohedge headlines that seem to contradict the “all is well- it’s time to buy” mantra of the financial game shows are:
New Home Sales Crash in September as supply soars. I have never believed that there was a lack of supply of homes. There was only a lack of AFFORDABLE supply of homes. Just a look at the tent cities in California and many other places lead me to believe many people need housing but have been disenfranchised by rising prices. Do you think the prices of real estate rising to these bubble levels were good for everyone?
October Auto Sales Tumble. This is likely another casualty of rising interest rates. Housing has become dependent upon low rates and so have autos. A rise in interest rates is like a price increase in the cars because most people take out loans or leases and the higher the interest rates the higher the payments are. This makes cars less affordable than they already were. How do I know they were already not affordable? Back in the old days people bought cars for cash. In the not-too old days people took out auto loans for 3 or 4 years. Now people have resorted to 7 year loans. Longer loan term, lower, more affordable payments. Autos are certainly a lot less affordable than they used to be.
Netflix Prices $2BN Junk Bond Offering, Forced to Offer Higher Yield As Some Investors Get Cold Feet.
Gee, why would that happen? Maybe because it raises their outstanding debt to over $10 billion and they are bleeding cash at a record pace according to their latest earnings report? Maybe the EASY money won’t be so easy going forward.
Deutsche Bank Shares Tumble After Net Income Plunges 65% On Lowest Revenue in 8 Years.
While Deutsche Bank may be a weak link in the “too big to fail” chain the entire large bank universe is seeing their share prices get hammered. Again, another sign that we saw in 2007- the banks were showing signs of weakness before the fallout in the stock markets were felt more broadly. Possibly a liquidity and funding problem both then and possibly now.
According to Bloomberg on 6-13- 2018 50% of the too big to fail banks were already in a bear market (down 20% from their highs) and many are lower now than they were then. The banking indexes globally have been falling in the past few weeks.
Paul Volcker Trashes Fed, Washington Plutocrats: World’s In “A Hell Of A Mess In Every Direction”
Maybe he read on of my prior reports as he was raging about the lack of basic respect for government institutions and the Federal Reserve. As for the Federal Reserve he was perplexed about the 2% inflation mandate “A 2 percent target, or limit, was not in my textbook years ago, I know of no theoretical justification.” It seems to me that he is saying they may not know what they are doing. Let’s not forget that this is the fellow that raised rates to 21% and almost single-handedly saved the US dollar in the late 1970s. I’m not sure whether to applaud him or not. The world would look a lot different if different actions were taken at that time.
Wallenberg Family’s Investor AB Prepares For Global Downturn.(Business Insider)
The Wallenberg family goes back centuries. Their investment corporation owns many global stocks and they are actively looking to reduce risk in the portfolio. Money GPS did a report that shows how, by looking at SEC reports, you can get a glimpse of what the insiders are doing- to a point.
One of China’s Biggest Asset Managers Ready to Sell Stock. (Bloomberg)
(State-backed China Everbright) Mounting concerns about margin loans being called in China along with risks rising globally.
These stories, along with the fact that we are seeing a record amount of bankruptcies and store closings in the retail space along with reduced spending in restaurants, is not painting a rosy picture like the Soviet-style numbers that I believe we are being force fed daily by the financial game shows and politicians.
Add to all of this that NATO is having the largest war games since the cold war near the Russian border, the US is sailing war ships through the Taiwan Strait and “Taiwan To Hold Live-Fire Drills Near Spratly Islands In Preparation For Chinese Invasion”
Israel Defense Chief Says “No Choice But War” As Forces Build Along Gaza Border. Everywhere we look there seems to be economic mayhem and political mayhem. Hardly a recipe for calm markets.
In addition, as many countries like Russia and China maneuver against using the US dollar in trade not involving the USA many are joining them. Many central banks are selling US dollars and purchasing gold as I have mentioned many times. Even the major banks are adding gold to their holdings- some in massive amounts.
It appears to me that the “smart money” or those with better information than we are allowed to have are preparing for something. That something is likely an upset in the financial order we have known for most of our lives.
The assets that have been around since biblical times are gold and silver. I expect that these assets will have a large role in whatever our new economic reality may look like. I also believe that we have been given the gift of more time to prepare for any upcoming events. If you haven’t taken any steps to prepare for a potential upset in your financial plans and dealings I believe there is no better time to start than now.
Mike Savage, ChFC, Financial Advisor
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