I have a number of friends that like to point out how well the stock market has been doing since Donald Trump was elected. As a matter of fact, the President has been seen recently taking credit for the “great economy” and an all-time high stock market and record-low unemployment.

If only it were true!

I guess the “everything is a gigantic bubble” candidate has started drinking the DC kool aid like everyone else in town. I guess the 95 million or so that we pretend don’t exist to get the “lowest unemployment of all time” actually don’t exist now? The stock market at all time highs can be traced directly to central bank money “printing” and asset purchases- a STUNNING $1.5 trillion in just 6 months from January 1-June 30, 2017. The “great economy” is seeing auto sales crashing, retail sales imploding and more retail store closures than we have ever seen. Many malls are turning into mausoleums.

Many of the stocks that are leading the charge higher in the markets have two sets of books- one that the SEC gets (the real ones) and a set that Wall Street gets- you can see a prior article I did- two sets of books (link at the bottom) that explains the situation.

I also saw an article today by Gains, Pains and Capital that goes far beyond the financial engineering and exposes that some of the largest tech companies are being exposed. In the article it says that Unilever spends $8.4 billion in ads per year.  Keith Weed, Unilever’s chief marketing and communications officer said “Some 60% of traffic online is bots. We want to buy eyeballs of viewers not bots”.  In addition, it was reported that Proctor and Gamble reduced on-line ad spending by $100 million in the June quarter and had “little impact on business, proving those digital ads were largely ineffective”. Tech giants like Facebook and Google make the bulk of their profits from these type of ads- just another thing to keep an eye on.

In addition, we have many of the “money printers” like the ECB and Bank of Japan threatening to cut back purchases. I believe that if liquidity dries up in any meaningful way the fallout could be quick and possibly devastating to the bulls. In a worst case scenario you may see bond yields spike globally which could lead to an implosion of all of the assets (mainly stocks, bonds and real estate) that have been artificially inflated for the past many years.

Even assets that I expect to do extremely well over time could get dragged down in a situation where the all-time high margin (loans to buy mainly stocks) starts getting called in and assets are sold by the margin clerk. The margin clerk has one goal- to pay off your loans if you can’t meet the margin requirements. This could lead to the best, most liquid assets being sold off first and hardest. It is likely that these assets should be purchased, if possible, at that time.

As I have said many times- this could be an opportunity- if you have purchasing power to own assets that you couldn’t imagine owning today. This will likely only happen if you have a solid plan to make it happen.

Just to give you a heads-up. It probably won’t happen with passive investing or a 60/40 stock and bond split!

Let’s take a look at some of the numbers that backstop this “great economy”
Most information is from USDebtclock.org as of 8-1-2017.

  • Using generally accepted accounting principles the US annual budget deficit is over $5 trillion RIGHT NOW.
  • We have $20 trillion in Federal Debt, 3 Trillion in state and local debt (not including pension underfunding shortfalls that is also in the trillions)
  • We have 325 million citizens in the USA. 42 million are living in poverty and 41 million collect food stamps. 74 million are on Medicaid- Medicaid means you have NO ASSETS and need to be cared for by the state.
  • Many are thrilled that home prices keep rising. Too bad incomes aren’t keeping pace. The median income in the year 2000 was $29,230.00. Today, it is a measly $30,360.00. However, the average home was $165,000.00 in the year 2000 and is $311,000.00 today. Homes cost 88% MORE TODAY and in many places taxes have also doubled while salaries have increased by less than 4% over the same period of time. Lower interest rates have contributed but rates will not stay low forever. Look out below when they rise!
  • 4 million Americans are receiving government benefits of some kind. That is more than 50%. Any questions about why we have to “print” money to keep things going?
  • Total debt in the USA is $888,000.00 per family. The average savings per family?- $8400.00. Would you give this family a loan???
  • $106 trillion in unfunded liabilities- SS, Medicare, Prescription Drug coverage, etc.

Many of you know that I have been a supporter of President Trump since he was candidate Trump. I still support Mr. Trump and hope that he will be able to still do a good job for us. Unfortunately, I believe he is taking the bait in claiming ownership of the economy which is rolling over at a quickening pace. While it is a pleasure to take credit when things appear to be going well there will be a lot of piling on when the true condition of our economy is exposed either later this year or maybe just in time for the 2018 elections so there is no time for anyone to recover from the fallout.

In the meantime, we have all been blessed with more time to prepare for what is likely to be a rough patch coming our way. Diversify your assets as best you can to give yourself the best chance possible to survive and hopefully thrive.  Be Prepared!

Mike Savage, Financial Advisor

2642 Route 940 Pocono Summit, Pa 18346

(570) 730-4880

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 opinion are as of this date and are subject to change without notice. The information contained 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 considered to be reliable but we do not 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 losses.