Wow! The action in the markets have been pretty dramatic in the past few days. Last week I wrote about the global slowdown and that I believe the Fed and other central banks see it and are trying to stay ahead of it. Today (August 7th) there is more news that shows that central banks are appearing to panic and are reducing rates at an accelerating pace.
Overnight three central banks lowered interest rates. New Zealand, Thailand and India. As of last week, a record $14 trillion in debt is trading at a negative interest rate. “Investors” are paying governments AND companies for the luxury of lending them money. This is truly amazing!
In Switzerland there are no positive rates- even out to 50 years! The German 10-year bund is at -.25%
Even more silly is that there is a list of 14 companies that issue JUNK bonds that actually have a negative rate. If I wrote a book about this it would probably get laughed off the shelf because it was too far fetched to ever happen. Yet here we are!
I have written about the global slowdown in shipping, the collapse of trucking here in the USA and now a report from the Association of American railroads shows that for the week ending 7/30/2019 carloads declined 3.5% year over year and intermodal container volume was down 5.3% year over year. This is no surprise as the JP Morgan Global manufacturing PMI is now in full-out contraction (Reading under 50)
There is also some rumbling in the high-yield corporate bond markets as it appears spreads (the difference in riskier yields vs. non-riskier yields) are starting to widen. This would indicate that many are starting to question if this type of debt will get repaid.
Personally, looking at the debts that are here in the USA and indeed globally, just using basic math you can see that the debt cannot be repaid if the currencies retain their current value- which is already FAR less than they were just a few years ago.
In looking at this situation I have to say that bonds appear to be decent shorter term as a lot of money is flowing into the perceived “safety” of government and top-notch corporate bonds. If and when the masses realize that the debts that encumber cities, states, federal governments, persons, corporations, etc. are not really serviceable the mass exodus may be a sight to behold- likely not in a good way.
Stocks may retain a bid for a while as many may think that there really is nowhere else to invest. This is a common thought these days. I believe stocks are in for a rough ride. Not only are corporations carrying insane amounts of record debts but with a global economic slowdown underway paying interest on those debts (let alone paying them off) may become more than many companies can handle. At that point, I believe that many will wonder “who is next”, and will be running for the exits.
Let’s never forget that if there is a corporate debt problem (which all of the numbers indicate there most certainly is) the first people to get wiped out in a default are the common share stock holders.
It may just pay to take a look at the corporate balance sheet of any company you may want to buy. You may get quite a surprise when you see just how leveraged many of our companies actually are. Of course, many buy because of a common name or a good story. Good luck with that going forward.
With the way the markets are configured today (robots taking over) the exits may be jammed shut when you make the decision to exit. Just a little planning may help you to stay ahead of the crowd and at least reduce your risk exposure.
Personally, I believe you need some stock exposure but you should have a chat with your financial advisor to discuss the risks and how to hedge against what might be coming. Maybe take some profits and look for opportunities? If you hear “buy and hold” or you’re good at 60/40 (or some other mix of stocks and bonds) you really should consider calling someone like myself to get some real guidance. Things are NOWHERE near normal right now and failure to take action may be a costly mistake.
Many have forgotten how fast 2008 played out. Next time will the Fed have what it takes to smooth it over? Think long and hard about that one because our “booms” have grown exponentially (all due to rising debts by the way) and the “busts” have grown exponentially. Look at the charts.
In the meantime, don’t look now, but gold and silver have been on a tear lately. I believe that many are seeing what I have been seeing for the past 8 years. After all of the shenanigans that have taken place ($100s of trillions “printed” up, assets bought-stocks, bonds, etfs and who knows what else) the central banks finally appear to be painted into a corner. The fact that they bought 671 tons of gold last year and they have bought more between January and April 2019 than they did from January to April 2018 tells me that this is no surprise. The fact that the major banks are taking similar actions- of course not in this size but still buying near record amounts- tells me they know something that we all SHOULD know but are kept in the dark.
Gold, silver and mining companies are enjoying a large move up. I don’t believe that this is what the central planners want because they have been suppressing the price for years. In the meantime they have been buying up a storm.
It really appears to me that we are at a major inflection point here.
While stocks have given the illusion that “all is ok!” the bond markets and precious metals, along with virtually all of the economic charts are saying something is VERY wrong with the US and global economies and that there is a recession right now.
Actually, I wrote a few weeks ago about John William of Shadow Government Statistics proving that instead of the longest period without a recession we have actually been IN a recession since the year 2000 with NO recovery since then (except for a slight increase in 2004). Of course, 99.999% of people are unaware because of the changes in the way GDP is calculated to make it appear that we are growing, even though we are not, and hundreds of trillions in fiat currencies being “printed up” , assets bought creating false demand and government transfer payments (more debt) being spent into the market to goose GDP yet again.
If I could go out and take millions in loans I could say I made millions! Of course, the lenders will be expecting repayment with interest so what would I actually be worth? That is what our governments and corporations (probably plenty of individuals also) have done and we might just soon find out.
It appears to me that the illusion of solvency and normalcy is being questioned by more and more people. The mantra of “greatest economy of all time” is really a sick joke when you see rising tides of homelessness, see many killing themselves with 2 or 3 jobs to survive and reading articles that say 40%
of Americans couldn’t come up with $400.00 in an emergency without selling an asset or putting it on a credit card- this while health insurance deductibles and expenses rise relentlessly. Of course, to those on top, inflation is too low.
There are many warning signs that the paradigms we have become accustomed to for our entire adult lives may be about to change. The changes could be immediate and possibly irreversible – at least in our lifetimes. A little planning might be of large benefit.