Friday, November 22, 2013

Financial Markets ready for a Fall? How to get ahead of the curve!


An interesting development and one which is NOT very favorable for US interest rates, the US Dollar or the US economy in our opinion.  China has announced that it is no longer in their interest to continue to purchase US debt or stockpile US DOLLARS.  If China stabilizes their reserves and stops buying our debt, it is expected that the dollar will plummet and interest rates will increase... dramatically.

 

Couple this with the Federal Reserve Board announcing that it will stop buying bonds as early as December 2013 and we have the development of what could be a nightmare scenario for interest rates and the US economy in 2014. 
 
So lets examine the current state of affairs and you decide if there is cause for concern.
 
First, the US FED is heavily invested in propping up the US economy and by extension the free world economy, not by real metrics of real growth (stable employment, manufacturing growth etc) but by pumping billions of dollars per month into the economy with basically worthless dollars.  Real unemployment sits somewhere around 20%, so regardless of the government unemployment numbers put out of somewhere around 7%, the cold hard fact is there are 60 million US citizens not earning an income and on the government take care of me list.
 
Second, over 40% of US households are receiving some sort of government assistance, whether it be Social Security, Medicare, Welfare, Food Stamps etc.  So 60 million people out of work not paying taxes and about 100 million people receiving benefits in some way shape or form - read that, more money going out of the system then going into it.
 
Third, the Housing market is STILL depressed.  Home values have not fully recovered, there are still a tremendous amount of foreclosures still to hit the market, lending criteria has still not loosened up for first time homebuyers.  When one considers that real estate is a substantial part of any US recovery and to date that growth is still below 2005 levels, one has to be concerned that higher rates will further dampen the US economy outlook.
 
Fourth, the stock market which shows how good Wall street is doing and has nothing to do with how MAIN Street is doing is at 16,000!!!!!  Why isn't anyone screaming BUBBLE?????  What part of our economy is humming along at lightning speed and astronomical growth that the DOW at 16,000 can be justified?  There answer is there isn't any.  The DOW is at 16,000 because the Fed is pumping useless dollars into the markets at the top level, none of which is trickling down to main street.

Fifth, the US Government has stuck its nose in 1/6th of the US economy with Obamacare and the results so far have not been good.  Aside from the fact that Americans are losing their coverage, getting saddled with increased deductibles etc, we have not yet seen the financial affects of this law on the economy.  In fact, the governments solution to the problem is -wait for it - spend more money by subsidizing it!  Yes that's great!  Spend more money we do not have ( either print it or borrow it) to provide another entitlement we can not afford.  If you do not think this will have a drag on the economy, lets talk about some beachfront property in New Mexico for a second.
 
Finally, the US is absolutely dependent upon foreign countries buying our debt and keeping the dollar stable relative to other currencies.  When foreign nations give up on buying US debt and dump the dollar, that's it game over.
 
So based on the above just how safe do you think the US economy is at the moment?  Do you believe the hype? 
 
China just announced it is no longer buying excess US DEBT and it is no longer going to stock pile US dollars.  Bloomberg:  http://www.bloomberg.com/news/2013-11-20/pboc-says-no-longer-in-china-s-favor-to-boost-record-reserves.html
 
Folks the US spends too much, has high real unemployment and isn't growing nearly as much as it needs to.... If you foresee needing to borrow in 2014, do yourself a favor and do it NOW before any potential negative market reactions!

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