Get Prepared Now🔴 America Is Bankrupt - Stock Market Illusion - Debt Bubble Will Pop

If This Is Economic Growth, a Slowdown in the U.S. Could Have Severe Consequences

Average Americans Struggling Says Economic Growth May Not Be Real

At the time of this writing, the U.S. government is in a partial shutdown, and it has been going on for several weeks. The shutdown has revealed something significant about the U.S. economy: there isn’t much economic growth.

You see, economic growth occurs when the general standard of living improves—when average Americans have savings, better-paying jobs, optimism about the future, and so on and so forth.

This, however, is not the case these days.

The partial U.S. government shutdown means that close to a million government employees have been furloughed.

What happens to furloughed workers? They are not working and are not getting paid. However, they are still promised back pay.

The longer this shutdown has continued, the more evidence we have seen that the government employees are facing severe hardships.

The Brookings Institutes states, “Furloughed workers have already started taking steps all too common to families living paycheck to paycheck: curtailing spending, increasing credit card debt, delaying paying bills, and seeking short-term, small dollar credit.”

What does this say? Americans are strapped for cash.

Mind you, federal government workers get paid relatively higher wages compared to workers doing similar jobs in the private sector. So, imagine what would happen if Americans in the private sector were told that they would not be getting their paychecks for a few weeks. Would they be able to sustain themselves for long?

55% of Americans Face Volatility in Their Paychecks

Don’t think it’s only the furloughed government workers who are facing hardships in the U.S. economy. It’s important that you also look at the overall conditions of workers’ paychecks.

According to a study by the JPMorgan & Chase Co. Institute, 55% of American workers experienced volatility in their paychecks of 30% on a month-to-month basis. 

Where’s the U.S. Economy Headed Next?

Dear reader, looking at all this, I am just going to ask one question: If this is what economic growth looks like, how dire will the economic slowdown be?

I believe that things in the past few years have been taken out of context. Everyone looked at the stock market as an indicator of economic growth in the U.S. economy. The thinking has been, “if the stock market is rising, the average American is doing alright.”

This, however, is not true.

Stock markets were boosted due to low interest rates and all the easy money that was around. Average Americans weren’t buying a lot of stocks, though.

Mind you, in every economic growth period in the U.S. economy, there was one factor that played a major role: average Americans spending money.

In the coming quarters, I will continue to watch the U.S. economic data closely. This data is making a strong case that an economic slowdown is ahead.

Corporate Debt Flashes Warning Signs Similar To The Sub-prime Mortgage Crisis

The corporate debt crisis is poised to cause a similar US recession to the one we saw because of the sub-prime crisis. Here’s why…In 2008, when the United States was flung into recession, the culprit was the sub-prime mortgages.  People without the ability to repay the money, borrowed to buy houses only to lose it all once the bubble burst.  Now, the corporate debt crisis is poised to cause a similar recession.

Although student loans debt has skyrocketed to a disturbing $1.5 trillion, some economists are saying the $1.2 trillion corporate debt could be capable of producing a more disastrous scenario.  The borrowers in this current credit bubble aren’t homeowners taking out mortgages. They’re hundreds of United States companies with weaker credit ratings (many of them well-known like Uber and Burger King) who are taking out so-called leveraged loans, according to a report by the Los Angeles Times. These loans are used to fund corporate deals and are of a big concern to financial experts.

“Any fair-minded look at the leveraged loan market should cause significant alarm by anybody concerned about financial stability and the inevitable upcoming economic downturn,” said Dennis Kelleher, president of Better Markets, a group that advocates stricter financial regulation. “You put all these pieces together, it’s a witches brew.”

Former Federal Reserve Chairwoman Janet Yellen also went public this fall with her worries about what she called a “huge deterioration” in the standards for those loans, which make it easier for indebted companies to take on more debt. “If we have a downturn in the economy, there are a lot of firms that will go bankrupt, I think, because of this debt,” she told the Financial Times. “It would probably worsen a downturn.”

But regulations and new laws won’t fix the fact that people and companies and the government itself (who writes and enforces the laws about loans and debt) will not quite borrowing money.  The problem is the behavior and reliance on debt in the American culture, not the lack of laws.

“Someone’s going to get hurt there,” Dimon said on a Tuesday earnings call, referring to leveraged loan losses if a recession hits. And some have already suffered because of their massive debts. Toys R Us loaded up on leveraged loan debt when it was purchased in a leveraged buyout in 2005 by private equity firms Bain Capital and KKR & Co. and real estate investment trust Vornado Realty Trust. The debt burden led the toy retailer to file for bankruptcy protection in 2017 after it was unable to refinance the debt.

The debt crisis doesn’t stop at massive credit card debt or student loans. About two-thirds of U.S. companies have enough debt that independent credit raters have them categorized as a higher risk to repay than companies with so-called “investment-grade” ratings, which makes them off-limits to many institutional investors.

Investors Beware: Stock Market Crash Could Be Ahead in 2019

Charts Foretell a Stock Market Crash in 2019

A stock market crash could become reality in 2019. If you thought 2018 was bad, a lot of losses could be ahead in 2019 for those who hold stocks.

Why such a gloomy outlook for the stock market in 2019? Just look at the charts. They make a very strong case for a stock market crash in 2019.

Before going into any details, investors need to know two basic rules of technical analysis:

1.     The trend is your friend until it is broken. In simpler terms, if a trend breaks, it is not good.

2.     When a support level breaks (the area where buyers were present previously and prices turned around), it becomes a level of resistance and the price tends to fall to the nearest major support level before finding any relief.

With these two rules out of the way, look at the chart below of the S&P 500 and pay close attention to the black lines drawn on the chart.

In early 2018, we had some support build up on the S&P 500 around the 2,600 level in April and May. Stocks turned around then and rallied all the way to the 2,900 level.

In October, things turned again and we started to see sellers enter in large numbers. This was confirmed by the trading volume; as stock prices dropped, trading volume spiked.

Just recently, the S&P 500 broke below the support level that was set in early 2018.

Where Does the S&P 500 Go Next?

You see, the next support level for the S&P 500 isn’t until around 2,175.

Simple math here: 2,175 is 10% below where the S&P 500 currently trades. If we assume that’s where it goes next, we could be looking at a drop of 25% from the highs made in 2018. This puts the S&P 500 deep in bear market territory.

But don’t stop there; at 2,175, all the long-term uptrends on the S&P 500 would be broken.

As it stands, we already see the uptrend that began in 2016 broken, and we are really close to breaking below the 50-week moving average on the index.

This is not good. Bearish sentiment could come in very quickly.

Don’t Disregard Investor Psychology

Now, let’s talk about investor psychology a little.

Understand that investors tend to panic and sell when asset prices fall. A 25% decline in stock prices could really take a toll on investors’ minds.

Over the past few years, investors haven’t really seen anything like this, so it wouldn’t be shocking to see them panic and sell.

Mind you, the S&P 500 moving below 2,175 would mean that all the investors who bought in 2016, 2017, and 2018 would be experiencing deep losses.

Dear reader, on top of all this, add all the worries about rising interest rates, a global economic slowdown, political deadlock in the U.S., and so on and so forth.

As I see it, a stock market crash in 2019 could become a real possibility. I wouldn’t be shocked if the losses become massive and investors face a lot of misery. If the trading in 2018 was any indicator of what’s ahead, I am really concerned.

Will 2019 Be the Year of Economic Collapse?

nvestors’ Addiction to Low Interest Rates Will Trigger Economic Collapse in 2019

The interest rate alone cannot explain why 2019 could trigger a global economic collapse.

The first hint of trouble came when Janet Yellen left the Federal Reserve in February 2018. The new chair, Jerome Powell, sped up the process of lifting rates from near zero 10 years ago to 2.25% now.

But it’s a good place to start the narrative.

And while I’m still pondering why I’ve become so concerned about the higher chances of economic collapse, I will reveal a fact that few realize.

Nobody Really Knows How It Works

Economists and similarly inclined administrators and academics have no clue. They’re great at explaining things after the fact.

There’s a wealth of great books about the causes of the last recession or the Great Depression.

Sadly, however, economists, despite their mind-boggling equations that would bring tears of joy (or pain) to Albert Einstein’s eyes, don’t have what is known in the vernacular as a clue.

In other words, for all their knowledge and science (and it’s not their fault), economists don’t know what makes an economy grow.

And they don’t know what helps reduce debt. And debt is one of the biggest problems afflicting the U.S. economy.

Sure, tax cuts can work. But applying this solution, as Trump did in December 2017, often works better at encouraging families and individuals to spend more than inducing businesses in investing.

In fact, the tax breaks have contributed to lifting stock valuations to precarious heights.

Now, not even a year after the tax cuts were unveiled, the Dow Jones, the S&P, and the Nasdaq show a net loss in year-to-date terms. Clearly, the tax cuts haven’t resolved the problem of real growth.

And Then There’s the Federal Reserve

The Fed isn’t an elected body, accountable to Americans.

It’s a semi-private institution, seemingly accountable to no one. Yet, it makes decisions that affect Americans directly. Such decisions would be better left to elected officials, who would then be made accountable to voters.

The way it works now, nobody is accountable. When policies go wrong, economists retain their tenured posts at prestigious universities.

The bankers keep on banking even if the truckers are not trucking. And the politicians are left as clueless as everyone else. After all, they have little to say about the economy.

Perhaps one day, a genius enhanced by artificial intelligence or yet unknown technology, might be able to steer government policy in the right direction to achieve sustainable (i.e. long-term) growth.

As it happens, in the period roughly from 1945 to 1975, political leaders made economic choices based on an agreeable principle: encourage the spreading of wealth by aiming for full employment.

Economics was tied to politics. And in much of the West, politicians were accountable to their voters based on their ability to deliver “growth.”

It was that kind of optimism and outlook that stimulated massive infrastructure spending during the Eisenhower administration.

Even if you’ve never heard that name—or his famous nickname “Ike”—you may have driven over a major reminder of his legacy: the Interstate highway system, which cost the equivalent of $128.9 billion, of which the Federal Government paid $114.3 billion. 

Can you imagine what economists would say about a similar effort, were a president to encourage this kind of spending on a public project?

Will Trump Finally Start the Much Promised Infrastructure Spending?

President Trump, certainly, has made this point. But there’s little chance he will succeed.

That’s because he’s not the person in charge of the economy now.

The great evolution of finance that occurred after the end of the Cold War in 1990, and President Clinton’s deregulation of Wall Street in 1999, has virtually, if not officially, transferred control of the economy to the bankers.

Now, there have been many clichés about bankers, George Soros, and then some. But the problem with some clichés is that they do have a root, even a little one, in reality.

That reality will soon be hitting Americans where it counts: their bank accounts.

The merry-go-round on Wall Street has slowed down. Investors are starting to get nervous and they’re collecting their gains before things become really interesting in January 2019.

That’s when Democrats take over the House in January, distracting President Trump with more legal pressure, raising the specter of impeachment.

And who’s going to be the ultimate arbiter of the economy, growth, and the financial markets? Why, it will be the chair of the Federal Reserve, Jerome Powell.

He wasn’t elected. And, for all his efforts—the president has complained—Trump doesn’t have the power to stop Powell. Even the mere effort to persuade him to postpone the rate cuts will cause panic in the markets.

That formula, however, would not be so harmful if for the fact that it will make it abundantly clear that the stock market has improved, but not the real economy.

The Battle Is Between Wall Street and Main Street

Wall Street still rules over Main Street. Finance is supposed to serve the real economy; instead, the opposite is true.

The Federal Reserve, through its manipulation of interest rates, has taken the reins of the economy.

Since 2008, the Fed has allowed the U.S. monetary base to explode, unleashing an avalanche of dollars, maintaining the interest rate at zero.

However, rather than use the low rates to invest in jobs, factories, and infrastructure, as happened in the good old days before globalization, the low rates encouraged speculation in the stock market, whether in equities or other instruments like bonds and derivatives. The problem, now that the monetary supply will inevitably tighten, is one massive bubble.

And Powell literally has the needle that will burst the bubble in his hand.

But let’s assume the markets hold up just a little while longer to allow the bubble to gradually deflate rather than explode.

Would that save U.S. investors the trouble of having to seek alternative ways to invest their savings?

The answer is, of course, complex. Nevertheless, even if somehow stocks survived Powell’s painful interest rate medicine, the United States remains a part of the world economic system, which has become a domino.

Vulnerability to Global Shocks

Therefore, the U.S. remains vulnerable to global shocks. And all it takes is one medium-sized power to get the pieces to fall.

That, by the way, is why economic collapse can no longer be contained within a single country or zone.

Italy could well be the trigger.

The combination of money-tightening policies at the Fed and at the European Central Bank will likely unleash a new recession in the eurozone, starting from its most indebted economies.

Evidently, the higher the debt, the more funds go toward servicing it and the fewer funds available to stimulate growth.

Economic collapse will have its “conceptual” roots in Washington D.C., but it will manifest itself first as a European crisis.

What can you do to defend yourself? That has been the subject of recent articles and will continue to be the subject of forthcoming ones.

Clearly, however, many will turn to quality stocks—and by that, I mean safe stocks based on real prospects of growth, rather than the more dicey or speculative ones often going by the category of “growth stocks” (like the tech or FAANG stocks, for example).

The uncertainties of the present, which could transform to pure panic by the start of 2019, also warrant a re-evaluation of gold and precious metals.

But there’s an old saying that a man warned is half saved. Or better, forewarned is forearmed.