Loading ...Weekly Article August 12th, 2015
Mike Savage
I have been agonizing about what I should write about this week. There are so many important things happening that it doesn’t seem that this short note could really dig into some of the major issues confronting us today.
I guess a synopsis of what I believe to be important and why is my best bet at this time.
First of all, as I have been saying for weeks I believe China is what Japan was in 1989. If you remember the movies, like Back To the Future, etc. it was assumed that Japan would be running the world in the future. After a shocking fall from grace and a 25 year bear market in Japanese stocks and Real Estate it has been shown that “printing” money only works as a short term fix and at the end of the day you are left with the debt that has been created and not much else. John Mauldin has called Japan a bug in search of a windshield. I agree wholeheartedly!
So what is China doing today? After the appearance that their bubble has burst they have taken to “printing” money, issuing more debt and in acts that make Japan look tame are jailing those that would dare profit from a falling market by shorting stocks and strong-arming brokers and banks to buy, buy buy!
China has the second largest economy on the planet and is the largest consumer of commodities. This is why it is so important to understand, as well as we can, what is actually taking place in China and not what is REPORTED to be happening in China. My guess is that the economy is in recession for many reasons and that the implosion of commodity prices globally is directly related to that reality.
The reason that this is so important, in addition to commodity prices falling, is that as China weakens its currency to spur growth they are actually deporting their domestic deflation globally. This will make it harder for our Federal Reserve to raise rates anytime this year. The problem for the Fed, however, is that a failure to raise rates could signal problems in the economy and could lead to a problem in our markets. If they do raise rates they risk an adverse reaction and problems in our markets. This is the reason that I have said the Fed has painted themselves into a corner.
Greece is NOT fixed. The can may get kicked one more time … or not. The fact that they admitted they have been bankrupt since 2010 has not stopped the powers that be from trying to saddle them with another $85 billion of unpayable debt. Keep an eye on this. The actions taken here will likely be replayed in many areas of the Eurozone, Japan, and indeed even here in the USA. It will likely start with bankrupt municipalities, move to counties and states- all who don’t own a legal “printing press” like most of Europe and then finally, when the reality of our debt situation is realized — the end of our current economic setup and a reset to a new currency regime.
My best guess is that those in power will trade these debts that will not get repaid under current circumstances for real assets like airports, infrastructure- anything real. I believe we should get our share of any “real” stuff we want now while there are still real things available to get.
While this may sound drastic if I asked every taxpayer to pay the $154,000.00 (as of this date) due to pay off the federal debt how fast would I collect? That doesn’t include state, local and school debt. Do you really believe that the $819,630.00 per taxpayer that would currently cover the total of US unfunded liabilities to programs that benefit our seniors (Social Security, Medicare, Prescription Drug Program) will actually get collected? (Info. From USDebtclock.org)
My point is that there has NEVER been a nation that has been able to run up these type of deficits in the history of the world and this is the foundation of our current economic system!
One thing that is of interest right now is that, as China has devalued their currency, you would expect that the dollar would be rallying as it is in many currencies but it is actually declining against the Euro and other major currencies. (For today anyway!) To me, this appears that the Chinese devaluation is actually dragging the US dollar down along with it! This is an interesting development and may actually be suggesting that China is driving the price rather than the USA.
Almost as if they don’t exist there is no mention of the 20% + unemployment (over 50% for youths) across the Eurozone, the 23% unemployment in the USA (John Williams at Shadowstats adding those that left the labor force back in) and declining productivity in most developed economies.
Virtually nothing has been mentioned other than a blurb here or there about the bankruptcy of Puerto Rico, the looming bankruptcy of Chicago and MANY other major cities across the USA. Much like Detroit, you can see the problems and the only question is when they will be recognized in the mainstream.
My answer of course would be that these issues will be brought to our attention after it is too late and the can has broken the foot of the authorities still trying to kick it further down the road.
In Chicago they want to issue bonds that are illegal in many states, including California, because of excess risk. In Pennsylvania our governor issued $3 billion in bonds to make a pension contribution. Chicago started that a few years ago. It appears we are following in their footsteps to pension hell and ultimately to their fiscal condition which is dire.
Any of these issues should have people more aware of the vulnerabilities in our markets. Putting these issues together there should be a lot more caution than that being shown in our markets today.
I have only brought up a few of the economic headwinds that we are confronting today. In addition, there are wars raging across the globe. There is social unrest across the globe. Many of these uprisings can be traced to economic inequality which is also growing exponentially across the globe.
This is certainly no time to be complacent. It IS a time to Be Prepared- for anything!
Mike Savage, ChFC Financial Advisor
2642 Route 940 Pocono Summit, Pa 18346
(570) 730-4880
Raymond James Financial Services, Inc. Member FINRA/SIPC