Practically every other developed country in the world is in debt. In terms of national debts alone, the US has $22 trillion, China $9.5 trillion, Japan $12 trillion, Germany $2.2 trillion, UK 3.5 trillion, India $2.8 trillion, France $3 trillion, Italy $3 trillion, Brazil $2 trillion, Canada $1.8 trillion — the list goes on and on. And let me remind you, those are only GOVERNMENT debts. Not the unfunded liabilities of those respective countries.
People, we have a major global debt crisis right in front of our faces, and it's getting worse, and worse, by the day. If something isn't done to change the acquisition of debt worldwide, we will eventually see a financial meltdown like the world has never known.
In my view, here is how it will start. Since banks set interest rates worldwide, they have been able to enjoy the economic benefits of growing a debt-based economy, with the LUXURY of new debt being subjected to low interest rates. Meaning, people and businesses acquire debt, at low rates that the Fed has created. However, I believe that Reserve Banks will eventually lose control of interest rates, and that is where the collapse will begin.
You may be wondering how Reserve Banks could lose control of rates. The answer is demand. Since interest rates and bond prices have an inverse relationship, I believe that bond prices will eventually crater, due to a sudden collapse in demand for debt. In other words, owning debt is becoming increasingly risky, as debt continues to climb, while NOBODY PAYS THE DEBTS!! Who is going to want to own debt, when practically NOBODY is paying it? Eventually, I think demand for debt will collapse, and therefore bond prices will collapse. When bond prices collapse, interest rates will skyrocket, regardless of what banks want to "set" them to.
In this scenario, tens of trillions in global debt will suddenly be exposed to inflated interest rates, which will cause these debt figures to swell exponentially. The debt could rapidly grow into the hundreds of trillions, or even quadrillions of dollars. This is how I believe we could see a global currency crisis, and potentially war, as a result.
Now, there are things that Central Banks can do to prolong the inevitable. They could print more money (which they will.) They could suppress interest rates (which they are.) They could even take rates negative, like Japan did. That means that central banks could start charging depositors a fee for their deposits. The intention is to incentivise depositors to keep their money out of the banks, and circulate through the economy. It's an inadvertent form of economic stimulus, and extremely for cryptocurrencies. Either way, the outlook is very grim, in terms of global debt.
So, when can we expect this crisis to erupt? Well, I think it will be born out of the next recession. And I believe that the next recession is most likely less than 18 months away. We've seen an inversion of the yield curve. We've seen the Fed reverse course on rates, showing us all that they are too scared to hike 0.25%, for fear of collapsing the market, causing a recession, and a debt crisis as a result.
I fully expect to see the US cut rates again, AND return to . They will pump the economy with worthless money hot off of their presses, and they will probably be successful at temporarily preventing a complete collapse. But folks, this system is BOUND TO FALL, and eventually, it will.
So, the chart in front of you is something that I've shared in the past. It's my personal recession indicator. I know that
other people follow the initial claims movement as a recession signal, but I have tweaked it to perfection. The blue line is the Initial Jobless Claims. The Pink Line is the S&P 500 . As you can see, when the 25 MA (in orange) crosses above the 100 MA (in green) it has corresponded to an absolute peak in the market, and a subsequent recession. In October of 2000, the signal triggered right at the top of the dot com bubble. Then, in October of 2007, the signal triggered again right at the market high before the Great Recession. Now, the stock market is nearly three times higher than it was then, all thanks to the trillions of dollars of worthless money created by the Fed, during QE1, QE2, and QE3. All I'm waiting for, is the next signal. When that orange 25 period moving averages spikes above the green 100 period moving average, the recession will be just getting started.
As a side note, US unemployment is at record lows, and it tends to bottom out before a recession. I believe that the US labor market is reaching a point of saturation, and that will likely cause growth to stagnate, which will contribute to the emergence of a recession.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
I wouldn't hazard any further analysis, but maybe it clarifies something someone else will see.
I notice Magic mentioned a 18 MONTH TIME LINE, and I think this is very important. Because as the rest of the world crumbles... and they will fail first because they waited too long in 2008 to stimulate like we did, they have a higher ratio of debt to GDP, and less "tools" to manage debt because their rates are already rock bottom as Magic pointed out. As these countries go down, fund managers will have to put their money somewhere that seems safe. And that is going to be here! US Stock market.
The US recovered so well from 2008 because of the QE and printing of money. That was debt spent to go the people. - to save auto companies, to get banks to loan money to people, to get businesses to take on more risk of expansion, and hire more. but now...?!? We are creating record astronomical debt- why?!? - to give the wealthy and corporations tax breaks. This is wrong. Americans are gonna get crushed for it. We can't give tax breaks when we haven't paid for the IRAQ war, never-ending war on terror, the recession bail outs, our social programs, our military spending, hell, the cost of secret service to tend to Mar-a-lago., the cost of flying the first family around the world to meet and greet the queen, ... the list goes on.
One thing that could prolong this bull market and economy is if oil supply falls behind demand. Now that we are a major oil exporter, this would boost some of our economy. And some economist believe this will happen over the next year or two as China and India, (even if their overall growth slows), see their middle class' wealth explode to new levels. This explosion of peoples relative wealth will push demand for oil beyond supply the theory goes.
It is hard for me to see the "demand for debt collapsing." As other countries become insolvent and can't pay their debt... more money will seek safe-haven here, the "safest debt in the world." Bond prices rise and our rates will fall to mirror rates around the world, many of which will have gone negative.
but maybe, I guess, when people finally wonder if the US is safe and solvent...and if China quits buying our debt... and China sells the debt it has...looking for buyers at any price, - the buyers will be scared the price will go even lower... but : This will only happen IF / WHEN people are scared the US will not pay its debt. I guess this is exactly what you are saying. This seems a couple of years out at least, yes?
As Milamansi asks below: what are some good hedging/ shorting ideas? Any good ideas out there? I'm looking at:
Now & SELL later: high dividend oil stocks (gonna sell before too late), DEUR, DJPY, DGBP
Now & HOLD to the bottom of market: Bitcoin/ cryptos, GBTC, JNUG, NUGT, FNV, AG, FSM, UGLD, USLV, SLV, RGLD, RING, (any favorite gold miners)
BUYing LATER, when things turn south: SPXU, SQQQ, UVXY, TVIX, TZA
other good ideas?