Five Forces Shaping the Financial Markets
Stock-Markets / Financial Markets May 17, 2007 - 08:21 AM GMT
Larry Edelson writes: It's almost the middle of the year. So now is a great time to see where we've come from and where things might be headed next.
It's also a great time to take a serious look at everything because the portfolios in my Real Wealth Report are on fire! At the end of Tuesday's trading, my subscribers had combined open profits of $40,383!
Will the profits keep coming? Are there any bumps in the road ahead? Let me answer these questions by explaining five macroeconomic forces that I believe will shape the markets over the next several years …
FORCE #1: Anemic U.S. economic growth. It's here, and it's going to last several more years. First-quarter 2007 gross domestic product (GDP) growth came in at a terrible 1.3%. All other countries in the G8 — Canada, France, Germany, Italy, Japan, Russia and the U.K. — are growing faster than the U.S.
Expand the list and it doesn't get much better. The U.S. economy's growth rate ranks 148 out of 216 countries. Absolutely pathetic!
There are several reasons why this is happening, many of which are too lengthy to cover in a book, let alone this column. But I'd like to mention just two …
The lousy real estate market: The bubble has burst on property prices, and it may be some time before a bottom is hit. Conspicuous consumption in America: While retail sales in the U.S. also stink, there's no doubt in my mind that the spending habits — and the inverse, personal savings — are both in horrible shape.In general, Americans spend too much on non-productive endeavors and luxuries … and they don't save any money, either. When good times are rolling ahead, that might not be a problem. But when an economy starts to falter and trip all over itself, non-productive spending coupled with too little savings can be a recipe for disaster.
It could make the real estate bear market go much deeper and last longer. It could kill the already suffering automotive industry, send airlines into bankruptcy, and clobber banks with bad debts.
Look, we now have all the ingredients of a full-blown recession beginning to surface in this country … the results won't be pretty.
FORCE #2: Unemployment is higher than most realize. The job situation in the U.S. is not as good as the headlines suggest.
Yes, the number of jobs is increasing, though only modestly. And yes, the unemployment rate is 4.5%, a healthy-sounding figure.
But like most government numbers, you simply cannot — and should not — believe this information.
Fact: Based on the Help-Wanted Advertising Index, ads from employers seeking new job applicants plunged more than 18% in the last 12 months.
Fact: The annual growth in the number of people on payrolls in the U.S. rose only 1.38%, the lowest rate of job growth in at least six years.
Fact: The April survey of households showed that the number of people employed in the U.S. dropped by 468,000 (on a seasonally adjusted basis).
So, the job situation in the U.S. is not as rosy as some people would have you believe.
FORCE #3: A huge and growing mountain of debt. The total federal debt now stands at $8.8 trillion . That's $29,221.48 for every man, woman and child in the U.S. This is a disaster in the making by any measurement.
And that doesn't even count Washington's contingent liabilities such as future social security payments, Medicare, and government pensions. Add all those IOUs together and you have a Federal debt quagmire that's approaching $45 trillion .
Plus, as I suggested a moment ago, American consumers have their own mountains of debt. The average U.S. citizen owes about $9,200 in credit card debt and more than $96,000 in mortgage debt.
In short, the U.S. is the most indebted country on the planet. It's a grim fact that we will all have to face, sooner or later.
These debts will be settled in one of two ways: A) the worst recession this country has ever seen or B) through hyperinflation.
You know my position. We're much more likely to see the latter. In fact, it's already starting …
FORCE #4: Inflation is much higher than reports suggest. Last Friday's Producer Price Index report said prices rose a modest 3.2% over the past year. And the April CPI data, which came out on Tuesday, said prices were up only 2.8% over the last 12 months.
I've exposed Washington's shenanigans in previous columns, so let me just reiterate that the government's inflation numbers are a bunch of BS.
If I polled a dozen strangers on the street they would all pretty much say inflation is running more like 6% or 8%. And even that underestimates the current true rate of inflation.
I think it's much closer to 10%! And expert shadow government stats tracker John Williams confirms it. His "Alternate Consumer Inflation" figure — which reverses the various accounting gimmicks Washington has employed to manipulate the number — shows inflation running at 10.2%!
That's more than three times what the government wants you to believe. And here's the real clincher: Inflation is about to rise even more because the U.S. dollar is near record lows against the euro. It may stage a bounce, but it will then be ready to stage a precipitous collapse. As it does, inflation will jump even higher.
FORCE #5: The Federal Reserve is pumping out money like crazy. Right now, the Federal Reserve and the Treasury Department are trying to delay paying the piper with a pedal-to-the-metal strategy of pumping money and credit into the economy like crazy.
Right now, some measures show the broad supply of money and credit growing at a rate of nearly 13%. That's the highest monetary growth since just after 9/11, and it matches the growth rate we saw in late 1980, when inflation hit 14%.
So is there more inflation on the way? You bet! I have absolutely no doubt about it.
These five powerful macroeconomic forces are at work right now, and in many ways, they're gaining strength. But mind you, they are not the only major forces. The rise of countries like India and China is another major force that almost everyone is underestimating. So is the war on terror … the crisis with Iran (it's far from over!) … and half a dozen or so other trends.
However, the five I told you about today will adversely affect things here in the U.S. And so here's what I suggest doing right now …
First, keep the majority of your money LIQUID! Don't get stuck in illiquid investments right now, especially real estate. Stay away from long-term government, municipal, and corporate bonds as well.
Second, keep your emergency funds SAFE! One great place — money market accounts, especially treasury-only money markets.
Third, keep the bulk of your investing money in REAL WEALTH! I'm talking about companies that specialize in tangible assets such as gold, oil, base metals, and foods.
Natural resources act as terrific hedges against inflation and the declining dollar. And never before in the history of civilization has there been so much demand for Mother Nature's limited resources!
Best wishes,
Larry
P.S. For specific recommendations designed to bring you real assets and real earnings, see my Real Wealth Report. If you're not yet a subscriber, sign up now!
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