Investment and commodities guru Jim Rogers says we’re heading toward the worst bear market in his lifetime.
Rogers recently spoke a the MoneyShow in San Francisco. He said the first thing we need to understand is that in the wake of the 2008 financial crisis, the Federal Reserve “came to the rescue” and drove interest rates to the lowest level in recorded history.
Never in the history of the world have interest rates been this low. In some countries, they were actually negative. This has never, ever happened in the history of the world. Some Federal Reserve governors, when they think nobody’s listening, they acknowledge that this is an experiment. They don’t know how it’s going to wind up.”
But Rogers said he knows how it’s going to wind up.
There are signs that the air may be coming out of the subprime credit card bubble.
According to numbers recently released by Federal Reserve, delinquency rates on credit card balances at commercial banks other than the largest 100 rose to 6.2% in the second quarter of this year. These are credit cards issued by the nearly 5,000 smaller banks in the US. According to Wolf Street, this actually exceeds the peak during the financial crisis and represents a better than 2% jump from a year ago.
We are well into the third quarter of 2018. In our perpetual fast-forward world, analysts are already looking toward Q4. What will the last quarter of the year bring?
It’s virtually impossible to predict the short-term. Who knows what kind of political event, natural disaster or emerging trend will drive the markets over the next few months?
Of course, we can’t predict the future at all. We’re not fortune tellers or Old Testament prophets, but as Dan Kurz notes in his latest post at DK Analytics, it is a bit easier to project what will happen to the economy in the long run because we can clearly see the big-picture dynamics and fundamentals underlying it. As he put it, he’s less sure where America is headed in Q4 than ‘down the road’ in general. The whole thing (political, financial, economic) could fall apart at any time.”
It’s time to get real. This grand economy everybody keeps telling us about is actually a house of cards built out of cheap money and debt. And it won’t take much to blow it over.
A recent article by Reuters reveals just how precarious the so-called economic recovery really is. According to the report, the bottom 60% of American income-earners accounted for most of the rise in spending over the past two years even as their finances worsened. The data shows that the rise in median expenditures has outpaced before-tax income for the lower 40% of earners in the five years to mid-2017. In other words, poor and middle-class Americans are driving the US economy by spending more than they earn.
Last month, we reported on troubling signs in the corporate bond market. According to Moody’s, the majority of US companies have a “speculative” credit rating. They are considered high risk. As a result, their debt is “high yield” or “junk. When you combine leveraged loans and junk bonds, the total level of “junk” debt in the US marketplace comes in at around 37%.
In a recent article, investment guru and economic analyst Jim Rickards said we may soon face a devastating wave of junk bond defaults.
The next financial collapse, already on our radar screen, will quite possibly come from junk bonds.”
Total household debt climbed to a record $13 trillion in 2017. One factor driving overall American indebtedness higher is the ever-increasing burden of student loans.
A recent article in the New York Times focused on three charts that illustrate the ever-increasing toll of the student loan bubble – and it’s not just impacting students. Parents are increasingly feeling the squeeze.
At the current trajectory, the cost of paying the annual interest on the US debt will equal the annual cost of Social Security within 30 years, according to a recent report released by the Congressional Budget Office.
By 2048, as interest rates rise from their currently low levels and as debt accumulates, the federal government’s net interest costs are projected to more than double as a percentage of GDP and to reach record levels. Those costs would equal spending for Social Security, currently the largest federal program, by 2048.”