China, Japan and some other countries have a nuclear option they could use in the pending trade war.
If deployed, it could serve as the pin that pops the stock market bubble. At the same time, it could put the US government in a nasty spot as it tries to fund its profligate spending and upward spiraling debt.
What is this nuclear option?
Earlier this month, we reported that American household debt increased to a record $13 trillion in the last quarter of 2017. If you spread that out evenly, every man woman and child in America would owe about $40,000. Add to that their portion of the US government debt – $63,000 – and every American, on average, is carrying a six-figure debt load. As U.S. Global Investors CEO Frank Holmes put it, the level of debt in America is a “head-spinning sum.”
It’s easy to look at these numbers and say, “Yeah, yeah, there is a lot of debt out there. But does it really matter? We’ve been talking about debt for years now and it hasn’t really made a difference.”
But the truth is, all of this debt is a ticking time bomb. The question is will the Fed let it blow?
We’ve been enjoying a big party and it’s about to come to an abrupt end.
During a podcast last month, Peter Schiff asked a key question: who is going to buy all of the debt necessary to finance the ballooning US deficit?
In his most recent analysis, Dan Kurtz at DK Analytics explores this question more in-depth and comes to generally the same conclusion.
The dollar has lost more than 8% of its value over the last year. That decline may accelerate as bond investors sell ahead of a huge expansion in Treasuries coming into the market. Interest rates will have to climb significantly. The price of bonds will drop. As Dan put it, where bonds go, stocks follow.
We’ve excerpted some key points from Dan’s report.
Stock markets have settled down after an awful couple of weeks earlier this month. On Feb. 5, the Dow Jones suffered its largest-ever drop in terms of points. It was down 1,600 at one point and ultimately lost 1,175.21 points, a 4.6% drop that day. At one point during that week, the Dow was off 10% in correction territory. But everything is calm now and most of the mainstream is once again feeling bullish and optimistic.
Peter Schiff spoke at the Vancouver Resource Investment Conference 2018 last month before the market tanked. But his message remains relevant in the aftermath of the plunge and the subsequent recovery because the dynamics in the market remain pretty much the same. Conditions are still ripe for a 1987-style market crash.
Investors have not been this optimistic…since 1987. They are even more optimistic than they were at the height of the technology bubble, the dot-com bubble, the new era. Of course, 1987 didn’t end well, right? We had a stock market crash, and there’s a lot about what’s happening today that reminds me about what was happening in ’87.”
The US dollar dropped to its lowest level in three years Friday.
Extending losses on Thursday, the dollar index against a basket of six currencies dropped to 88.253. This marks its lowest level since December 2014.
A Reuters report noted that “Traders’ confidence in the dollar has also been eroded by mounting worries over the United States’ twin budget and current account deficits.” Interestingly, just last month Peter Schiff said these twin deficits may ultimately doom the stock market.
Could the house of credit cards Americans have built be on the verge of collapse?
Earlier this week, the New York Fed released the latest data on US household debt, revealing it has grown to a record $13 trillion. Americans have been spending, but they’ve been putting a lot of it on plastic. Credit card balances grew by $24 billion in the last quarter of 2017 alone. Meanwhile, US consumers owe $1.22 trillion on vehicle loans. This can only go on for so long. And there are indications that the American credit card spending spree may be winding down.
Retail sales unexpectedly fell in January, recording their biggest drop in nearly a year.
Passage of a GOP budget that added $300 billion in new spending has focused plenty of attention on surging federal government debt over the last week or so. But Uncle Sam isn’t the only one running up those credit cards. Everyday Americans are also piling on the debt.
Total household debt soared to a record $13 trillion dollars in 2017, according to the latest data released by the Federal Reserve Bank of New York’s Center for Microeconomic Data.
Investor Jim Rogers has seen a lot in 75 years. So when he starts talking about the worst bear market in our lifetime, we probably ought to sit up and take notice.
And that’s exactly what Rogers said in a recent phone interview with Bloomberg.
When we have a bear market again, and we are going to have a bear market again, it will be the worst in our lifetime.”