Financial Crisis

When there is a loss of confidence in financial assets, investors around the world sell them at the same time, which results in a financial crisis. These assets will, of course. be worth a fraction of what they were before. Financial institutions that own these assets may not have enough money to cover them. This causes financial institutions not to lend to people, because they have no liquidity. Without credit available in an economy from financial institutions, an economy contracts.

This is how a financial crisis translates into an economic contraction. This is why governments step in to provide liquidity to the banks—quantitative easing—in order to keep the economy from further contracting on itself. A financial crisis can bring an economy to its knees. The government’s job is to ensure there is no loss of confidence in the first place, because this is what triggers a financial crisis.

How the Markets Will Close Out 2014

By Friday, October 31, 2014

Markets Will Close Out 2014Credit card companies are some of the best indicators in the global economy. Visa Inc. (V) just reported a pretty decent quarter. While earnings were down comparatively due to a one-time charge, adjusted earnings handily beat consensus.

The company’s fiscal fourth quarter came in solid, with growth of 10% on a constant dollar bas… Read More

Why Stock Prices Will Continue to Fall

By Wednesday, October 15, 2014

Stock Prices Will Continue to FallNow that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index has fallen 12.5% from its July peak.

Since 2009, every market pullback presented invest… Read More

Why the Old School Dow Theory Still Applies

By Friday, September 19, 2014

The Most Important Stocks to FollowGetting a sense of where stocks are going to go in the year ahead is always difficult with the major indices at their all-time highs.

The fundamental backdrop is still very favorable for equities. While the Federal Reserve has put off raising interest rates for the near future, the cost of capital, especially for corporations, remain… Read More

The Sobering Issue

By Friday, July 25, 2014

Why Our National Debt Will Double From HereAccording to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July 21, 2014.) From there, the budget deficit is expected to increase as far as the p… Read More

The Only Sector I See with a Ten-to-One Return Potential

By Friday, June 27, 2014

Shattering the Myth Behind Interest Rates and GoldWe are hearing more and more about interest rates getting ready to rise. The Federal Reserve itself has said it expects the federal funds rate to increase to 1.5% by the end of next year and to 2.25% by the end of 2016.

Before the Fed came out with its forecast, I was writing about how the Fed will have no choice but to raise interest rates beca… Read More