Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Government Debt

A budget deficit is when you are spending more than you are taking in as income. When a government incurs several years of budget deficits, it then build a debt, which is the accumulation of the deficits. Government debt is the total amount owed by the central government, also called national debt. To cover the shortfall between spending and income, a government will issue government bonds and bills. These are promises by the government that the money that it borrows will be returned, with an interest payment as the cost of borrowing. Since all government debt is paid by income generated by the citizens of the country, this debt is really the burden of the taxpayers. In addition to outstanding securities issued by a government, it can be said that unfunded future liabilities are considered to be government debt, such as future pension plans and health costs.

U.S. Credit Rating Downgraded to Same Level as Brazil?

By for Profit Confidential

171013_PC_lombardiThe U.S. government, after winning World War II for the Allies, was very convincing. It told central banks around the world that they should hold the U.S. dollar as their reserve currency instead of gold, based on the idea the U.S. dollar would be backed by gold. Only limited amounts of U.S. dollars could be printed, because the currency was tied to gold bullion. Central banks bought into the idea.

Unfortunately, a few decades down the road, the concept of a U.S. dollar backed by gold was thrown out the window (thank you, President Nixon). Eventually we were introduced to the modern day printing press—printing money out of thin air at the will of the Federal Reserve without the U.S. dollar being tied to any “hard” currency like gold.

Why would anyone agree to this horrible idea?

Back in those days, the U.S. economy was prospering. Our government was in good shape and didn’t have much debt. And the logistics made sense, too, as time passed. Why wouldn’t a central bank have in its reserves the currency of the world’s strongest economy and military? Why wouldn’t a central banker keep U.S. dollars in his vault as opposed to hard-to-carry and hard-to-store gold?

Years have passed since the U.S. dollar “unglued” itself from gold. Things have changed, too. America is not so glorious anymore. Ever-rising debt and the never-ending printing of U.S. dollars have resulted in some countries changing their policy on U.S. dollar-backed reserves. And the fundamental factors that keep the U.S. dollar strong are deteriorating quickly.

The balance sheet of the U.S. economy does not look as good as … Read More

China: The Trigger to Collapse Key American Stock Indices?

By for Profit Confidential

310713_PC_lombardiWhy do only a few in the media and no politicians I can find seem to care about the warning bells being issued by the Chinese economy?

First, early this year, we heard the Chinese economy is going to grow at an embarrassingly slow pace in 2013 compared to its historical average. Forget a 10% economic growth rate and think seven percent or lower!

Now, we hear about more troubles…

Think the Detroit bankruptcy was bad news?

Local governments in the Chinese economy have piled up a huge sum of debt, and the central government is warning cities to manage their escalating debt.

China’s National Audit Office (NAO) announced this week it will be conducting a nationwide audit to assess the situation on local government debt. The reason for this? In 2010, the NAO found local governments in the Chinese economy owed 10.7 trillion yuan. Fast-forward to June of this year, and it turns out the number is about 12 trillion yuan. (Source: Xinhunet, July 28, 2013.)

Why does it matter to North American investors?

The Chinese economy is the second largest in the world; the U.S. is the largest. Economic issues in China will surely send “waves” towards us.

Dear reader, after the financial crisis, the developed countries in the global economy never really showed robust growth. This caused companies in the key stock indices to focus on emerging markets—they showed demand, and the Chinese economy was one of their main destinations.

As the economic slowdown deepens in China, and with possible credit issues in the country, it’s very likely that American companies in key stock indices … Read More

Growing American Business Inventories Paint Worrisome Picture

By for Profit Confidential

Growing American Business InventoriesThe biggest economic center in the global economy, the U.S., showed dismal growth in the last quarter of 2012. Sadly, the first quarter of 2013 is looking to be the same. Demand in the country is anemic at best as consumers are struggling.

New durable goods orders in the U.S. economy plunged 5.7% in March—the second decline in the first three months of 2013. (Source: United States Census Bureau, April 24, 2013.) Inventories of manufactured goods have been continuously increasing, seeing an increase in 17 of the last 18 months!

The HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) for China indicated a slowdown in manufacturing output for the second-biggest economy in the global economy. The index plummeted to a two-month low in April, registering 50.5 in April compared to 51.6 in March. (Source: HSBC, April 23, 2013.) Any reading below 50 indicates a contraction in the manufacturing business.

Germany, the fourth-biggest economic hub in the global economy, is seeing its economic slowdown quicken. The Flash Manufacturing PMI for Germany dropped to a four-month low this month. The index stood at 47.9 in April, compared to 49 in March. (Source: Markit Economics, April 2013, 2013.) Yes, the manufacturing sector in Germany is experiencing a contraction. In Germany, exports orders to the global economy in April declined the most in 2013.

The “worsening” statistics I just gave you are of the main economic hubs in the global economy; others are in worse shape. France’s unemployment rate is becoming worrisome, and the country is bordering on a recession. Japan is already back in a recession; Italy is begging for growth.

Dear reader, … Read More

Why a Downgrade in the Credit Rating of U.S. Debt Is Imminent

By for Profit Confidential

A report from Standard & Poor’s (S&P), the credit rating agency, indicates there is more than a one-third chance that Japanese sovereign debt could face a downgrade. The report stated, “…the continuing prospect arises from risks associated with recent government initiatives and uncertainty of their success.” (Source: Janowski, T., “S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics,” Reuters, April 22, 2013.)

In an effort to spur economic growth in the country, the Bank of Japan is printing money “like mad.” But we already know this concept hasn’t worked very well for the Japanese economy in the past. Japan is in an outright recession, with exports in a slump and the value of its currency in a freefall when compared to other major currencies in the global economy.

Why does it really matter to North Americans what happens in Japan? Even though S&P kept the credit rating on Japan’s sovereign debt at AA- (or investment grade), the concern is how vulnerable the U.S. debt really is to its own credit rating downgrade.

Just like the Japanese economy, the Federal Reserve is using quantitative easing to print $85.0 billion a month in new paper money and has thus far increased its balance sheet assets to over $3.0 trillion. Similarly, the U.S. government has been “spending with two hands, while borrowing with a third.” Why? It’s all in the name of economic growth.

As the readers of Profit Confidential know, I have been very critical of quantitative easing. It may have been needed back when the financial system was on the cusp of bankruptcy in 2008. But continuing … Read More

All of a Sudden, 2013 Becomes Another Trillion-Dollar Deficit Year

By for Profit Confidential

2013 Becomes Another Trillion-Dollar Deficit YearIn its monthly statement of receipts and outlays for the month, the Treasury Department reported that the U.S. government incurred a budget deficit of $107 billion for the month of March 2013. (Source: Department of the Treasury, April 10, 2013.) This monthly budget deficit was a result of the government spending $293 billion while only taking in $186 billion in March.

Since October 1, 2012, the beginning of the government’s fiscal year, the government has spent $600 billion more than it has taken in. Hence, for the first five months of its current fiscal year, the budget deficit is already $600 billion.

We know the U.S. government has run a budget deficit of more than $1.0 trillion for each of the last four years. If the current pace of spending more than what is coming in continues in the current year, then 2013 will be another one-trillion-dollar budget deficit year.

A quote from President Herbert Hoover comes to mind when I see five years of trillion-dollar deficits. He said “Blessed are the young for they shall inherit the national debt.” (Source: Brainy Quote, last accessed April 11, 2013.)

As the U.S. government adds to its budget deficit, it has to borrow more to cover the expenses. This way, our national debt continues to increase daily. We are on pace to surpass $17.0 trillion in national debt this year. A $20.0-trillion national debt is not far away.

For fiscal 2014, President Obama has proposed a budget of $3.778 trillion. In this budget, there are increases in taxes and lower spending on government programs like social security. (Source: Wall Street JournalRead More

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U.S. Credit Rating Downgraded to Same Level as Brazil?

By for Profit Confidential

171013_PC_lombardiThe U.S. government, after winning World War II for the Allies, was very convincing. It told central banks around the world that they should hold the U.S. dollar as their reserve currency instead of gold, based on the idea the U.S. dollar would be backed by gold. Only limited amounts of U.S. dollars could be printed, because the currency was tied to gold bullion. Central banks bought into the idea.

Unfortunately, a few decades down the road, the concept of a U.S. dollar backed by gold was thrown out the window (thank you, President Nixon). Eventually we were introduced to the modern day printing press—printing money out of thin air at the will of the Federal Reserve without the U.S. dollar being tied to any “hard” currency like gold.

Why would anyone agree to this horrible idea?

Back in those days, the U.S. economy was prospering. Our government was in good shape and didn’t have much debt. And the logistics made sense, too, as time passed. Why wouldn’t a central bank have in its reserves the currency of the world’s strongest economy and military? Why wouldn’t a central banker keep U.S. dollars in his vault as opposed to hard-to-carry and hard-to-store gold?

Years have passed since the U.S. dollar “unglued” itself from gold. Things have changed, too. America is not so glorious anymore. Ever-rising debt and the never-ending printing of U.S. dollars have resulted in some countries changing their policy on U.S. dollar-backed reserves. And the fundamental factors that keep the U.S. dollar strong are deteriorating quickly.

The balance sheet of the U.S. economy does not look as good as … Read More

China: The Trigger to Collapse Key American Stock Indices?

By for Profit Confidential

310713_PC_lombardiWhy do only a few in the media and no politicians I can find seem to care about the warning bells being issued by the Chinese economy?

First, early this year, we heard the Chinese economy is going to grow at an embarrassingly slow pace in 2013 compared to its historical average. Forget a 10% economic growth rate and think seven percent or lower!

Now, we hear about more troubles…

Think the Detroit bankruptcy was bad news?

Local governments in the Chinese economy have piled up a huge sum of debt, and the central government is warning cities to manage their escalating debt.

China’s National Audit Office (NAO) announced this week it will be conducting a nationwide audit to assess the situation on local government debt. The reason for this? In 2010, the NAO found local governments in the Chinese economy owed 10.7 trillion yuan. Fast-forward to June of this year, and it turns out the number is about 12 trillion yuan. (Source: Xinhunet, July 28, 2013.)

Why does it matter to North American investors?

The Chinese economy is the second largest in the world; the U.S. is the largest. Economic issues in China will surely send “waves” towards us.

Dear reader, after the financial crisis, the developed countries in the global economy never really showed robust growth. This caused companies in the key stock indices to focus on emerging markets—they showed demand, and the Chinese economy was one of their main destinations.

As the economic slowdown deepens in China, and with possible credit issues in the country, it’s very likely that American companies in key stock indices … Read More

Growing American Business Inventories Paint Worrisome Picture

By for Profit Confidential

Growing American Business InventoriesThe biggest economic center in the global economy, the U.S., showed dismal growth in the last quarter of 2012. Sadly, the first quarter of 2013 is looking to be the same. Demand in the country is anemic at best as consumers are struggling.

New durable goods orders in the U.S. economy plunged 5.7% in March—the second decline in the first three months of 2013. (Source: United States Census Bureau, April 24, 2013.) Inventories of manufactured goods have been continuously increasing, seeing an increase in 17 of the last 18 months!

The HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) for China indicated a slowdown in manufacturing output for the second-biggest economy in the global economy. The index plummeted to a two-month low in April, registering 50.5 in April compared to 51.6 in March. (Source: HSBC, April 23, 2013.) Any reading below 50 indicates a contraction in the manufacturing business.

Germany, the fourth-biggest economic hub in the global economy, is seeing its economic slowdown quicken. The Flash Manufacturing PMI for Germany dropped to a four-month low this month. The index stood at 47.9 in April, compared to 49 in March. (Source: Markit Economics, April 2013, 2013.) Yes, the manufacturing sector in Germany is experiencing a contraction. In Germany, exports orders to the global economy in April declined the most in 2013.

The “worsening” statistics I just gave you are of the main economic hubs in the global economy; others are in worse shape. France’s unemployment rate is becoming worrisome, and the country is bordering on a recession. Japan is already back in a recession; Italy is begging for growth.

Dear reader, … Read More

Why a Downgrade in the Credit Rating of U.S. Debt Is Imminent

By for Profit Confidential

A report from Standard & Poor’s (S&P), the credit rating agency, indicates there is more than a one-third chance that Japanese sovereign debt could face a downgrade. The report stated, “…the continuing prospect arises from risks associated with recent government initiatives and uncertainty of their success.” (Source: Janowski, T., “S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics,” Reuters, April 22, 2013.)

In an effort to spur economic growth in the country, the Bank of Japan is printing money “like mad.” But we already know this concept hasn’t worked very well for the Japanese economy in the past. Japan is in an outright recession, with exports in a slump and the value of its currency in a freefall when compared to other major currencies in the global economy.

Why does it really matter to North Americans what happens in Japan? Even though S&P kept the credit rating on Japan’s sovereign debt at AA- (or investment grade), the concern is how vulnerable the U.S. debt really is to its own credit rating downgrade.

Just like the Japanese economy, the Federal Reserve is using quantitative easing to print $85.0 billion a month in new paper money and has thus far increased its balance sheet assets to over $3.0 trillion. Similarly, the U.S. government has been “spending with two hands, while borrowing with a third.” Why? It’s all in the name of economic growth.

As the readers of Profit Confidential know, I have been very critical of quantitative easing. It may have been needed back when the financial system was on the cusp of bankruptcy in 2008. But continuing … Read More

All of a Sudden, 2013 Becomes Another Trillion-Dollar Deficit Year

By for Profit Confidential

2013 Becomes Another Trillion-Dollar Deficit YearIn its monthly statement of receipts and outlays for the month, the Treasury Department reported that the U.S. government incurred a budget deficit of $107 billion for the month of March 2013. (Source: Department of the Treasury, April 10, 2013.) This monthly budget deficit was a result of the government spending $293 billion while only taking in $186 billion in March.

Since October 1, 2012, the beginning of the government’s fiscal year, the government has spent $600 billion more than it has taken in. Hence, for the first five months of its current fiscal year, the budget deficit is already $600 billion.

We know the U.S. government has run a budget deficit of more than $1.0 trillion for each of the last four years. If the current pace of spending more than what is coming in continues in the current year, then 2013 will be another one-trillion-dollar budget deficit year.

A quote from President Herbert Hoover comes to mind when I see five years of trillion-dollar deficits. He said “Blessed are the young for they shall inherit the national debt.” (Source: Brainy Quote, last accessed April 11, 2013.)

As the U.S. government adds to its budget deficit, it has to borrow more to cover the expenses. This way, our national debt continues to increase daily. We are on pace to surpass $17.0 trillion in national debt this year. A $20.0-trillion national debt is not far away.

For fiscal 2014, President Obama has proposed a budget of $3.778 trillion. In this budget, there are increases in taxes and lower spending on government programs like social security. (Source: Wall Street JournalRead More

What the Chinese Government Debt Downgrade Means for the U.S. Economy

By for Profit Confidential

Fitch Ratings, a credit rating agency, has downgraded Chinese yuan-denominated government debt from AA- to A+. (Source: Dow Jones Newswires, April 9, 2013.)

For foreign investors, it may not mean much, because yuan-based government debt is mainly traded domestically. But what this credit rating downgrade shows are troubled spots in the Chinese economy.

The agency stated: “Risks over China’s financial stability have grown.” (Source: Ibid.) Remember; when there is rapid credit expansion, bubbles usually follow.

According to Fitch, the amount of credit issued to the private sector in the Chinese economy was worth 135.7% of the country’s gross domestic product at the end of 2012. Since major banks in the Chinese economy are state-owned, the government bears the risks if things turn sour.

Unfortunately, Fitch is not the only one concerned about the Chinese economy’s future. Big-cap companies are also worried. The CFO of BHP Billiton Limited (NYSE/BHP), Graham Kerr, said regarding the Chinese economy: “Their moderate growth is around the 7 percent to 8 percent mark for the next couple of years… I don’t expect the double-digit growth rates to continue.” (Source: Creighton, A., “Sharp China slowdown is a big risk but we’re diversifying, says BHP CFO,” The Australian April 10, 2013.) Sure, seven to eight percent growth is great, but it’s the lowest pace at which the Chinese economy has grown in years.

With the slowdown in the Chinese economy going from an annual growth rate of 10%–11% to 7%–8%, the repercussions will be felt here at home.

We already have U.S.-based companies facing profit pressures from the eurozone due to an everlasting economic slowdown in the … Read More

From Financial Crisis to Bubble, Is the Next Cycle Now in Play?

By for Profit Confidential

From Financial Crisis to BubbleWhat if the powerful breakout in the Dow Jones Transportation Average in December of 2012 was the beginning of a new, multiyear upcycle for the stock market?

The stock market has clawed its way upward since the financial crisis hit in 2008. Recent trading volume has been mediocre, accentuating the move, but the majority of companies on the Dow reported solid fourth-quarter earnings.

Corporations are buying back shares, increasing their dividends, and for a lot of blue chips, balance sheets are in excellent shape—way better than before the financial crisis. Valuations are below historical norms.

Bull markets typically start in a stealthy manner. All of a sudden, institutional sentiment changes on a dime. At the beginning of a new upcycle in the stock market, it’s corporate profitability that leads all other metrics. Regrettably, it’s not about Main Street.

Current aggregated data by FactSet on earnings are calling for a solid advance in the bottom half of 2013 and 2014. It may not be believable yet, but many corporations are expecting this.

There is a tremendous amount of cynicism and doubt among individual investors (and rightly so). Many people have been sidelined since the financial crisis and throughout the recession. Since the financial crisis, individual investor sentiment has grown worse. A contrarian indicator? Maybe. Overperformance in the Dow Jones Industrials produced two significant periods of underperformance within the last 12 years. But the normalized trend of the Dow Jones Industrials is good.

$INDU Dow Jones Industrial Average stock market chart

Chart courtesy of www.StockCharts.com

The Federal Reserve is absolutely committed to re-inflating assets and keeping interest rates low. U.S. national debt is growing significantly (along with the … Read More

The Student Loan Ticking Bomb; Why It’s Such a Big Problem

By for Profit Confidential

The Student Loan Ticking BombThe threat of another credit rating downgrade for the U.S. national debt is increasing. But it’s not just due to the government’s inability to control its deficit; it’s about items not considered in budget talks. Student debt, for example, which has become increasingly guaranteed by the government, currently stands near $1.0 trillion.

And consumer debt is increasing, too. In third quarter 2012, non-real estate household debt in the U.S. economy increased 2.3% to $2.7 trillion, of which $42.0 billion was student loan debt. (Source: Federal Reserve Bank of New York, November 27, 2012.)

The percentage of student debt delinquent for 90 days or more is 11%. This delinquency rate is much higher than other credit products, such as credit cards, home equity line of credits, mortgages, and auto loans. Student debt default is skyrocketing.

A study by Fair Isaac Corporation, a credit score provider, found that about 26 million Americans had two or more student loans on their credit report in October of 2012. That’s up from 12 million in 2005, a rise of 116%.

How does this all relate to the U.S. national debt getting its credit rating cut again?

The federal government has been playing an active role in the student debt market. It makes 93% of all the student loans in the U.S. economy. (Source: Wall Street Journal, January 30, 2013.)

Now, imagine what happens to U.S. national debt if the delinquency rates on student debt keep rising as those who borrowed are unable to pay?

U.S. national debt has surpassed $16.4 trillion, and the government continues to post yearly deficits. I continue to ask: … Read More

What Quantitative Easing Did for Japan and the United Kingdom

By for Profit Confidential

The Federal Reserve has increased its balance sheet significantly through quantitative easing, but I still continue to question its effectiveness. Quantitative easing hasn’t done much for the U.S. economy except: 1) make the banks richer; and 2) rally the stock market, which is good for Wall Street. Quantitative easing has not helped the working poor in this country; nor has it helped the great majority of our citizens.

We need to look at other nations that have already implemented quantitative easing and that have failed at it, such as Japan or the United Kingdom.

Similar to the Federal Reserve, the central bank of Japan has promised to print an unlimited amount of Japanese yen to boost its economic growth and to promote export. Unfortunately, the effects of this are unseen in the economy. As a matter of fact, things have just turned the other way. The trade gap for the Japanese economy for 2012 was $78.27 billion, and exports have been falling for seven consecutive months. (Source: Reuters, January 24, 2013.) Meanwhile, the Japanese yen has fallen in value against other major currencies in the global economy.

Likewise, the Bank of England took the route of quantitative easing. The result? The U.K.’s economy contracted in the fourth quarter of 2012. The central bank of England introduced quantitative easing in March 2009 to boost economic growth, and since then, the Bank of England has printed 375 billion pounds worth of paper currency it exchanged for government debt. (Source: Bank of England web site, last accessed February 4, 2013.)

When I see these nations struggling to spur economic growth through printing … Read More

The More Years Pass, the More it Seems the U.S. Is Following Japan’s Economic Path

By for Profit Confidential

U.S. Is Following Japan’s Economic PathSince the financial crisis of 2008, the U.S. economy has yet to find the path to economic growth. Economists like me believe we are in for a deep and dark period for the U.S. economy.

As we all know, the Federal Reserve announced a third round of quantitative easing (QE3) on September 13, 2012. I continue to wonder how many more bouts of quantitative easing we will see in the name of economic growth in the U.S. economy. QE4? QE5? More?

A famous quote attributed to Albert Einstein says: “Insanity is doing the same thing over and over again and expecting different results.” The Fed’s quantitative easing programs (a fancy name for increasing the money supply, printing more money), in my opinion, certainly fit the definition of insanity.

We should learn from the past. We can learn something from the Japanese economy and what happened there over the past couple of decades.

It is becoming more apparent that the U.S. economy is following in the footsteps of the Japanese economy.

Supposedly, the Fed’s spree of quantitative easing should have brought economic growth and prosperity to the U.S. economy. The well-intentioned goal was to get rid of the bad assets that the U.S. banks were holding so these banks could start lending once again—and thus, economic growth could get on its way.

In the years immediately following its economic burst, the central bank of Japan was slow to get its quantitative easing going. But once it decided to go the money-printing route, Japan’s central bank flooded the monetary system with its paper currency and kept the interest rate artificially near zero … Read More

Time Running Out for Spain and the European Union

By for Profit Confidential

Talk of financial crisis is intensifying in the European Union, as interest rates in Spain and Italy remain at elevated levels and threaten to rise even further. This makes it almost impossible for both countries to go to the market to roll their debt over…unless it’s at impossibly high interest rates, which neither country can afford to pay.

The only reason interest rates have remained somewhat steady recently is that Mario Draghi, President of the European Central Bank (ECB), said the European Union was ready to stand behind Spain and Italy.

This means outright money printing or quantitative easing. But one big objection: Germany continues to insist that Draghi is overstepping his bounds in making such comments and that quantitative easing is not part of the ECB’s mandate and cannot be part of the European Union’s mandate unless all countries agree, including the European Union’s most important member, of course: Germany.

This coming September 12, the German Constitutional Court will rule on the 500-billion-euro European Stability Mechanism (ESM) the European Union is proposing. If Germany does not approve this package, the European Union will be finished, because Spain and Greece will simply run out of money. If Germany does approve the ESM, the European Union is stuck with the same problem: 500 billion euros is not enough to cover the obligations of Greece, Spain, and Italy. (Also see: “Proposed Bailout Money Not Enough: Credit Crisis in Spain Deteriorates.”)

A European Union official within Spain is saying—unofficially—that the country needs 300 billion euros in bailout funds! (Source: Reuters, July 29, 2012.)

What this will require is quantitative easing … Read More

Number of People Not Working Hits Second Highest Level Ever Recorded

By for Profit Confidential

Number of People Not Working HitsOn the surface, it looks like the headline U.S job numbers made Wall Street happy today, as the American economy created 163,000 jobs when economists were expecting 100,000 jobs for the month of July. (Source: Bureau of Labor Statistics, August 3, 2012.)

The good news is that this was the highest showing of job numbers in five months. The bad news is that more people gave up looking for work, as the unemployment rate rose slightly from 8.2% to 8.3%.

The job numbers for the months of May and June were adjusted lower to reveal that there were 6,000 fewer jobs created than first reported, which of course did not help the unemployment rate.

But digging deep within the July job numbers, I see the Bureau of Labor Statistics states that the expected 13,000 seasonal layoffs in the automobile industry did not occur in July, which it believes is a temporary situation. What this means, dear reader, is that the job numbers were skewed higher by 13,000 jobs because the Bureau of Labor Statistics expects these layoffs to occur in the not-too-distant future.

In addition, temporary work, and hiring in the food services and drinking places—the low-paying jobs—accounted for almost 29% of the job numbers gain seen in the month of July.

In light of the fact that many of the job numbers created over the last year were in low-paying sectors of the economy, year-over-year average hourly earnings were flat when compared to the month of June.

Over the last year to July, average hourly earnings are only up 1.7%. When inflation is taken into account that 1.7% … Read More

These Three Stock Markets Crashing;
Is Ours Far Behind?

By for Profit Confidential

I’ve recently written about and presented a graph in these pages on how the S&P 500 stock market index has been outperforming the rest of the world’s stock markets.

I have also written about the weak economic reports out of China key indicators and how are signaling that the Chinese economy could be weaker than many people think. (I actually think it is headed for a hard landing). Like the S&P 500, the Shanghai Composite Index is representative of most major corporations in China. Let’s look at what this key indicator is saying about the Chinese economy.

ssec stock market chart 1

Chart courtesy of www.StockCharts.com

As evidenced by the above chart, dear reader, even while the world economy was at the height of the recession in 2009, the Shanghai Stock Exchange was performing extremely well. Since then, this key indicator has corrected 35%!

Now this key indicator is at a three-year low, which means investors have little faith in a recovery in China, which does not bode well for world stock markets, including the S&P 500. Remember, China is the second-largest economy in the world after the U.S.

How about the third-largest economy, Japan? With its high debt levels and politicians fiercely debating how to deal with a weakening global economy, investors are also hesitant, as evidenced by this key indicator:

 

 nikk stock market chart 2

Chart courtesy of www.StockCharts.com

 The Nikkei represents the most important companies in Japan; similar to what the S&P 500 represents here in the U.S. It is bouncing around a three-year low and shows no faith in the Japanese economy rebounding from its slump. In the past three years, this key indicator has … Read More

Printing Money to Pay for the Olympics!

By for Profit Confidential

For now, London is the center of the world’s attention for the next two weeks as it plays host to the 2012 Summer Olympic Games. Unfortunately, once the Olympic Torch is extinguished to signal the end of the games, everyone will be left with the reality of the British economy mired in its longest double-dip recession in 50 years.

Unemployed citizens may be asking why billions are being spent on the games, increasing government debt, when it could be spent on retraining people and/or creating jobs.

That is not the worst part. Citizens may be wondering about wanting to host the games at all when reports are that the original cost of the games—and so the addition to government debt—has ballooned from $3.64 billion to $14.5 billion, and that’s just for starters! (Source: Globe and Mail, July 30, 2012.)

With this worsening double-dip recession, Britain’s government debt is growing, as there is less tax revenue coming in and more going out to support the unemployed. As if this additional burden of government debt wasn’t enough, the deficit for the Olympics of $10.86 billion ($14.5 billion – $3.64 billion) not only adds to government debt, but also does not include other costs like the Olympic Park land, legacy programs, and government operations for the Olympics, which add another roughly $4.0 billion to government debt.(Source, The Telegraph, July 30, 2012.

Not to worry. With Britain’s government debt already growing quickly due to a double-dip recession in the country, it can just print money (like it has thus far to support the economy) to support the Olympic Games.

The government … Read More

Rome Burns; Europe Can’t Help

By for Profit Confidential

One of my favorite countries to visit, Italy, is in big trouble.

Just a few years ago, Italy’s government debt was roughly equal to its gross domestic product (GDP)—it had a debt-to-GDP ratio of about 100%. This is high, but Italy was able to maintain a budget surplus, which means after the bills were paid for the year, there was money left over from taxes the government took in to pay down government debt.

Like a household, the problem with holding high debt levels is that if something goes wrong, it can place the household in serious financial difficulties.

Enter the eurozone financial crisis and Italy’s government debt has now reached a debt-to-GDP level in excess of 120%!

To give some perspective to the problem, remember that the eurozone has been consumed by the problems of Greece, but Greece has government debt of 350 billion euros, while Italy carries government debt of 1.9 trillion euros!

With Italy’s economy in a recession and the unemployment rate at a decade high, this is making its budget targets almost impossible to hit. The prime minister has instituted spending cuts to offset the decline in tax revenue, but the economy continues to contract.

The bond market has attacked Italy, sending its 10-year government debt interest rate above six percent, when two years ago it just was four percent!

Moody’s Investor Services has also downgraded Italy’s government debt to just two levels above junk status, which further puts pressure on interest rates.

While Italy can say it has still been able to maintain a budget surplus despite the eurozone financial crisis, this surplus does not … Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

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