This article is from previous newsletter archives to give you an idea what I was saying before this collapse. This one is from March 2006.
Once again, we hear the daily economic numbers….the jobs report is good last month and bad this month; inflation is growing one day and the next it is reported to be in check.
Forget what you hear from the economics reports, Wall Street, the Fed and the media...they’re all overly optimistic at best, and lying at worst. There has been NO real recovery and the government has twisted and distorted its statistics to make Americans feel that progress has been made.
What's more, I expect things to get worse. And I’m not talking about the recession we are about to head into. I’m talking about a depression in America. I cannot tell you when it will come.
If you want to see what’s really going on and what will happen in the future, ask God; maybe he will tell you. But just in case he chooses to keep the mystery alive, your next best choice is to listen to me. While I don't claim to be in the ranks of the Almighty, I can still see clearly. And that is all that it really takes to see the mess that is growing. I cannot tell you when, only what the relative probabilities of scenarios will occur. If you still doubt me, take a look back at previous issues and you will see that I haven't missed a single call. I do reserve the right to modify predictions, such as interest annual rates predictions and I have used that luxury in the past.
Just look at the trends and ignore the short-term events—growing debt (federal and consumer, growing pension deficits, growing healthcare costs, growing trade deficit, and much more. These are not recent problems but represent two decades of mismanagement in Washington.
Also look at the extremes because they often provide clues to trend reversal. For instance, the recent 5-year high in the CPI should be definitive evidence that inflation is accelerating above the historical mean. As well, the nearly two decade lows in consumer confidence reached in late 2005 should also be a clear indicator of an imminent change of trend in the consumer.
Wall Street won’t tell you. Think about it. I am not suggesting that everyone on Wall Street intentionally hides the truth, because in fact I do not think they are aware of reality. You see, when you are paid to manage assets or place assets with an external money manager, you can easily fail to smell the coffee because you want to believe things will be fine for your clients. It helps you sleep at night, not to mention paying the bills. And your job is to generate sales not conduct extensive analyses. That is why they have their own analysts and economists. But if you listen to them you’re going to be in trouble.
I’m not saying that analysts intentionally hide the truth from investors as a part of some conspiracy. However, they have certain goals and they must operate within that framework. Basically, they’re usually optimistic and they look at the smaller, short-term picture because managed funds are compensated based on monthly returns. And funds are often the biggest clients of Wall Street firms.
I have been preaching the same story over and over since the beginning of 2005: inflation will be a major problem, oil will continue to escalate over the next several years, the dollar will have difficulty gaining strength, the markets will remain in a bearish trend for the next several years. And I know well what I am talking about.
Let me sum it up for you: America is broke—financially, morally, and socially. And the government has been playing asset-liability games hiding its massive debt, much of which is held by foreigners. If America was a corporation, with a debt-to-equity ratio (including all liabilities) above 1.0, it would be a candidate for bankruptcy.
When companies get into this situation, (like Goodyear, US Steel and several others a few years ago, and like Blockbuster and many others are now) they must rely on their creditors to extend more credit. Almost 50% of the federal debt creditors are FOREIGN NATIONS. And if they stop buying US Treasuries and continue to sell them, the dollar will go even lower, which might prompt a push for gold payments globally.
The U.S. economy is in bad shape and will get worse; that is a guarantee. We have had a phantom recovery that has been masked as “solid” by the Fed easing credit and releasing cash to fuel it because job creation has been anemic. As well, the job quality has been poor.
America is now owned by two groups: Corporations and Foreign governments. Corporations have sold patent rights to Asia and have exported jobs so that manufacturing is on its last leg. Meanwhile, many corporation have “frozen” their pension plans. Presently up to 80% of all pension plans remain underfunded. Meanwhile, corporate spending has been essentially nonexistent, except for expansion operations overseas. Along with the shortfalls in Medicaid and Social Security, there will be several millions of Americans that will face very difficult times in their Golden years.
Due to the current federal debt, each American is now responsible for paying the government nearly $28,000. But that’s only the numbers reported by the US Treasury and does not include hidden debt. Add another $30,000 to that. That’s each American, not each household. As well, with an average credit card burden of nearly $9000, Americans are being owned. And these figures do not even count mortgage debt or the $74 trillion Medicare and Social Security liabilities. If you count these, each taxpayer is looking at an unbelievable $500,000 debt!! Iraq does not seem to be in such a bad financial situation when comparing it to America.
Foreign governments are very concerned about the U.S. government’s ability to repay its debt and this has prompted the rise in interest rates. But that has not stopped these nations from unloading U.S. bonds. President Bush and Alan Greenspan made a bad situation that has been brewing for two decades much, much worse.
And you can forget the GDP numbers since the government twists and distorts statistics in its favor much like companies distort earnings.
It wasn't so long ago that the Internet Bubble burst sending the Nasdaq down 80% from its March 2000 highs. And it was even more recent that the Dow and S&P 500 plunged by almost 40%. But it’s not over. As a matter of fact, it is just beginning. Yet, some people refuse to listen to reason. I hope you are excluded from that large group.
How can you have economic expansion and a bull market with record high energy prices, a weak dollar, high commodity prices, disastrous social programs, a healthcare crisis, an unsettled war in Iraq (which will remain unsettled for a long time), and growing tensions with North Korea and Iran? Just one of these factors alone will prevent a bull market.
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