NEW INVESTMENT STRATEGY-
Federal Debt May Stop Any New Recession
ONLY FOR THOSE WHO ARE YOUNG ENOUGH OR CAN TAKE RISK I suggest a new ‘Investment Strategy Program’. Besides investments in gold and the Bitcoin, Set up a program’ to be ‘fully invested’ as follows: Choose 21 of the best performing stocks like Amazon and 21 stocks that have big dividends and hold up well in down markets like Exxon. This portfolio should be updated every quarter.
The corona virus appears to be out of control. THE VIRUS IS NOT TEMPORARY AND WILL HAVE A LONG TAIL. What affect will that have on the economy? If there is anything the stock market hates, it is uncertainty and here is the stock market (Dow and The S&P) close to its all-time highs, with the NASDAQ above 10,000. (Some 50% of the NASDAQ is now represented by only 6 stocks. 5 are monopolies.) Although the Dow did fall to my 18,062 to 18,974 projected low, I am astounded at the extent of the recent rally. Investors appear to be looking for a V shaped economic recovery. However, the Conference Board has the US GDP down -5% for the First Quarter, down -33% in the Second Quarter, up +20% in the Third Quarter, 0% in the Fourth Quarter (full year down -7%), with 2021 forecast as up only +1%. These forecasts (Third Quarter?/2021?), in my opinion do not include the recent surge in corona virus cases, which are increasing worldwide at a 250,000 a day rate with 5,500 new daily deaths and the US cases increasing at 70,000 per day with a death rate of over 1,000 a day. It appears to me that the economy looks more like an L than a V shaped recovery. Will this virus have an effect on the economy for years? I think so, and the stock market is not reflecting this reality. There are now 30 million unemployed because of the virus, (restaurants, travel, sports, small retail and theater), with only 5 million possible new jobs! (such at meatpacking, retail , health care and at Amazon warehouses, all of which are dangerous). We could have unemployment above 10% for a year and that is the definition of a Depression!
The above is what is happening with the ‘first wave.’ What if there is a ‘second wave,’ which many are predicting and what if there is second variant of the Corona 19, (Corona 21)? When will we have a vaccine and will it cover any new variants? Will a vaccine be available by year end and how fast can we give the shots and how many people will reject the shots? Did you know that there is not a vaccine for AIDS, only HIV medicines called antiretroviral therapy (ART), which reduce the symptoms! A vaccine is not a sure thing. Will schools reopen and what effect will that have on increasing the virus rate?
Before Covid 19 there were 6,000 evictions per day. Now there are 23 million families on CARES rent forbearance and 4.3 million properties with mortgage forbearance. What happens when this Government assistance stops? How many will not be able to pay past and present payments due all at once. How may will be evicted? Even if CARES is extended, how are the landlords paying their bill and mortgage payments and how are the banks fairing without interest payments of their mortgages?
How many restaurants, theaters and small business will reopen? Recent surveys indicate that 40% of the people and the US don’t even have $400 for emergencies. What will happen when the stimulus ends and the jobs do not return? What about the 6% of the people in the US that are off the grid and don’t even have a bank account? The demonstrations about Black Lives Matter is not just about racism, it is about many of the bottom 40% of Americans of all races that are desperate to find a job that can pay their rent, or receiving an adequate education or are cut off from basic health care. There are on average 123 suicide per day and 130 opioid deaths per day. What will it mean to the the top 60% ( many can work out of their homes), if the bottom 40% (most lack internet service) of Americans are desperate?
States have lost revenue from sales taxes, while expenses have increased. Will the corona infections cause further slowdowns? States cannot go bankrupt, now what? Hospital are desperate to put up with increasing corona virus patients. Health care workers can not keep up and are in physical danger. Our Health Care system is failing. The large Mercy Hospital in Chicago just announced it is closing.
The problem with printing Money
The good news is that most of the big corporations will survive and so will many their well-educated or well-trained employees. That is probably why the stock market is UP. Big corporation will take advantages of this crisis to automate further and endeavor to replace the over 6,000,000 small businesses with a big corporate alternative. That is what happened in the 2008 financial crisis, as Wall Street took over 12 million home in foreclosure and used the tax payer’s money to strengthen their position over the public’s best interests. However, the bad news is that this elite upward pyramid structure is on a base that is deteriorating daily. Issuing more debt and reducing taxes has its limitations, as we see the dollar down some 5% in worldwide trading and gold above $2,000 an ounce. Because of giving tax breaks to the rich and the stimulus packages, US debt has soared to $23 trillion and growing! The new Stimulus Package will increase total US debt to $25 trillion. I see the dollar falling 20%. We can’t just keep printing money as though there are no consequences.
Unlimited printing of money has created six problems: Problem 1) Now, US total debt is over the warning line of 100% of GDP. Problem 2) In order to finance this debt, the Fed will borrow the $4 trillion from investors by selling U.S. government bonds. The money that investors use to buy the bonds could come from their cash accounts, but more likely it will come from selling other investments, like corporate bonds or the stock market. Problem 3) The Fed may buy some of these bonds itself. During the last 2008 crisis, the Fed bought some $4 trillion in bonds (Quanative Easing). Recently the Fed has vastly expanded its purchases of various bonds as the corona virus crisis weighs on the economy and strains our financial system. The Fed now holds some $7 trillion and growing of corporate bonds and other securities tied to assets like real estate and auto loans. This artificially props up their long-term value of these bonds and companies, as investors exit those markets for the presumed safety of government debt. How much of this debt that the government holds will be worthless? Problem 4) The federal government paid $580 billion in interest in its last fiscal year on $22 trillion of debt. What will happen when interest rates go higher and the interest on this debt costs us more the entire budget does now? Problem 5) How will we (the taxpayers) ever pay down this debt? Problem 6) By the time this crisis is over, the dollar may be down 25%. What will that do to the US economy and annual budget, when only higher interest rates will attract buyers?
See Above: “In a time of universal deceit, telling the truth is a revolutionary act” George Orwell.
Carl M Birkelbach 7/29/2020
DOW 26,539 S&P 500 3,258 NASDAQ 10,542 Watch out below!
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Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com