DOWNSIDE PROJECTIONS; DOW-28,000 to 27,000 NASDAQ-10,000 to 9,000 S&P-2,900 to 2,700
OMG A BEAR MARKET?
Since our SELL/SELL ISL #740 market letter of December 2021, , the Dow has fallen from our suggest sell at 36,000 to 31,400, the NASDAQ from our suggested sell at 16,000 to 11,400, S&P from our suggested sell at 4,500 to 3,900, More importantly some 50% of NASDAQ stocks like First Solar are down 50% and 10% of NASDAQ stocks like Netflix are down 70%. Also we suggested the sale of Bitcoin at $57,000, now $30,000. (a buy). After 13 years of continuous up market, the new generations of investors expect an instant rebound to new highs. Not this time.
World debt $226 trillion up from $74trillion in 2019
The market rise was due to low interest rates, cheap oil and unprecedented growth of debt. Now, high inflation is due to low interest rates and high gas prices are due to the war in Ukraine. With debt, we observed the largest one-year debt surge since World War II, with global debt rising to $226 trillion as the world was hit by a global health crisis and a deep recession. Debt was already elevated going into the crisis, but now governments must navigate a world of record-high public and private debt levels, new virus mutations, and rising inflation. Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 percent of GDP. Private debt from non-financial corporations and households also reached new highs. My concern is in the world’s ocean of corporate debt, worth $226 trillion up from $74 trillion 2019. US corporate debt has climbed during the same period from $18 trillion to $24 trillion. Two-thirds of non-financial corporate bonds in America are rated “junk” or “BBB”, the category just above junk. The growth in debt has now stopped, because suddenly bankers are worried.
US federal debt to GDP was in 1980 34.5%, 2000 57.9% and in 2021 127%.
The US Federal debt is over $30 trillion dollars and is growing. US Federal spending is $6.2 trillion and tax revenue is $4.2 trillion ($12,000 per person) for a $2 trillion deficit. $30 trillion is a debt of $243,000 per tax payer and $91,000 per tax citizen. The US federal debt to GDP was in 1980 34.5%, 2000 57.9% and in 2021 127%. The unwritten rule is anything above $100% is dangerous! Total US and State debt to GDP is 142%. ANNUAL INTEREST ON DEBT; $450 BILLION AND RISING AS INTEREST RATES GO UPHere is the scariest statistic: OTC Derivatives are $600 trillion (10 TIMES WORLD GDP). $600 trillion is at about the same level that caused the 2008 trouble in the banking system.
This Time it’s Different,
See the book, This Time it’s Different, Eight Centuries of Financial Folly, by Carmen Reinhart and Kenneth S. Rogoff. This book is one of my favorites. It tells the story that each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid as to let debt go to 127% of GDP and let six banks control 70% of the US assets (too big to fail) and allow all the economic growth to go to the top 1%, (and then give them tax cuts creating huge budget deficits), while eighty people own 50% of the world’s wealth? Reinhart tells about lessons from history, to show us how little we have learned and that we should prepare for future economic challenges, which are bound to happen again.
The Federal government should sponsors a ‘Retirement Savings Fund’
If you read my blog page titled “In a time of universal deceit, telling the truth is a revolutionary act” which is a quote by George Orwell; you will see that I believe that the Financial Industry has not truly fully disclosed stock market risk to the investing public. Instead the Financial Industry gives the false advice that, “on the long term, the stock market will always recover.” Keynes has a famous quote that states “in the long run, we will all be dead.” The point being, if you are older and depending on the stock market for retirement, the stock market may not recover from any decline, in time for when you need the money. During the period between 2000 and 2008 the stock market went down more than 50% twice, which was devastating for people who were retiring or sending their children to college. If you invested in the Dow in 1998, it wasn’t until 2011, that you got your money back. Therefore, in full disclosure, I believe I should tell investors that investing in the stock market is dangerous and that most people, ‘the average American,’ should treat stock market investing only as a speculation and not as a form of savings. Simply stated, most people should not gamble with their savings in the stock market. It is like feeding anchovies to the sharks,
I would like to see the Federal government sponsor a ‘Retirement Savings Fund’ that guarantees a 3 ½% return. (The rate would go up if the Fed fund rate goes higher). A Federal government sponsor a Retirement Savings Fund is needed. It would really help with the average American and their saving planning and keep the ‘average investor’ out of the stock market. This would make retirement planning a lot easier and safer.
HSI -Hang Seng China Index at a 10 year low
To the word China is the biggest growth story in history with annual GDP growth above 6% per year. Since 2012 the US stock market the Dow have gone from 12,000 to 36,000 and the NASDAQ has gone from 3,000 to 16,000. Yet the Chinese HSI index is at 20,120, below its level in 2012 at 21,000. Why? Is it because the authorial Chinless communist party has been too careless with it ‘s loans to its insider corporations? Is it because their vaccinations don’t work and the country is in lockdown? Something is wrong in China and I don’t believe current world stock markets reflect the risk to world markets.
Dow 31,236, NASDAQ 11,388 S&P 500 3,900 Expect rallies, but eventually new lows!
Carl M Birkelbach
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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