How Would You Feel if…
- your Cash Flow was NEGATIVE for each of the past 9 years…
- your Net Worth has been NEGATIVE for as long as you can remember…
- it would take 20 years of your income at the current level to pay off your existing debt – assuming you don’t take on any more debt?
A picture (in this case a chart) can be worth a thousand words. The chart below indicates that we have accumulated $115 of government debt per working person per day in the U.S. This does not include the unfunded liabilities from such programs as Social Security and Medicare.
Earnings took center stage last week despite Standard & Poor’s warning about U.S. debt on Monday. The DJIA rallied 1.33%, while the S&P 500 and NASDAQ gained 1.34% and 2.01% respectively. Gold broke the $1,500 mark, setting a new all time high, and oil continued its move higher. Oddly enough, the 10-year treasury shrugged off the S&P warning, finishing the week at 3.42%, 0.01% less than last week.
The Standard & Poor’s warning about U.S. debt levels did not come as a surprise to many. U.S. citizens have been in an uproar about federal spending for some time now. The 2010 midterm election results clearly demonstrated this point, and the debate over spending cuts versus tax hikes has consumed Washington and the national media. But still, little has been done. Markets reacted favorably last week for one simple reason: investor’s believe that something will be done.
But what if it is already too late? The economic recovery thus far has been moderate at best. Fiscal stimulus has done little to move the economic needle, and monetary policy has successfully propped up asset prices. However, this has also caused significant food and energy inflation. The point that I make here is not intended to be gloom and doom, but rather to point out the obvious. There is still structural weakness in the economy. When fiscal restraint is applied and QE2 ends, how will the economy and market fair?
Right now we are beginning to see leadership cracks in the stock market rally. Defensive sectors (health care, telecommunications, and consumer staples) are now among the rally’s outperformers. This type of change in sector leadership resembles the final months of a bull market. For now we must give the bulls the benefit of the doubt. But these leading sector tendencies may be a warning sign. If you recall, in the 2011 Pinnacle Trust Market Forecast we called for a new cyclical bear market to begin in the second half of 2011.
Until next week,
Jeremy Nelson, CTFA
Stocks stalled for the second straight week as equity markets settled lower for the week ending April 15th. The DJIA fell 0.31% while the S&P 500 and NASDAQ fell 0.64% and 0.57% respectively. Earnings reports and economic data points dominated investor attention.
On the earnings front, both JP Morgan (JPM) and Bank of America (BAC) came out with first quarter earnings. One clear theme came from the two company’s quarterly results: mortgages are still a problem for the banking sector. Losses related to bad mortgages and foreclosure activities, combined with increased costs in mortgage servicing due to new regulations, cost both JPM and BAC billions of dollars. Continue reading
I’ve mentioned before the study, USA, Inc. which looks at America and our economy as if it were a business. Again, this should be required reading for everyone. Specifically, our debt levels have reached unsustainable levels, yet are projected to increase from 62% of GDP in 2010 to 146% of GDP over the next three decades. The solutions are not simple. They will be painful for everyone. But it simply must stop.
Some say that the wealth is tied up in the hands of wealthy individuals and corporations, who are greedily hoarding it for their evil purposes. I don’t really care which side of the political aisle you sit on, (personally I sit in the extreme middle), we cannot simply “eat the rich” as this poignant video clearly illustrates. What’s the solution? What do you think?
Stocks treaded water last week as a potential US government shutdown loomed. Fortunately, a deal was cut and federal workers made it to work on Monday. For the week, the DJIA gained 0.03%, while the S&P and NASDAQ lost 0.32% and 0.33% respectively.
Due to inflationary concerns in Europe, the European Central Bank (ECB) hiked the euro zone benchmark rate by 0.25% to 1.25%. In comparison the Fed Funds Rate in the US remains in a range of 0% to 0.25%. The dollar weakened on this news, pushing commodity prices higher. West Texas Intermediary (WTI) crude oil closed the week at $112.80 per barrel. Portugal became the third member of the European Union to request a bailout. This came after the country was forced to pay more than 5% to roll its short-term debt. Interest rates have soared in Portugal ever since its government voted down austerity measures last month. Continue reading