We’ve hit the debt ceiling. And in early August, Treasury Secretary Timothy Geithner will run out of strings to pull to keep us from defaulting. That’s undermining confidence in our bonds.
We’ve all been paying more for everything from gas to food. That’s driving investors to seek out hedges, including investments in the commodity and metals markets.
We’re spooking our foreign creditors with our massive borrowing and spending binges. That’s putting pressure on the U.S. dollar.
But today I want to talk about what I call the “Forgotten Crisis” — the ECONOMIC crisis. Because we are undoubtedly facing one, based on virtually all the incoming reports I’m seeing.
When the Free Money Runs Out,
This Is What You’re Left With!
The massive economic stimulus package from a few quarters back, plus the Federal Reserve’s unprecedented wave of money printing, didn’t buy us much. We printed, borrowed, and spent more than $2 trillion. And all it bought us was a few quarters of tepid GDP growth.
Now the end of QE2 is looming in just six weeks. The federal government is tapped out, what with the debt ceiling pressure. So we’re left with an economy that has to stand on its own two feet … and it appears it just can’t!
GDP growth already slowed from 3.1 percent in the fourth quarter of 2010 to 1.8 percent in the first quarter of this year. Now it looks like things could be even worse in the current quarter. I told you about some of the bad news last week, and this week, it kept on coming …
* The Empire Manufacturing Index, which measures activity in the greater New York area, plunged to 11.9 in May from 21.7 a month earlier. That was far worse than the 19.6 economists were expecting. Meanwhile, the Philadelphia Fed index tanked to 3.9 in May from 18.5 in April. That was the weakest in seven months and far below forecasts for a slight increase to 20.
* The NAHB’s Housing Market Index, which measures builder confidence, remained mired in the muck at 16 in May.
* At the same time, April housing starts plunged 10.6 percent and building permits slumped 4 percent. We’ve now been stuck at a dismal level of about 500,000 to 600,000 starts for two-and-a-half years, despite hundreds of billions of dollars in aid being thrown at the market by the “fixers” in Washington!
* Industrial production flat-lined in April, confounding economists who were looking for a gain of 0.4 percent. Factories used just 76.9 percent of their available capacity, far below the 77.6 percent that the market was expecting.
Bottom line: The American economic engine is starting to sputter again!
How I’m Adjusting —
and How You Can Profit!
So what am I DOING about this? What can you do too?
Well, I can’t share all my tactics and techniques. That just wouldn’t be fair to my paying subscribers. They were positioned for this slowdown and are starting to rack up profits as a result. If you want to join them for only $2.18 a day, just click here. Or call us at 800-393-1706.
But I will say that I’ve been taking gains off the table on longer-term trades, and aggressively playing the downside in my shorter-term trading services.
I recommend you consider establishing some hedges yourself, using inverse ETFs that rise in value when parts of the stock market fall. A simple position like the ProShares Short S&P500 (SH), which is designed to climb 1 percent for every 1 percent drop in the S&P 500, can go a long way to providing peace of mind.
So far this is just a slowdown. But I’m definitely keeping my eyes on the data to see if it turns into something more — like a bona fide recession. Stay tuned!
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 17 comments }
the money printing will continue in some form. be rest assured. Peter Schiff.
Gentlemen;
While I enjoy your publication, I could do without the “for just $2.00 per day” I could give you the information that my higher price subscribers get. ! Do that if you will, but don’t tell me!
Cordially, T. Rediehs
And the SP 500 has broken up with Volume from an Inverse Head and shoulders.
Still holding above – 1350 is resistance but it looks good for 1470 target to be reached – 90 days.
Money printing no going to stop today or in the next 90 days – neither till 2015 cause BEN knows that brought about the Double dip.
Could be wrong if we close below 1313 and stay below this level – Been short more than Long but haven’t made Cash for Months –
Advise to put on Ultra shorts with no gearing – could be right but then catalysis would have to be the default of US government.
Higher RATES in next 30 – 90 DAYS –
Bryan Good call on the $ looks like it reversal on Candle charts
But Market Still going up – time lag i guess.
Clause still calling the largest topping pattern know to mankind – 14 months and counting.
Waiting and waiting for trend to change – Maybe just overnight Crash.
Inverse ETF’s scare me to death. Inflation can very well make stocks go UP in nominal terms as fast as the purchasing power of the $ goes down. So not only would you loose in nominal terms but whatever is left would be worth less in real terms. Inverse ETF’s can make a little bit of bad luck go a long way to wipe you out!
Hello Mike,
I missed your recommendation on Feb 16th, 2011: “Buy 25 shares of TBT, 300 shares of HL, and 500 shares of AZK, all at the market. Those figures assume a portfolio of $100,000 by the way.”
Since Feb 16th, shares of AZK (Azurion Mines) have fallen from $7.50/share to $5.50/share. Fortunately, I was able to pickup shares this morning of AZK at $5.50/share. Are you still bullish on AZK? How about HL (Hecla Mining)? Let me know your thoughts on these two mining companies.
I really enjoy your briefings and look forward to your reply.
Cheers, Carl
Hi Mike,
Far as I’m concerned it is all smoke and mirrors. The up trend in the S&P and Dow, the GDP growth, an improving economy, all of it.
Econ 101 tells us that real GDP growth is determined by nominal growth less inflation. We also know the government LIES about real inflation. So, take the best number you mentioned above, 3.1% and the inflation numbers John Williams at ShadowStats.com recently released — 10.2%; real GDP is contracting at a 7.1% annual rate. In fact, according to Williams’ data, we have been — at the VERY least — in a recession since 1999 (with all the other REAL data out there I think it has been a depression since 2008).
As for the stock market, my take is that it is the FED that has kept it afloat. Data indicates that during the last 6 to 9 months there has been massive insider selling — MASSIVE — yet the market hasn’t sold off. More of QE2 at work.
Talk about Japan’s massive earth quake and tsunami losses, Japan’s negative growth and the fact that no one wants to lend them money tells me they are going to start redeeming the $880 plus Billion in US debt instruments to rebuild their country (after all, who wants to hold onto a currency that is hemorrhaging value year over year). China is reducing its US holdings too (as are other countries and investors).
Think we are going to get hammered HARD in the coming months.
Joe
p.s. and Joe Emette is absolutely spot on
Hi Mike
There are only a few who can make the tough decisions needed to turn this around. It is not that we can’t see the risks and the results from the near global disease of poor decisions layered on poor decisions. What we need are principled leaders with a pair of (b____) making tough decisions. No recipient of the public purse will like it. No leader will be popular for it and another term like this one will seal our fate. Each man has his time and it would be a shame to have those in power doing nothing. We may well have a taxing problem but overwhelmingly it is a spending problem. Howard Dimond.
I am a novice investor and it has been more than 40 years since I took ECON101. We have been consciously developing this economic situation for at least 30 years according to my reckoning. We have been eliminating well paying jobs in the private sector by moving them to countries with a lower payscale, by automation and by getting more work from each employee. For the most part, if these jobs have been replaced, they have been replaced with lower paying jobs with fewer hours and fewer benefits. In the short term, this results in higher profits. In the long term, this results in a weeker economy as fewer people are buying large volume items, like midprice cars and homes and appliances. At the same time, the size of the Federal Government is growing. Government is a parasite, It feeds off of the host and produces nothing. The functions of government are necessary, but it should be just big enough to perform its basic functions and no bigger. There are more systems which are increasingly failing, but I won’t list more. As a result of all these economic forces, our economy can do nothing but decline. There may be temporary reversals along the way, but the combined weight of all these forces cannot be reversed by a temporary infusion of borrowed money. It can only be reversed by enlightened long term policies which reverse these many system failures. My conclusion is that you invest in stable companies that have a solid foundation and which are not dependent on the US economy.
I suspect Bernanke has one more card to play. Remember, the Fed was the buyer of last resort for member banks for blocks of house loans and they picked up large quantities at very deep discounts. at least 75% of them have performed well and can be sold for a huge profit. The proceeds go to the Treasury Dept.
Wayne Silzel
Mike,
All the facts you are mentioning are pointing to a double-dip. However, I am not convinced that we came out of the first dip. This “recovery” we have was all because Government took over the job of the big spending consumer now drowning in debt. Now Government is in the same sitsuation. Like I have been saying all along, there is too much bad debt in the global economy that we can’t grow out of. It has to be deleveraged. The Fed is now check-mated. He tried to boost the economy with QE2 in order to bring core inflation up to 2%. He got inflation alright, but it wasn’t the kind he wanted. It was food and energy costs driven mostly by the speculators, not by a need for real economic growth. All that did was slow the economy down and raise treasury yields. I believe the reason the stimulus failed was not because they haven’t spent enough money, it was because there are no clearly defined goals behind it, other than to prop up an illusion of a recovery.
What Tom Rediehs says, in spades.
Notice Mike is taking profits on his long positions. Perhaps he does not believe the prognostication of Larry Edelson, another Weiss analyst, that the long term market forecast is up up and away? Mike, deep down inside, it seems, has an inner fear of a market collapse.
And, with good reason, I might add.
Way back in ’08 when the whole crisis began many “experts” were saying we’d hump along through 2009 and 2010, but in the second half of 2011 the shoe would fall again. That’s when any effect the stimulus packages had would wear off.
In one big way, I disgree with Mike. He believes the economy recovered somewhat and may have a double dip. I do not accept that. It never recovered. The government just cooked the books, juggled the numbers, and masssaged the media reports to make it seem as if the economy was growing.
Your eyes viewing all the empty storefronts and offices told you otherwise.
If Republicans gain strength, recession/depression forces gain strength. Tight money policies equal recessions and even depressions almost by definition. GOP (Greedy Oil Party) in power equals high oil prices. Free market crony capitalism equals more rip-off price increases from business monopolies like oil cartels, health insurance companies, unregulated hedge fund traders using highly leveraged speculation in commodities, precious metals and oil
Ever since Republicans regain seats in Congress in the last Congressional election, people started to fear economic collapse.
I can afford higher taxes more than the cuts they want the middle class to make. RAISE TAXES, INVEST MONEY in the infrastructure. Become once again a nation that builds something. I am sick and tired of oil company executives who claim they must have taxpayer subidies. I was never in a union but they gave us decent wages, benefits, safe working places and a strong middle class. I recognize how much I benefited from unions and federal programs. Yes, we do have to pay for what we do but the policies of the Bush administration which decided we could have guns and butter (just like the Carter administration) got us into this mess. In addition matters were made worse with the destruction of reasonable regulation and oversight. Now the crazies want us to cut those expenditures that made us strong and build a strong middle class but lower taxes on those who DID NOT produce jobs. In fact, there is a direct correlation between the loss of jobs and the Bush taxcuts even before the crash of 2008. Stop the idiotic untrue mantra that low taxes means more jobs.
Hi Mike,
I follow your articles and those of other M&M Associates regularly. I publish over 100 web sites, mostly educational, energy and finance related and often quote you folks – use the appropriate tags you guys ask for – and cross links etc. – and as an auditor myself who spent 30 years ripping into the books of huge multi-national corporations for 30 years, having worked for two Judges before that career, I have to say you folks are spot on 99% of the time: your information and predictions are accurate and articles well done. Thank you.
That said, I did follow the “ETF” advice on proshares and found it disappointing. My direct bullion investments did quite well, whereas proshares and double proshares gold, silver and oil were – to me – a scam. Not that you folks “own that firm”, but the profits there did not match claims or expectations, and I suggest folks avoid them. Sorry. I’m blunt.
What I do suggest is folks with any “capital” at all ride silver – the “volatile” metal – and ride it as coins as I have done and a few gals I convinced have done: 40% in 6 months was nice, reliable and let them sleep at night, and while they bit their nails a bit when it briefly tanked, it flew back with gold over 1500 and we’re all ok with that. Silver is a buyer’s market nearly any day of the week with as little as $30 – $40 bucks in your pocket, and even mini contracts – while definitely high risk – have their upside for the gamblers in the crowd willing to stay up late – get up early – and keep a finger on the market pulse by the minute.
That lifestyle is a bit of a pain to me, and I prefer the buy and hold of real metal: even lbs of copper are worth storing and one unemployed gal I know has made a hobby of collecting and stripping motors and now has about $10,000 in copper scrap in her back yard at any given time, and a steady income from her work – she loves me for the advice that in large measure was kick started by you folks at M&M.
As for printing money – they’ll do it now, next month, next year and all the way up to the point where we are paying $50 – $500 for a gallon of gas and a loaf of bread – we can be sure that whether there is a Dem or Rep in the White House or Congress, it won’t matter. They’re out of control and absolutely clueless about how to forge a sustainable U.S. economy. Bailout, TARP and other “stimulus” packages, QE-whatever – all go to making the fat boy bankers rich while avg Americans buy duct tape for their pup tents parked under freeway overpasses. That is the country today that resembles Cuba far more than it resembles the U.S. of only 10 or 20 years ago. The middle class is shot – crushed – factories are closing and the avalanche of commercial real estate defaults is just getting started. I have friends in China who are licking their chops saying “We buy America – half price!” – like our entire country is an ongoing after-xmas special at Macys, and they’re right, and I don’t blame them one bit. Our biggest wind farms are Chinese, our stores are being bought be them, our mortgage REO tapes with 100’s of thousands of homes are being bought by them and between them and the European bankers who engineered this mess, (who our politicians work for), its one rocket ride roller coaster into a deep ditch to be sure.
If you have any cash left my best advice is get yourself sustainable – farm or rural land is a good start – mountain hideaway even better as long as you have sustainable water and can grow crops and maintain your home. Tools are a good investment, especially the older stuff made prior to 1950 – it was tough and hand operated drills (I have 5) are a wise investment, along with books on farming, winter crops – all that stuff. The urban centers are likely to experience power and water shortages (one of our web sectors deals with large international infrastructure and this trend is growing world-wide – soon to be in a neighborhood near you) – and once folks in cities realize the trend it’ll be too late to get cheap rural land as easily as it is today.
Sorry if I’m a pessimist – but auditors aren’t generally well liked anyway – I’m used to it – and the only optimism really here is that a few folks will get their money into metals and others will get their families to rural areas and let this phase blow over until the riots break out and the politicians in D.C. figure out who they really work for, although honestly after nearly 200 years of “working for them – the folks overseas” – I doubt we’ll ever be able to train em to work for us. Jefferson suggested a revolution every now and them was good for a nation. I fear ours is nearly at hand and would suggest it is long overdue.
Hi Mike,
I think it might be instructive for us if you could list the basic elements of the $61 trillion that you said in your recent presentation that the USA is in the red.