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| Sharon A. Daniels President, Weiss Capital Management, Inc. |
All the “spin doctoring” on Wall Street and in Washington just can’t hide the grim fact that our economy is still contracting.
Rising mortgage rates … rising oil prices … plus higher unemployment are squeezing consumers. Without consumer spending, the hoped-for recovery on the horizon may vanish into thin air … and the market rally since March could evaporate with it.
At Weiss Capital Management†, our biggest concern is that investors today may have grown complacent … reading too much into this recent rally … and thinking the worst may be over.
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For instance, in spite of all the “spin,” we heard about the “better than expected” employment report recently … the truth is that soaring unemployment remains a growing threat to consumption … the main driver of our economy.
Sure, the “headline” number of jobs lost last month was “better” than expected — with “only” 345,000 workers laid off … rather than the 525,000 firings that were forecast.1
But if you dig a little deeper, you’ll find a mysterious +220,000 swing in payrolls due to statistics … specifically from adjustments to the birth/death model the government uses.
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Bottom line, it was actuarial models that added these jobs rather than actual businesses hiring.
In fact, last month’s unemployment report is consistent with an economy contracting anywhere from 2 percent to 4 percent annually … rather than an economy that will soon rebound.2
The broadest unemployment rate jumped to an all-time high of 16.4 percent of the workforce … a stunning 67 percent year-over-year increase in the underlying jobless rate!3
In simple terms: ONE out of every SIX Americans is now either out of work or unemployed/underemployed for economic reasons. That translates to 14.5 million unemployed workers in the U.S. today — up a record six million in the past 12-months alone.4
Worse still, as this chart illustrates, it is taking longer than EVER for displaced workers to find new jobs, with the duration of unemployment also at an all time record high.5
Far from being a harbinger of economic recovery ahead, this tells me there’s even more fall out coming in the months ahead from consumers who are likely to slash spending even further.
We have to face facts: We are in the midst of the longest economic contraction in our lifetimes … the worst since the 1930s.
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Of course Washington is doing everything in its power to reverse the crisis … but this could have even MORE devastating consequences in the long run.
The Jig May Already Be Up …
Washington is making a desperate gamble to turn around the economy and stop the free-fall in housing … Uncle Sam has gone “all in” with spending, lending and loan commitments that already total nearly $13 TRILLION.6
The largest recipients, of course, have been FAILED Wall Street financial firms and other troubled companies that are on the brink of bankruptcy. For its efforts, the government has bought a rally of nearly 40 percent in the S&P 500 since the March lows.7
But the rally may be living on borrowed time.
While stock prices have been enjoying what I see as just another bear market bounce … the U.S. bond market has been crumbling under the weight of Washington’s increased spending and interest rates are on the rise.
In fact, the benchmark 30-year U.S. Treasury bond has tumbled over 10 percent in just the past eight weeks … an ominous sign that a major bear market in long term Treasury bonds may be the next financial storm on the horizon.8
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The math is simple. Washington is planning to sell $3.25 trillion of Treasuries in the fiscal year ending September 30 to pay for all the bank bailouts, automaker bankruptcies, stimulus spending and record budget deficits.9
As a result of this unprecedented spending … and the huge supply of NEW bonds being issued to pay for it all … interest rates on long-term government bonds are beginning to shoot higher. This threatens to undo everything the government is trying so desperately to accomplish!
If interest rates continue to increase, any hope for economic recovery could be cut off at the knees … the ultimate outcome could be soaring borrowing costs for consumers and businesses alike.
In other words, the jig may be up! Investors could quickly lose faith in Washington’s ability to control its soaring deficit spending while it tries to maintain lower rates in hopes of jump starting the economy. They can’t have it both ways!
As a result, we could see a deflating economy and housing market today replaced with spiraling inflation tomorrow. Or worse, we could again suffer from the specter of STAGFLATION … a witches brew of slow growth AND soaring interest rates made even worse by high unemployment – creating a triple-impact on consumers.
A Limited Window of Opportunity to Help Shelter Your Wealth
from the NEXT Financial Storm …
The truth is, this economic and financial crisis may be far from over, and a new financial storm could impact markets for some time to come. For investors, these possibilities are flashing a warning. The reality is that the rules of the game have drastically changed, and your investment strategy must also change.
The future for investors is evolving toward a new reality that will be quite different from your past investment experience. Old notions, such as buy and hold, and stocks for the long run, may simply NOT work in the changing investment landscape we see ahead.
This is NO time to be complacent about your investments! However, this IS the time to consider parting ways with the flawed investment strategies of the past.
The good news: At Weiss Capital Management, my investment management team and I are intently focused on doing everything in our power to make sure you are prepared for this new reality in the financial markets and economy.
That’s precisely why we just presented a very special online video briefing last week:
The Weiss Wealth Event: The Next Financial Storm and Your All-Weather Portfolio
Already, more than 9,000 concerned investors have viewed this special Webinar to see and hear us explain …
- Why following old, traditional rules of investing at a time like this could be a recipe for disaster in today’s markets …
- How to avoid ticking time bombs that could blow up in the next financial crisis and how to prudently “hedge” your investments …
- Why conventional Wall Street investment ideas, such as “buy-and-hold,” can be hazardous to your wealth in this new market climate …
- How you can take advantage of a NEW strategy that could potentially protect your wealth, preserve your purchasing power, and position you for reasonable returns … without taking unreasonable risk.*
For a limited time, you can view an on-demand replay of this briefing, just click here now!
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In today’s rapidly changing economic and investment landscape, you have a unique, but limited, window of opportunity to learn about new strategies to help protect and potentially grow your wealth.
The recent market rally may be handing you a great opportunity to help protect your wealth and re-position your investments for the turbulent conditions we see ahead … if you act soon!
Just go here now to view an on-demand replay of this important event, and request your own complimentary copy of the Weiss All Weather Investor Guide.
Best wishes,
Sharon A. Daniels
President
Weiss Capital Management, Inc.
P.S. If you’re serious about protecting your wealth from future financial storms, then I urge you to click here now and watch this exclusive video briefing while you still can.
†Weiss Capital Management, Inc. (an SEC-Registered Investment Adviser) is a separate but affiliated entity of Weiss Research, the publisher of Money and Markets. Both entities are owned by Weiss Group, LLC.
The preceding is a paid for editorial that may contain forward-looking statements regarding intent and belief with regard to Weiss managed strategies and the market in general. Readers are cautioned that actual results may differ materially from those statements.
* All investments carry risk, this strategy is no exception. It is possible to lose money by investing in this strategy. Before investing, please review all strategy materials & the Firm’s ADV Part II.
The Weiss Weather Event contains information about a new strategy, the Weiss All Weather Managed Account. Prior to investing, please read program-specific materials regarding risk, suitability and important disclosures along with the Firm’s ADV Part II.
1 Gluskin Sheff Economics Commentary, 6/5/09
2 Ibid
3 Gluskin Sheff Economics Commentary, 6/8/09
4 Ibid
5 Ibid
6 Bloomberg: “Government Bond Yields Rise to Six-Month Highs; Metals Fallâ€, 5/28/09
7 Ibid
8 Bloomberg market data: 6/1/09
9 Bloomberg: “Government Bond Yields Rise to Six-Month Highs; Metals Fall”, 5/28/09
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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