1. The Student loan bubble
Student loans aren’t going to be around much longer, when people come to a realization that college is borderline worthless, kids are going to stop going. Currently, I see people graduating college, and the type of job they get when they graduate is a McDonald Cashier, or Starbucks cashier. Did you really need to go to college so you can do that, I don’t think so. Eventually, when the masses see that college isn’t what it used to be, they’re going to stop going, and what you will see in the future are one of two things. Either numerous universities are going to go out of business, or foreign students will price the US citizens out of the college market, and most of the US universities will be filled with foreign students from other countries. In my opinion, when you get older, your kids are going to say, Mommy and daddy, what were student loans?
2. The credit card bubble
Will Credit Cards still be around in the future, yes, but will almost everyone own them like they do now, no. Very few are going to own them, it will be like the 70’s where interest rates were sky high, and only the super wealthy owned Credit Cards. Americans are going to learn you don’t get to just consume, you have to produce first, than after you produce you can use that money to go to college, or buy tangible goods. You can’t just keep barrowing money to live beyond your means, while consuming foreign products, that type of economy is not sustainable. In the near future, you’re going to see many credit card companies go out of business. Eventually foreigners are going to come to the realization that they won’t get their money back from the US, and they’re going to stop lending to the US. When that does happen, the US citizens will only be able to barrow from US savers, and very few people in the US save their money, this will bankrupt a lot of credit card companies, and due to the lack of savings in the US, there will be very little barrowing.
3. The Treasury bond bubble
If you own treasuries, get rid of them now, while idiots on Wall Street still think they have value. The USA owes 14 trillion dollars and counting. If you spend a dollar every second from now, till the day you die, you still wouldn’t spend a trillion dollars. And the US owes 14 trillion. Mark my words the US will default on its debt, it will be done by either inflating their way out of debt, or it will be honest default. But that money will not be repaid either way.
I am not saying these are the only the bubbles in the US economy, I am just saying these are the three most obvious bubbles, that anyone with half a brain should be able to see.
When one discusses the 1920’s people think of the roaring twenties, a time of prosperity, speak easies, dancing, and singing the night away. But contrary to popular belief, that wasn’t always the case. In the beginning of the decade a depression was on the horizon, one where the first year was worse than that of the Great Depression. This depression is often referred to as the forgotten depression.
In the first year of the 1920 depression, production fell 21%, GDP (Gross Domestic Product) fell from 91.5 billion dollars to 69.6 billion dollars, and unemployment went from 4% to 11.7%.
When Warren Harding took office in 1921, he knew he had to act. But, Harding didn’t take action in the same manner as FDR, Bush, or Obama did. He used a different approach.
Here are some quotes from President Harding that sum up his actions. “We must deflate in deliberation”, and “we will attempt intelligent and courageous deflation and strike at government borrowing.”
When President Harding initially took office, the first action he took was to slash, not cut, but slash spending, from 18.5 billion dollars to 6.4 billion in the first year of his presidency. No, they weren’t spending cuts that were going to be made three years from now as in the debt ceiling compromise, they were immediate cuts. During the next three years, the amount of government spending went down from 6.4 billion dollars to 3.3 billion.
Warren Harding, also, cut taxes drastically, freeing up the economy from interference by government bureaucracy.
As a result, unemployment lowered from 11.7% to 6.7% in the first year, and the next year the unemployment rate dropped even further to 2.4%.
GDP also rebounded to 79.1 billion dollars the following year, up from 69.6 billion dollars, and the CPI (consumer price index) fell 15.8 percent.
What also made this recovery possible was the fact that the Federal Reserve didn’t interfere with the markets until 1922.
On the contrary, Japan in the 1920s didn’t let prices fall, and failed to take their losses like the US did. As a result, their economy went stagnate.
In 1913, Japan’s economy began its boom, which was fueled by cheap credit policies and WW1. The wholesale price index finally reached 322 points by the end of Japan’s boom period in 1920. This was a sure sign that Japan’s credit expansion was out of control. But in April of 1920, the wholesale price index finally dropped to 190 points. This brought Japan’s prices back in line with its trading partners.
During Japan’s boom period, the central banks of Japan created cheap credit, which was then loaned out at rates which were below the market rate. This caused firms to engage in projects and investments that were unprofitable due to their dependence on unsustainable low interest rates. These projects couldn’t be completed because there was an insufficient amount of capital goods available, and businesses were unable to cover the rising costs that low interest rates always create.
As a result, Japan’s government froze its banks and large industries, and didn’t permit the adjustment process to take place. As a result the Japanese economy did not recover, it went into economic stagnation, and resulting in Japan’s first lost decade.
This series of events shows that the government and the Federal Reserve cannot spend, or print their way out of a recession. The market must be allowed to run its course and permit bad businesses to fail. Low taxes, little or no intervention, and letting the market run its course is how to have a growing and thriving economy.
Currently, the unemployment rate is at 9.1%. However, the official unemployment rate doesn’t include the underemployed, part time workers looking for full time work, and people who have voluntarily left the work force, because they’re unable to find work. An Under employed worker is one that’s working a job which is below his or her skill set.
People are saying last month’s job report is just a hiccup on the road to recovery, and it is only natural that a disappointing jobs report would follow after such a positive one in April. But April’s job report wasn’t really as positive as the media portrayed it.
Regardless of what the mainstream press tells you, things are not looking good. Right now our economy is based upon consumer spending, with a consumer that’s broke. Student loan debt, credit card debt, mortgage debt, state and local government debt, as well as federal government debt is astronomically high. This economy can’t sustain itself, we are broke, we can’t spend anymore money.
In order to turn around this economy, we need to fundamentally restructure it back to a goods producing economy, like what we use to have.
Unfortunately in order to do that, things have to get worse before they get better. The service sector, particularly finance, the public sector, higher education, and the retail sector have to contract first, in order to have a real recovery take place. After these sectors contract, we then have to create goods producing jobs such as mining, Oil and gas, Manufacturing, etc. That’s what we need to do to turn around this economy, and it can’t be done overnight without some pain.
What people fail to realize is that, Jobs per say don’t grow an economy, its goods producing, productive jobs that grow an economy.
What I think this means for the stock market is that the free market forces are calling for an economic contraction, and deflation, but unfortunately Ben Bernanke thinks deflation is evil, and wants to fight it. According to Bernanke cheaper prices at the store are bad, but 4 dollar a gallon gas prices are just awesome. So I don’t think a 2008 stock market crash is likely, because at any sign of deflation, I think the Federal Reserve will inject as much liquidity into the market as possible to keep the stock market afloat.
But the market has a weird way of doing things, and some say that the credit contraction is going to be much greater than the money supply increase. I don’t believe so, but just in case you’re worried about a 2008 crash happening again, I would recommend you hedge yourself with these two inverse ETF’s.
I recommend the inverse financial etf (symbol FAZ), because I think the financials are going to be the first sector to go bankrupt due to inevitable higher interest rates, and the inverse small cap ETF (symbol TZA), because generally speaking, the small caps get hit harder than the large caps during a market crash, so you would make more money off these ETF’s in a crash.
In closing, here’s some statistics for you about the US economy. Over 500 wealthy Americans have become expats in the first quarter of this year. Over 70% of Wealthy Americans have moved 1/3 of their money out of the US and say they will be investing in China, India, and or brick countries.
When a country has a system with high taxes, and high regulations, this is what happens, the wealthy leave and go to where they are welcomed. Capital goes to were its treated the best, and Obama is downright hostile towards it.
The big news in the energy world has been the rise of gas prices, and were there going. In the short, I am not too sure, but in the long haul, I think they are heading up. If you want to know why, here are the reasons.
1. The Federal Reserve is still printing money.
When people talk about inflation, they always assume its rising prices. What they fail to understand is that inflation is not rising prices, it’s an expansion of the money supply. Higher prices are just the result of inflation. Since 2008 the money supply has increased 15 fold. This is the first reason the price of Oil is going up.
2. The next reason is the federal and trade deficits. The less a country produces the lower there currency will be valued, because when a country isn’t producing, the demand for their products is low, and as a result, no one will need their currency to buy their products. That’s why trade deficits lead to a lower currency value. And federal deficits lead to bad credit, which results in a lowered valued currency. That’s a simple reason why federal deficits lead to higher prices.
3. Growing world population demand
Everyone in the world uses oil, so the more people, the higher the demand, which equals higher prices.
If you listen to Jim Rogers here, one will see that the world is running out of known reserves. The supply of Oil is dwindling each day, and growing demand + shrinking supply= Higher Oil prices.
One of the biggest suppliers in the world is also running out of Oil. If you look at this wiki leaks article here you would see that Saudi Arabia has grossly overestimated the amount of Oil they have in reserve.
So over the next couple of years, I see Oil prices going higher, and Oil stocks doing really well.
The safe way to play this, is one can buy an Exxon or a Chevron, and it will do well. But if you want dividends I would buy Canadian Energy trusts.
Two small Caps I have my eye on is Mart Resources and Canacol Energy. These stocks both have a good amount of reserves, and are well positioned for growth.
Here’s an article were Chen Lin talks about Mart Resources, here, here is Canacol’s energy reserve report here, this is a stock Keith Schaefer has recommended
One last thing, if you think the Oil companies are ripping you off at the pump your dead wrong, if you look here, you will see that Oil companies like Exxon Mobil only make 2 cents a gallon in profit at the pump, and that governments make 48 cents a gallon, so if you want to blame someone for pirate profiteering, it is the government you should be outraged at, not the oil companies.
Its not speculators reguardless of what Obama says, because my question is where do they get the money to speculate with. I’ll tell you, the Federal Reserve prints it, than loans it to Wall Street at interest rates that are next to nothing, than they use that money to speculate.
First off, I said I would write an article about the Vanadium and Oil market, which I will next week, but right now I wanted to do some venting about the government shutdown. If you just heard the news, the government will be open for one more week, big deal, who cares; they are just going to continue this nonsense for next couple of weeks. My first comment is about the abortion issue that they were fighting about. First off, it doesn’t matter if you’re pro-choice, pro-life, or neutral, they should have eliminated funding for abortions, if you want an abortion, you should have to pay for it yourself, if you can’t afford it you don’t get it. If you can’t afford the abortion, than put the kid up for adoption.
Now people generally ask me, John you seem really excited about a government shutdown, can you tell me some negatives. Normally I would say no, but I was just thinking about the negatives and I have come up with a couple.
1. The government shutdown doesn’t prevent the Ben Bernanke and the Federal Reserve from printing money, because the Federal Reserve is a privately owned banking cartel. So that’s one negative.
2. It doesn’t shut Obama down, and stop him from enacting anymore insane policies, as well as the rest of the congress.
3. US soldiers will be in a grave danger, rather your for or against the wars, you shouldn’t want to see our soldiers harmed. Personally, I think we need to rebuild our country, and stop nation building abroad, but that’s just my opinion.
So there are some negatives. What this shutdown does show is Obama is a complete joke, he is continuing two wars, and has started another one (unconstitutionally), but has a hard time keeping the government open. For the mess we are in, I blame both parties, and the Federal Reserve, but when it comes to the government shutdown, if someone is going to get blamed, I am putting the shutdown blame, solely on the Democrats, and no one else and here is why.
1. They had a majority in the house and senate, and control of the white house, yet they were unable to pass a budget last year. What a joke, for two years they had super majorities, well until Senator Kennedy died, yet they were unable to come up with a budget for the year 2011. What a joke.
2. Obama said he was going to unite everyone in 08, yeah really united; he is the most divisive president I have ever seen. Obama is such a bad president he is the only president that could make George Bush, look like a fiscal conservative, and a man of peace.
If they can’t drastically cut spending, and shrink the size of government; I hope there is a shut down.
Also I hope people learn this from the shutdown.
1. That the government is too big, and the size and scope of this government cannot be sustained, and will not be sustained, and if Washington tries to keep the government this big, there will be a societal collapse, which will make 2008 look like a walk in the park.
2. Our government is stretched way to thin, and we can’t just cut spending, we need to shut down whole departments, and we can start with shutting down the department of Education, Homeland security, department of energy, housing and urban development, the TSA, the SEC, and the EPA. That would be a great start, will this happen, I highly doubt it.
In closing, if the government doesn’t shut down, and we continue on this path of reckless borrowing and spending, than the country will shut down, and instead of having a self imposed debt limit, we will soon have a foreign imposed debt limit by China and Japan, and that will be a much harder pill to swallow, than what we would have to swallow now, if we continue to keep the government open through reckless barrowing.
P.S. I am sorry I haven’t written in a while, I have been busy doing my taxes (blah). I hate taxes, and tax season.
Currently my labtop doesn’t work and is in the shop, but once it is fixed, I will be writing about the Oil and Vanadium markets.