I have an economic warning and prediction, so in this update please pay attention to the reasons why I fear an impending doom in the form of a deep recession, similar or greater than the crash of 2008-09, is evident. Stocks (Corporate holdings) will drop in excess of 50 percent in value by early 2020. Real Estate to follow suit shortly thereafter.
I will outline some of the key reasons are that our economy is on the brink of hitting its longest-lasting period of growth ever — but what goes up, must and will go down. Bubbles occur, and the stock market’s growing bubble is about to pop. Almost anything of significance can be the needle that pops the massive growth balloon we have had for almost 10 full years. A few possibilities, war in the middle east, trade-tariff problems with China, or a large bank failure due to bad loans.
An increasingly dovish sounding Federal Reserve has contributed to a growing belief their next move will be an interest rate cut. Usually a cut signifies too much interest rate growth, housing price inflation, and a heated-up economy where everything costs more.
The perception that inflation is not a threat and that a slowdown is coming has prompted futures markets to price more than an 80% chance of a 25 ‘basis point’ rate cut before the end of 2019. Also, in the late Spring the Bond Market indicated an ominous signal that usually is a predictor of economic downturns. The dreaded “Inverted Yield Curve.” An inverted yield curve has preceded all last nine recessions, its typically cited as an indicator of a potential stock market crash.
This means banks typically borrow short term and lend longer term; so when the yield curve is inverted, the interest rate received on mortgage assets is typically going to be lower than what they pay on money borrowed. This results in diminishing bank revenue.
On the other side of the coin, and if you are the persistent optimist, the current economic state looks fairly decent. The strong jobs market is resulting in rising worker wages and means consumer confidence is back close to cycle highs. Unfortunately, the wage growth will be offset by rising home and large ticket item costs.
There have also been good retail sales and durable goods orders numbers of late (healthy manufacturing growth rates). Meanwhile, a 60-basis point plunge in the interest rate on a 30-year fixed rate mortgage offers support to the real estate market.
I continue to look for US GDP growth more than 2% this year, but with 2020 growth currently pegged to drop below 1.8%. President Trump’s trade frictions are also a risk to the economy, in that tariffs and trade imbalances can widen, particularly with China.
Some important stock market alternatives I recommend include: US Crude Oil (currently $52 per barrel at a great value), Gold bullion is $1335 per ounce (another great value and buying opportunity), Silver Bullion is $14.90 per ounce, and Timber/Lumber (down 30 percent over the last year).