February 2020 Economic Update

In my opinion, and that of many economic analysts, the U.S. Economy is very close to tipping into another very deep recession. Therefore, I’m beginning with a strong warning about our economy’s direction. Please pay careful attention to the reasons why I fear our impending recession may even be as bad as a ‘Depression’, exceeding the market crash of 2008-09. This potential ‘Depression’ is normally triggered by some type of major domestic event such as a mortgage loan breakdown, sharp inflation, or a declaration of war.

Historically, what follows is a stock market crash to the tune of a decline over 50 percent. This usually takes about 4-6 months before stocks hit their bottom levels. Afterwards, as you might remember, Real Estate and land values quickly follow and may lose over 60 percent in value. I say all this because economic growth cycles (“Bull Stock Markets”) almost always follow a pattern of 7-9 years before they drop because of a recession trigger. As of today, we are still in a Real Estate and Stock Market growth balloon that has just finished 10-full-years. Balloons must pop eventually, and the longer this growth cycle continues, the more massive the recession – depression will be.

In the next section, I’ll review some of the positive news that continues to prop up the Stock Market and supports the “Bubble” we are currently in:
As of early January 2020, the U.S. Bureau of Labor Statistics reported that non-farm jobs grew slightly over the previous period to 145,000 jobs. This translated to the current unemployment rate staying at about 3.5% (a multi-decade low). One year ago, unemployment was at 3.9% and overall wages were about 3 percent lower than they are today.

Despite the apparent wage growth, most Americans are debt stricken. Confidence caused by wage increases leads most people to buy more on credit, but not large ticket items like cars or homes. Because these purchases are not paid-in-full by cash, people are racking up the debt and justifying it by keeping more money in savings, and not buying items like real estate.

For example, retirees and college grads within the past decade make up a large group of those holding onto their cash and not buying ‘big ticket’ items that exceed $35,000 (such as a car or down payment on a home. Lately, this has put a slight damper on new home ‘starts’ and existing home sales. Even though interest rates are historically low (4.75% Prime Lending Rate) most U.S. Citizens feel interest rate increases are impending. Therefore, they have tightened their wallets and are decreasing investments in stocks, precious metals, land and real estate.

Another bright spot in the economy pushing us to a Great Recession is due to the ongoing announcements that America is now an oil “independent” producing nation and a net exporter of Oil. This is keeping oil prices low and giving most Americans the false ‘sense of security’ from oil industry job creation and price reductions at the pump. Energy industry analysts say that we no longer need to import from OPEC nations, and if we ever abruptly stopped producing oil as a nation; our supply glut would last up to 12 full years.

Commodities as of early January: Gold bullion is continuing (year over year) to increase in per ounce prices; today almost exactly to $1,567 per ounce. Silver bullion has remained a good investment over the past year, even though it has barely moved over the last quarter – $17.85 per ounce. Crude oil has dropped $2/barrel recently to a 3-month low of only $56.74/barrel…again due to the surplus in supply. This is a nice gift for workers that need to commute daily, but poor news for oil investors and oil producers.