The Equity Management Academy 2016 Q2 Outlook paints a dire picture of the Fed printing more money to attempt to revive the stagnant economy, causing a stock market bubble that is near to popping.
EMA said that almost all the economic indicators are pointing to a contraction of the economy. The government and the central bankers are trying to convince everyone that everything’s alright, but things aren’t getting better.
US Manufacturing PMI is at multi-year lows. Wholesale inventories are at record highs. We are seeing no sign of a recovery. Manufacturing is not growing. Retail is continually contracting. This is an economy that is collapsing.
EMA’s 2016 Outlook stated that bubbles are starting to pop, starting with the auto subprime loan bubble. Delinquencies are up 5.61% to the highest level in 20 years. These borrowers are people who can’t qualify for regular loans. The banks and car companies are just handing out loans left and right to get anyone they possibly can into this bubble. The Comptroller of the Treasury recently said the auto loan market today reminds him of the housing loan market just before the collapse in 2008. Auto-loan borrowers are having trouble making payments on the higher interest subprime car loans.
Over the past eight weeks, EMA commented, we have seen the smart money leaving the market. The market rose by 1.1%, even as unprecedented numbers of investors are pulling their money out of the market. The Bank of America hedge fund has sold for a record 8 consecutive weeks. It is the longest selling streak since October/December 2010. The Fed is now talking about lowering interest rates to prop up the market a little longer because the government does not want to be blamed for the collapse when it comes. There is talk of taking funds from central banks and supplying them to the people to attempt to stimulate the economy. They want people to take the money and spend it in retail. The report said that other countries have done this, such as the German Weimar Republic, which printed money, gave it to people to spend, but all it did was cause the value of the currency to go down, triggering hyperinflation.
The big question is who decides who gets the money? Most likely the everyday person is not going to get much of anything. With Quantitative Easing the banks never went ahead and loaned people these funds. The banks put the money into the stock market. The primary reason stocks are going up is stock buybacks. The government through the banks is giving free money to corporations and they are buying back their stocks, which raises prices. Over the past 12 months, corporations have bought back half a trillion dollars’ worth of their own stocks. When corporations buy back their stocks they are slowly liquidating themselves, instead of investing. Investors love it, because the value of stocks rise. In the long run, it doesn’t help. It puts money in those people’s pockets, but the rest of the people are being laid off to fund further buybacks.
The goal is to keep the market up by printing a whole lot more currency, which will devalue the currency and cause hyperinflation. When the rest of the world sees this, they will question the wisdom of keeping dollar in their reserves and dump the dollar, which will further devalue the dollar and cause more hyperinflation. The situation is just going to get worse.
Moody’s just put Deutsche Bank on a review for a downgrade. It is the first sign that the big banks’ ratings are starting to fall, just as they did before the 2008 crash. Six months after some of the bank's’ ratings fell, the entire system fell apart. EMA said, Everyone needs to realize that they are holding the system together not to help the people. . .but to help themselves. That is why the smart money is leaving. They are trying to get the retail investor in, but most people are trying to get their money out of the system. There’s going to be a certain point in time. . .where the entire system is just going to completely implode.
The government won’t be able to control it anymore. The real economic indicators will take over. Their imaginary numbers will not matter anymore. Everyone will be running for the exits. There will be mass layoffs like in 2008, but very much worse with difficulty in getting supplies. It is why you need to be prepared for what is coming. Get your affairs in order at this point. The situation around the world is getting worse. There is not that much time left before the entire system completely falls apart.