Connect with us

Economy

Recession 2017? These Things Never Happen Unless A New Recession Is Beginning

Is the U.S. economy about to get slammed by a major recession? According to Gallup, U.S. economic confidence has soared to the highest level ever recorded, but meanwhile a whole host of key economic indicators are absolutely screaming that a new recession is beginning.

Published

on

Is the U.S. economy about to get slammed by a major recession?  According to Gallup, U.S. economic confidence has soared to the highest level ever recorded, but meanwhile a whole host of key economic indicators are absolutely screaming that a new recession is beginning.  And if the U.S. economy does officially enter recession territory in 2017, it certainly won’t be a shock, because the truth is that we are well overdue for one.  Donald Trump has inherited quite an economic mess from Barack Obama, and it was probably inevitable that we were headed for a significant economic downturn no matter who won the election.

One of the key indicators to watch is average weekly hours.  When the economy shifts into recession mode, employers tend to start cutting back hours, and that is happening right now.  In fact, as Graham Summers has pointed out, we just witnessed the largest percentage decline in average weekly hours since the recession of 2008…

Average Weekly Hours

In addition to the decline in hours, Summers has suggested that there are a number of other reasons to believe that a new recession is here…

The fact is that the GDP growth of 4%-5% is not just around the corner. The US most likely slid into recession in the last three months. GDP growth collapsed in 4Q16, with a large portion of the “growth” coming from accounting gimmicks.

Consider the following:

  • Tax receipts indicate the US is in recession.
  • Gross private domestic investment indicates were are in a recession.
  • Retailers are showing that the US consumer is tapped out (see AMZN’s recent miss).
  • UPS, another economic bellweather, dramatically lowered 2017 forecasts.

To me, even more alarming is the tightening of lending standards.  In our debt-based economy, the flow of credit is absolutely critical to economic growth, and when credit starts to get tight that almost always leads to a recession.

So the fact that lending standards have now tightened for medium and large sized firms for six quarters in a row is very bad news.  The following comes from Business Insider

“Although modest over the past couple of quarters, it is still worth noting that this is now the sixth quarter in succession that standards have tightened for large and medium sized firms,” Deutsche Bank economist Jim Reid wrote in a research note to clients.

“This usually only happens in recessions.”

Reid is 100 percent correct on this point.  This is precisely the kind of thing that we would expect to see if a new recession was beginning, and if this trend continues it is hard to imagine that the U.S. economy will be able to continue to grow.

And it is interesting to note that job growth at S&P 500 companies has gone negative for the first time since the last recession, and so large firms are definitely starting to feel the pressure.

Simultaneously, lending standards are also tightening up for consumers

“The most notable tightening in standards though was in consumer loans,” the Fed said. “During the quarter, banks reported an 8.3% net tightening in credit standards for credit cards and 11.6% net tightening for auto loans.”

US consumer spending accounts for more than two-thirds of economic activity and is thus a key driver of growth in the world’s largest economy.

Those numbers for credit cards and auto loans are major red flags.

It is very simple.  Tighter credit means less economic activity which means slower economic growth.  The U.S. economy grew at a dismal 1.9 percent annual rate during the 4th quarter of 2016, and it would be absolutely no surprise if we end up with a negative number for the first quarter of 2017.

One of the big reasons why lending standards are tightening is because bankruptcies are rising.

As I reported the other day, consumer bankruptcies just rose on a year-over-year basis in back to back months for the first time in almost seven years.  Commercial bankruptcies had already been rising on a year-over-year basis throughout 2016, and so the fact that consumer bankruptcies have now joined the party is a very bad sign.

And we have also just learned that real median household income declined in 2016

Its official! The spectacular Obama/Fed “recovery” produced no increase in real medin household income in 2016 (the last year of Obama’s reign of [economic] error). In fact, real median annual household income in December 2016 ($57,827) was 0.9 percent lower than in December 2015 ($58,356).

Yes, I understand that there is a tremendous amount of optimism out there right now because of Donald Trump.

But the truth is that it is literally going to take some sort of an economic miracle to avoid a recession.

And if a recession is going to happen anyway, the Trump administration should want it to occur as quickly as possible.

You see, if a recession starts a year from now, it will be much more difficult for Trump to blame it on Obama.  But if a recession starts right now, he will definitely be able to argue that it happened because of the mess that he inherited from the last administration.

In addition, the sooner the next recession ends the sooner the next recovery can begin.  If a recession is still going on during the 2020 campaign, that would be really bad for Trump, but if a recovery is well underway by then that would be really good for his chances.

If you doubt this, just go back and look at the 1984 campaign.  After a very difficult recession, the U.S. economy bounced back strongly and Ronald Reagan was able to ride that momentum to an easy victory.

So this may sound very strange to many of you, but the truth is that if a new recession is coming Trump supporters should want it to happen as rapidly as possible.

Unfortunately, once a new recession begins it may not play out like recessions normally do.  The U.S. government is 20 trillion dollars in debt, we are in the midst of one of the biggest stock market bubbles in history, and our planet is becoming more unstable with each passing day.  So even though Trump is in the White House and Obama is gone, let there be no doubt that a catastrophic economic crisis could literally erupt at any moment.  I continue to encourage my readers to do all that they can to get prepared, because those that are prepared in advance will have the best chance of successfully getting through what is coming.

Unfortunately, a lot of people out there seem to believe that all of our problems have somehow evaporated just because Donald Trump is now living in the White House.

That is simply not true, and we all need to be praying for guidance and wisdom for Trump and his team as they prepare to deal with the great challenges that are ahead for our nation.

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading

Economy

Uber Paid Hackers to Keep Massive Breach a Secret

Hackers stole personal information on 57 million Uber Technologies Inc. customers and drivers in October 2016, as part of a massive data breach that the ride-hailing service willingly hid from victims and U.S. regulators.

Published

on

Hackers stole personal information on 57 million Uber Technologies Inc. customers and drivers in October 2016, as part of a massive data breach that the ride-hailing service willingly hid from victims and U.S. regulators.

Uber told Bloomberg on Tuesday that it paid the hackers responsible $100,000 to delete the stolen data and keep the breach quiet. The company declined to disclose the identities of the offenders and said it is confident that the stolen information was never used.

“None of this should have happened, and I will not make excuses for it,” Uber chief executive Dara Khosrowshahi said in a statement acknowledging the breach and cover-up. “While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes.” (See also: Uber Will IPO in 2019.)

According to Bloomberg, the hackers gained access to names, email addresses and phone numbers of 50 million Uber customers around the world, as well as personal information of about 7 million drivers, including 600,000 U.S. driver’s license numbers. Uber added that more sensitive information, such as location data, credit card, bank account and social security numbers, wasn’t compromised in the October 2016 attack.

Khosrowshahi said that the company has since tightened its security and “obtained assurances that the downloaded data had been destroyed.” Uber’s newly named CEO added that two of the employees responsible for failing “to notify affected individuals or regulators” following the attack were ousted. Chief security officer Joe Sullivan is believed to be one of them.

Uber’s co-founder and former CEO, Travis Kalanick, was made aware of the breach one month after it took place, the company told Bloomberg. Kalanick reportedly found out about the matter shortly after Uber settled a lawsuit with the New York attorney general over data security disclosures. (See also: Uber CEO Travis Kalanick Resigns.)

News of the company’s breach and cover-up has already prompted New York Attorney General Eric Schneiderman to launch an investigation. Bloomberg also reported that Uber is being sued for negligence by one of its customers.

“Uber failed to implement and maintain reasonable security procedures and practices appropriate to the nature and scope of the information compromised in the data breach,” according to the complaint filed Tuesday in federal court in Los Angeles.

Hackers have successfully infiltrated numerous companies in recent years, including Yahoo, now owned by Verizon (VZ), Time Inc.’s (TIME) MySpace, Target Corp. (TGT), Anthem Inc. (ANTM) and Equifax Inc. (EFX). (See also: Yahoo Says All 3 Billion Accounts Were Affected in 2013 Attacks.)

Read more: Uber Paid Hackers to Keep Massive Breach a Secret | Investopedia https://www.investopedia.com/news/uber-paid-hackers-keep-massive-breach-secret/#ixzz4zLLDGrL4
Follow us: Investopedia on Facebook

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading

Economy

The Great Retirement Con

A pension is what’s referred to as a defined benefit plan.

Published

on

This report was originally published by Adam Taggart at PeakProsperity

The Origins Of The Retirement Plan

Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a “pension”, was again offered to soldiers in the Civil War and every American war since.

Since then, similar pension promises funded from public coffers expanded to cover retirees from other branches of government. States and cities followed suit — extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.

A pension is what’s referred to as a defined benefit plan. The payout promised a worker upon retirement is guaranteed up front according to a formula, typically dependent on salary size and years of employment.

Understandably, workers appreciated the security and dependability offered by pensions. So, as a means to attract skilled talent, the private sector started offering them, too.

The first corporate pension was offered by the American Express Company in 1875. By the 1960s, half of all employees in the private sector were covered by a pension plan.

Off-loading Of Retirement Risk By Corporations

Once pensions had become commonplace, they were much less effective as an incentive to lure top talent. They started to feel like burdensome cost centers to companies.

As America’s corporations grew and their veteran employees started hitting retirement age, the amount of funding required to meet current and future pension funding obligations became huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in US history, was just entering the workforce by the 1960s.

Companies were eager to get this expanding liability off of their backs. And the more poorly-capitalized firms started defaulting on their pensions, stiffing those who had loyally worked for them.

So, it’s little surprise that the 1970s and ’80s saw the introduction of personal retirement savings plans. The Individual Retirement Arrangement (IRA) was formed by the Employee Retirement Income Security Act (ERISA) in 1974. And the first 401k plan was created in 1980.

These savings vehicles are defined contribution plans. The future payout of the plan is variable (i.e., unknown today), and will be largely a function of how much of their income the worker directs into the fund over their career, as well as the market return on the fund’s investments.

Touted as a revolutionary improvement for the worker, these plans promised to give the individual power over his/her own financial destiny. No longer would it be dictated by their employer.

Your company doesn’t offer a pension? No worries: open an IRA and create your own personal pension fund.

Afraid your employer might mismanage your pension fund? A 401k removes that risk. You decide how your retirement money is invested.

Want to retire sooner? Just increase the percent of your annual income contributions.

All this sounded pretty good to workers. But it sounded GREAT to their employers.

Why? Because it transferred the burden of retirement funding away from the company and onto its employees. It allowed for the removal of a massive and fast-growing liability off of the corporate balance sheet, and materially improved the outlook for future earnings and cash flow.

As you would expect given this, corporate America moved swiftly over the next several decades to cap pension participation and transition to defined contribution plans.

The table below shows how vigorously pensions (green) have disappeared since the introduction of IRAs and 401ks (red):

(Source)

So, to recap: 40 years ago, a grand experiment was embarked upon. One that promised US workers: Using these new defined contribution vehicles, you’ll be better off when you reach retirement age.

Which raises a simple but very important question: How have things worked out?

The Ugly Aftermath

America The Broke

Well, things haven’t worked out too well.

Three decades later, what we’re realizing is that this shift from dedicated-contribution pension plans to voluntary private savings was a grand experiment with no assurances. Corporations definitely benefited, as they could redeploy capital to expansion or bottom line profits. But employees? The data certainly seems to show that the experiment did not take human nature into account enough – specifically, the fact that just because people have the option to save money for later use doesn’t mean that they actually will.

First off, not every American worker (by far) is offered a 401k or similar retirement plan through work. But of those that are, 21% choose not to participate (source).

As a result, 1 in 4 of those aged 45-64 and 22% of those 65+ have $0 in retirement savings (source). Forty-nine percent of American adults of all ages aren’t saving anything for retirement.

In 2016, the Economic Policy Institute published an excellent chartbook titled The State Of American Retirement (for those inclined to review the full set of charts on their website, it’s well worth the time). The EPI’s main conclusion from their analysis is that the switchover of the US workforce from defined-benefit pension plans to self-directed retirement savings vehicles (e..g, 401Ks and IRAs) has resulted in a sizeable drop in retirement preparedness. Retirement wealth has not grown fast enough to keep pace with our aging population.

The stats illustrated by the EPI’s charts are frightening on a mean, or average, level. For instance, for all workers 32-61, the average amount saved for retirement is less than $100,000. That’s not much to live on in the last decades of your twilight years. And that average savings is actually lower than it was back in 2007, showing that households have still yet to fully recover the wealth lost during the Great Recession.

But mean numbers are skewed by the outliers. In this case, the multi-$million households are bringing up the average pretty dramatically, making things look better than they really are. It’s when we look at the median figures that things get truly scary:

Nearly half of families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium. (Source)

The 50th percentile household aged 56-61 has only $17,000 to retire on. That’s dangerously close to the Federal poverty level income for a family of two for just a single year.

Most planners advise saving enough before retirement to maintain annual living expenses at about 70-80% of what they were during one’s income-earning years. Medicare out-of-pocket costs alone are expected to be between $240,000 and $430,000 over retirement for a 65-year-old couple retiring today.

The gap between retirement savings and living costs in one’s later years is pretty staggering:

  • Nearly 83% of retired households have less saved than Medicare costs alone will consume.
  • One-third of retired households are entirely dependent on Social Security. On average, that’s only $1,230 per month – a hard income to live on. (source)
  • 34 percent of older Americans depend on credit cards to pay for basic living expenses such as mortgage payments, groceries, and utilities. (source)

As for Medicare, the out-of-pocket costs could easily soar over retirement. The Wall Street Journal reports that the current estimate of Medicare’s unfunded liability now tops $42 Trillion. Such a mind-boggling gap makes it highly likely that current retirees will not receive all of the entitlements they are being promised.

And the denial being shown by baby boomers entering retirement is frightening. Many simply plan to work longer before retiring, with a growing percentage saying they plan to work “forever”.

But the data shows that declining health gives older Americans no choice but to leave the work force eventually, whether they want to or not. Years of surveys by the Employment Benefit Research Institute show that fully half of current retirees had to leave the work force sooner than desired due to health problems, disability, or layoffs.

Add to this the nefarious impact of the Federal Reserve’s prolonged 0% interest rate policy, which has made it extremely hard for retirees with fixed-income investments to generate a meaningful income from them.

The number of Americans aged 65 years and older is projected to more than double in the next 40 years:

Will the remaining body of active workers be able to support this tsunami of underfunded seniors? Don’t bet on it.

Especially since their retirement savings prospects are even more dim. With long-stagnant real wages and punishing price inflation in the cost of living, Generation X and Millennials are hard-pressed to put money away for their twilight years:

(Source)

Public Pensions: Broken Promises

And for those “lucky” folks expecting to enjoy a public pension, there’s a lot of uncertainty as to whether they’re going to receive all they’ve been promised.

Due to underfunded contributions, years of portfolio under-performance due to the Federal Reserve’s 0% interest rate policy, poor fund management, and other reasons, many of the federal and state pensions are woefully under-captialized. The below chart from former Dallas Fed advisor Danielle DiMartino-Booth shows how the total sum of unfunded public pension obligations exploded from $292 billion in 2007 to $1.9 trillion by the end of 2016:

(Source)

And the daily headlines of failing state and local pension funds (IllinoisKentuckyNew JerseyDallasProvidence — to name but a few) show that the problem is metastasizing across the nation at an accelerating rate.

Affording Your Future

The bottom line when it comes to retirement is that you’re on your own. The vehicles and the promises you’ve been given are proving woefully insufficient to fund the “retirement” dream you’ve been sold your whole life.

That’s the bad news.

But the good news is that the dream is still attainable. There are strategies and behaviors that, if adopted now, will make it much more likely for you to be able to afford to retire — and in a way you can enjoy.

In Part 2: Success Strategies For Retirement, we detail out these best practices for a solvent retirement, including providing 14 specific action steps you can start taking right now in your life that will materially improve your odds of enjoying your later years with grace.

For far too many Americans, “retirement” will remain a perpetual myth. Don’t let that happen to you.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading

Economy

North Korea’s ‘Unpredictability’ Scares Winter Olympics Visitors

North Korea’s antics are having an effect on the Olympics.

Published

on

North Korea’s antics are having an effect on the Olympics.  With less than three months before the Winter Olympics open in Pyeongchang, South Korea, the Games are struggling to draw visitors from home and abroad, largely because of fears about the secretive and unpredictable neighbor to the North just 50 miles away.

As of November 16, organizers say they’ve hit just 41% of their sales target of 1.06 million tickets, with sales in South Korea even weaker than those by international tourists, according to USA Today.  Anbritt Stengele, the founder of Sports Traveler, a Chicago-based travel agency, said she’s never seen such a sluggish market.

“The interest level is very low for this Olympics,” said Stengele. “We had Sochi (Russia) in 2014, and that interest level was lower than Vancouver (in 2010). But this one is even lower than Sochi. I would just classify it as extremely light interest. Sales have been stagnant.” She and other travel agents say there are a few factors that are affecting interest in the Winter Games, and a good many are from fears about North Korea aggression.

Stengele said North Korea is a big factor, as global tensions are running high over threats exchanged by President Trump and North Korean leader Kim Jong Un. Kim has conducted a record number of ballistic missile tests this year, as well as a test of its most powerful nuclear weapon to date. Both leaders have threatened to annihilate the others’ country if they order a first strike.

North Korea also has a massive artillery aimed directly at South Korea, and that’s unsettling to travelers who wish to see the games.  Stengele also said she’s heard concerns about whether travel insurance will cover cancellations in the event of a “disruption” by North Korea and the lack of accommodation options such as name-brand international hotel chains at the venue locations.

It isn’t just American tourists who are cutting their travels to South Korea because of fears that the chubby dictator in North Korea could start launching missiles anytime. South Korea has been suffering from a massive drop in visitors from China, in large part because of  the deployment of a U.S. anti-missile defense system last May that has angered the communist government in Beijing.

h/t : SHTFPlan.com

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading
Advertisement

Trending