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Economy

How The Fed Is Setting Up Trump For 3 Financial Disasters

Most Americans do not understand this, but the truth is that the Federal Reserve has far more power over the U.S. economy than anyone else does, and that includes Donald Trump.

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Most Americans do not understand this, but the truth is that the Federal Reserve has far more power over the U.S. economy than anyone else does, and that includes Donald Trump.  Politicians tend to get the credit or the blame for how the economy is performing, but in reality it is an unelected, unaccountable panel of central bankers that is running the show, and until something is done about the Fed our long-term economic problems will never be fixed.  For an extended analysis of this point, please see this article.  In this piece, I am going to explain why the Federal Reserve is currently setting the stage for a recession, a new housing crisis and a stock market crash, and if those things happen unfortunately it will be Donald Trump that will primarily get the blame.

On Wednesday, the Federal Reserve is expected to hike interest rates, and there is even the possibility that they will call for an acceleration of future rate hikes

Economists generally believe the central bank’s median estimate will continue to call for three quarter-point rate increases both this year and in 2018. But there’s some risk that gets pushed to four as inflation nears the Fed’s annual 2% target and business confidence keeps juicing markets in anticipation of President Trump’s plan to cut taxes and regulations.

During the Obama years, the Federal Reserve pushed interest rates all the way to the floor, and this artificially boosted the economy.  In a recent article, Gail Tverberg explained how this works…

With falling interest rates, monthly payments can be lower, even if prices of homes and cars rise. Thus, more people can afford homes and cars, and factories are less expensive to build. The whole economy is boosted by increased “demand” (really increased affordability) for high-priced goods, thanks to the lower monthly payments.

Asset prices, such as home prices and farm prices, can rise because the reduced interest rate for debt makes them more affordable to more buyers. Assets that people already own tend to inflate, making them feel richer. In fact, owners of assets such as homes can borrow part of the increased equity, giving them more spendable income for other things. This is part of what happened leading up to the financial crash of 2008.

But the opposite is also true.

When interest rates rise, borrowing money becomes more expensive and economic activity slows down.

For the Federal Reserve to raise interest rates right now is absolutely insane.  According to the Federal Reserve Bank of Atlanta’s most recent projection, GDP growth for the first quarter of 2017 is supposed to be an anemic 1.2 percent.  Personally, it wouldn’t surprise me at all if we actually ended up with a negative number for the first quarter.

As Donald Trump has explained in detail, the U.S. economy is a complete mess right now, and we are teetering on the brink of a new recession.

So why in the world would the Fed raise rates unless they wanted to hurt Donald Trump?

Raising rates also threatens to bring on a new housing crisis.  Interest rates were raised prior to the subprime mortgage meltdown in 2007 and 2008, and now we could see history repeat itself.  When rates go higher, it becomes significantly more difficult for families to afford mortgage payments

The rate on a 30-year fixed mortgage reached its all-time low in November 2012, at just 3.31%. As of this week, it was 4.21%, and by the end of 2018, it could go as high as 5.5%, forecasts Matthew Pointon, a property economist for Capital Economics.

He points out that for a homeowner with a $250,000 mortgage fixed at 3.8%, annual payments are $14,000. If that homeowner moved to a similarly-priced home but had a 5.5% rate, their annual payments would rise by $3,000 a year, to $17,000.

Of course stock investors do not like rising rates at all either.  Stocks tend to rise in low rate environments such as we have had for the past several years, and they tend to fall in high rate environments.

And according to CNBC, a “coming stock market correction” could be just around the corner…

Investors are in for a rude awakening about a coming stock market correction — most just don’t know it yet. No one knows when the crash will come or what will cause it — and no one can. But what’s worse for most investors is they have no clue how much they stand to lose when it inevitably happens.

“If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent,” said Kendrick Wakeman, CEO of financial technology and investment analytics firm FinMason.

If stocks start to fall, how low could they ultimately go?

One technical analyst that has a stunning record of predicting short-term stock market declines in recent years is saying that the Dow could potentially drop “by more than 6,000 points to 14,800″

But if the technical stars collide, as one chartist predicts, the blue-chip gauge could soon plunge by more than 6,000 points to 14,800. That’s nearly 30% lower, based on Friday’s close.

Sandy Jadeja, chief market strategist at Master Trading Strategies, claims several predicted stock market crashes to his name — all of them called days, or even weeks, in advance. (He told CNBC viewers, for example, that the August 2015 “Flash Crash” was coming 18 days before it hit.) He’s also made prescient calls on gold and crude oil.

And he’s extremely concerned about what this year could bring for investors. “The timeline is rapidly approaching” for the next potential Dow meltdown, said Jadeja, who shares his techniques via workshops and seminars.

Most big stock market crashes tend to happen in the fall, and that is what I portray in my novel, but the truth is that they can literally happen at any time.  If you have not seen my recent rant about how ridiculously overvalued stocks are at this moment in history, you can find it right here.  Whether you want to call it a “crash”, a “correction”, or something else, the truth is that a major downturn is coming for stocks and the only question is when it will strike.

And when things start to get bad, most of the blame will be dumped on Trump, but it won’t primarily be his fault.

It was the Federal Reserve that created this massive financial bubble, and they will also be responsible for popping it.  Hopefully we can get the American people to understand how these things really work so that accountability for what is coming can be placed where it belongs.

Photo By Dan SmithRdsmith4 CC-BY-SA-2.5, via Wikimedia Commons

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Economy

How The Elite Dominate The World

Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?

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Throughout human history, those in the ruling class have found various ways to force those under them to work for their economic benefit.  But in our day and age, we are willingly enslaving ourselves.  The borrower is the servant of the lender, and there has never been more debt in our world than there is right now.  According to the Institute of International Finance, global debt has hit the 217 trillion dollar mark, although other estimates would put this number far higher.  Of course everyone knows that our planet is drowning in debt, but most people never stop to consider who owns all of this debt.  This unprecedented debt bubble represents that greatest transfer of wealth in human history, and those that are being enriched are the extremely wealthy elitists at the very, very top of the food chain.

Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?

Every year, the gap between the planet’s ultra-wealthy and the poor just becomes greater and greater.  This is something that I have written about frequently, and the “financialization” of the global economy is playing a major role in this trend.

The entire global financial system is based on debt, and this debt-based system endlessly funnels the wealth of the world to the very, very top of the pyramid.

It has been said that Albert Einstein once made the following statement

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Whether he actually made that statement or not, the reality of the matter is that it is quite true.  By getting all of the rest of us deep into debt, the elite can just sit back and slowly but surely become even wealthier over time.  Meanwhile, as the rest of us work endless hours to “pay our bills”, the truth is that we are spending our best years working to enrich someone else.

Much has been written about the men and women that control the world.  Whether you wish to call them “the elite”, “the establishment” or “the globalists”, the truth is that most of us understand who they are.  And how they control all of us is not some sort of giant conspiracy.  Ultimately, it is actually very simple.  Money is a form of social control, and by getting the rest of us into as much debt as possible they are able to get all of us to work for their economic benefit.

It starts at a very early age.  We greatly encourage our young people to go to college, and we tell them to not even worry about what it will cost.  We assure them that there will be great jobs available for them once they finish school and that they will have no problem paying off the student loans that they will accumulate.

Well, over the past 10 years student loan debt in the United States “has grown 250 percent” and is now sitting at an absolutely staggering grand total of 1.4 trillion dollars.  Millions of our young people are already entering the “real world” financially crippled, and many of them will literally spend decades paying off those debts.

But that is just the beginning.

In order to get around in our society, virtually all of us need at least one vehicle, and auto loans are very easy to get these days.  I remember when auto loans were only made for four or five years at the most, but in 2017 it is quite common to find loans on new vehicles that stretch out for six or seven years.

The total amount of auto loan debt in the United States has now surpassed a trillion dollars, and this very dangerous bubble just continues to grow.

If you want to own a home, that is going to mean even more debt.  In the old days, mortgages were commonly 10 years in length, but now 30 years is the standard.

By the way, do you know where the term “mortgage” originally comes from?

If you go all the way back to the Latin, it actually means “death pledge”.

And now that most mortgages are for 30 years, many will continue making payments until they literally drop dead.

Sadly, most Americans don’t even realize how much they are enriching those that are holding their mortgages.  For example, if you have a 30 year mortgage on a $300,000 home at 3.92 percent, you will end up making total payments of $510,640.

Credit card debt is even more insidious.  Interest rates on credit card debt are often in the high double digits, and some consumers actually end up paying back several times as much as they originally borrowed.

According to the Federal Reserve, total credit card debt in the United States has also now surpassed the trillion dollar mark, and we are about to enter the time of year when Americans use their credit cards the most frequently.

Overall, U.S. consumers are now nearly 13 trillion dollars in debt.

As borrowers, we are servants of the lenders, and most of us don’t even consciously understand what has been done to us.

In Part I, I have focused on individual debt obligations, but tomorrow in Part II I am going to talk about how the elite use government debt to corporately enslave us.  All over the planet, national governments are drowning in debt, and this didn’t happen by accident.  The elite love to get governments into debt because it is a way to systematically transfer tremendous amounts of wealth from our pockets to their pockets.  This year alone, the U.S. government will pay somewhere around half a trillion dollars just in interest on the national debt.  That represents a whole lot of tax dollars that we aren’t getting any benefit from, and those on the receiving end are just becoming wealthier and wealthier.

In Part II we will also talk about how our debt-based system is literally designed to create a government debt spiral.  Once you understand this, the way that you view potential solutions completely changes.  If we ever want to get government debt “under control”, we have got to do away with this current system that was intended to enslave us by those that created it.

We spend so much time on the symptoms, but if we ever want permanent solutions we need to start addressing the root causes of our problems.  Debt is a tool of enslavement, and the fact that humanity is now more than 200 trillion dollars in debt should deeply alarm all of us.

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Economy

Look Out Tesla, Apple’s On Your Six!

Shares of Apple moved lower after the company unveiled its newest models of the iPhone.

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I’ve got a confession to make… I’m a horrible dad.

You see, this week, I sent my 13-year old daughter to school without her iPhone.

I know, I know. That’s considered cruel and unusual punishment these days.

But when it was time to get in the car for school, Rebekah was checking her Instagram feed instead of getting ready to go. So I took her phone for the day.

According to Rebekah, that’s a big problem for a middle-schooler. “How am I supposed to communicate with my friends?!” (Heaven forbid she actually talks to them in person.)

As you can probably tell from my sarcasm, I think Rebekah’s perspective is a little off when it comes to her iPhone. Similarly, I think Apple’s investors also have a skewed perspective when it comes to the new iPhone models and the company’s long-term direction.

Fortunately, that skewed perspective sets up a great opportunity for income investors…

Apple’s Multi-Generational Iconic Brand

Shares of Apple moved lower after the company unveiled its newest models of the iPhone.

Apple’s iPhone 8 — along with the 10-year anniversary model “X” (pronounced “iPhone ten”) failed to inspire investors. Essentially, there weren’t enough surprise features for customers to get excited about.

I’m not sure I disagree with them…

You won’t find me standing in line to pay $1,000 for the newest iPhone. Honestly, the iPhone 5 or 6 has all the features I could ever really want in a phone. My kids have older models of the iPhone and they work perfectly fine for keeping in touch with each other and snapping pictures of little brother snuggling with the kittens.

But just because Apple got a cold reception to its latest products doesn’t mean the company is in trouble. Far from it!

You see, Apple will still sell plenty of its newest phones — and rack up billions in cash from these sales — for two reasons.

One: The iPhone is still a status symbol for young and old alike.

A recent survey from investment research firm Piper Jaffray found that 82% of U.S. teenagers expect their next phone be an iPhone. This was the highest percentage recorded since the company started its semi-annual survey.1

Older adults are not much different, with 79% stating that they want the latest edition of the iPhone.

Despite the lackluster reviews on Apple’s latest models, the newest iPhone is still one of the hottest status symbols in our ever-more materialistic society.

The second reason is that blue chip companies will still keep their employees outfitted with the latest technology.

My little brother works for one of the big four accounting firms. This week, I dropped by his house to watch some Monday Night Football, and found him showing off his new piece of hardware. It seems his firm has already issued the iPhone 8 to all its staff accountants.

As long as Apple remains the standard for consumer technology, you can bet that corporate America will continue to issue its products to employees. This is just one of the ways companies are vying for qualified employees — a resource that is growing more scarce by the day!

Apple’s “Next Big Thing”

If you’re an investor in Apple, you now find yourself in an enviable position of either having a “good” investment today, or possibly a “great” investment in the near future.

That’s because today, Apple is pulling in cash by the truckload thanks to its existing suite of products. At last count, Apple was sitting on $261.5 billion in cash, much of it will likely be freed up to pay to investors once congress passes a new tax plan.2

Apple’s cash balance grew by 13% year over year during the second quarter. And that rate of growth should accelerate in the third and fourth quarters of this year thanks to new sales of the iPhone 8 and iPhone X.

So just with today’s business the way it is, Apple is a “good” opportunity for income investors. (And that’s putting it modestly).

But what happens when Apple launches its “next big thing?”

And more importantly, what will that “next big thing” be??

I can tell you that Apple’s CEO Tim Cook isn’t content to sit back and sell iPhones until consumer tastes change. No, he’s got much bigger plans ahead.

In fact, Tim Cook has gone on the record stating that his company is focusing on autonomous systems… Which sounds a like self-driving cars and other equipment to me.

Think about the possibilities!

This summer, our own Davis Ruzicka wrote an intriguing article about what could happen if Apple bought Ford Motor (NYSE:F).

It’s not as farfetched as it might sound!

Can you imagine the buzz around the iCar or iTruck launch? Not to mention the cash that Apple will generate from blockbuster sales of the ultimate vehicle status symbol.

(Look out Tesla!)

Now I’m not suggesting you invest in Apple just because the company might step into the auto market. That’s a possibility but not something I would bet on.

But I do think the stock is an excellent investment right now, thanks to the company’s huge cash balance and reliable, growing dividend.

Just with its standard international business today, Apple is a solid investment. (And you’re getting a nice discount to buy shares thanks to the pullback following the release of the iPhone 8 and iPhone X.)

Looking forward, Apple could be a great investment if it comes out with a new blockbuster product that people want. And if and when that happens, shares will move sharply higher while Apple’s dividend grows at the same time.

So if you’re not already invested in AAPL, consider adding some shares to your retirement account today. At the very least, you’ll own a steady income generating investment. But I expect much more than that from Apple over the next few years.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
Twitter ❘ Facebook ❘ Email

1American teenagers, just like their parents, crave this status symbol more than ever, MarketWatch
2Apple cash pile hits new record of $261.5 billion, CNBC, Anita Balakrishnan

Ed. Note: One of the best ways to protect your wealth against a falling market is to lock in legally guaranteed income payments. This way, regardless of what the market does, and regardless of where the Fed sets rates, you can tell your company, “Forget you! Pay ME!!” Find out how to lock in these legally guaranteed payments here.

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Economy

The Craziest Mortgage Scheme I’ve Ever Seen

The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

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The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

Leading up to the GFC, there was a voracious appetite from investors for “AAA”-rated mortgage debt. So lenders would make lots of loans to subprime borrowers and sell them to Wall Street. Wall Street would pool them together and one of the major ratings agencies (like Moody’s or Standard & Poor’s) would stamp the steaming pile of garbage with AAA.

AAA by Moody’s definition means the investment “should survive the equivalent of the U.S. Great Depression.” In other words, it’s rock solid.

The reasoning was that one subprime mortgage was risky. But if you bundled thousands together, you get AAA… Because they couldn’t all go bad at once. And, hey, you can’t lose money in real estate.

The rating agencies weren’t as dumb as they appeared, though… Investigations following the crisis showed lots of incriminating emails, like this one from a Standard & Poor’s exec:

“Lord help our fucking scam . . . this has to be the stupidest place I have worked at.”

Like everyone else, they played along because they wanted to make money.

To generate enough mortgages to meet demand, lenders would do anything…

– Sell a house for no money down

– Offer a teaser rate (which temporarily reduces monthly payments, then jumps to market rates)

– And even offer to pay part of your mortgage for a couple months (most small lenders could sell a loan to Wall Street in a month or two, erasing their liability. If the origination payment was more than cash out of pocket, they still came out ahead).

They called the worst of the subprime loans “NINJAs” as in “No income, No job, No assets.”

When they couldn’t actually write enough mortgages to meet demand, Wall Street got creative. They started bundling together bundles of mortgages, something called a CDO-Squared. Then they created synthetic CDOs, which were just derivatives of subprime mortgages and even other CDOs (essentially a way for people to gamble on the mortgage market without actual mortgages).

As we all know, it ended in disaster… because the people who took out the mortgages they couldn’t afford to buy overpriced homes stopped paying. And the CDOs, CDOs-squared and synthetic CDOs (which had been spread around the world) went bust.

Remember, it all started with selling people homes they couldn’t afford. Which brings me to today…

There’s a record high $1.4 trillion of student debt in the US. And millennials are struggling to pay off those balances.

The National Association of Realtors polled 2,000 millennials between the ages of 22-35 about student debt and homeownership… Only 20% of those surveyed owned a home… Of the 8 in 10 that didn’t own, 83% of them said student debt was the reason. And 84% said they’d have to delay a home purchase for years (seven years being the median response).

And that’s all bad for the home-selling business. Once again, the lenders are getting creative…

Miami-based homebuilder, Lennar Homes, recently announced it would pay a big chunk of a student loan for any borrower buying a home from them.

Through its subsidiary Eagle Home Mortgage, the company will make a payment to a buyer’s student loans of as much as 3% of the purchase price, up to $13,000.

Debt has become such a keystone of our society, that the only way we can afford something is to swap one type of debt they can’t afford with another type of debt.

A recent study by the Pew Charitable Trust showed 41% of US households have less than $2,000 in savings – a full one-third have zero savings (including 1 in 10 families with over $100,000 in income). Another study showed 70% of Americans have less than $1,000 in savings.

The point is, America is broke… A single, surprise expense like a flat tire or a doctor’s visit would wipe most people out.

And it’s only getting worse.

Back in August, I calculated the average household account at Bank of America (which has $592 billion in consumer deposits from 46 million households)… It’s only $12,870 per household… And that includes savings, investments, retirement… EVERYTHING.

Also keep in mind, that’s the average… So accountholders with huge balances skew the numbers higher.

It’s no wonder Americans have $1.021 trillion in credit card debt – the most in history.

Auto loans are also at a record high $1.2 trillion.

And let’s not forget the US government, which is in the hole more than $20 trillion. The US’ debt is now 104% of GDP… And total debt has grown 48% since 2010.

The liability side of the balance sheet keeps expanding. Meanwhile assets and productivity aren’t keeping up.

But people continue buying homes, cars, TVs and college educations by taking on more and more debt… And now, by swapping one type of debt for another.

Wealth is built on savings and production. Not on playing tricks with paper and going deeper into debt.

I can’t tell when this house of cards falls. But rest assured, it will come tumbling down.

Will you be ready when it does?

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