Investing

The Impending Market Crash

I have been saying for quite some time that we are heading for yet another market crash. Personally I believe this one will make the Great Recession which we the people still have not covered from seem like an unexpected car repair bill. I’m not the only one now.

You can search for “corporate America toxic debt crisis” and come up with many hits. Not all of these hits are in “tiny corners” of the Internet either. Even Fortune magazine is writing about it. The situation is so dire that even the GOP, bought and sold by Wall Street, has adopted a platform to bring back Depression-era bank regulations known as Glass-Steagall. You know things are bad when both parties _finally_ muster the courage to bite the hand which owns them.

Don’t think you will be safe from corporate debt fallout. Just like the mortgage crisis this will cascade out across the globe. Wall Street has been trying to squeeze the Fed to keep stocking the all-you-can-eat-free-money-buffet any way they can. After roughly 8 years of gorging themselves on free money they are now in positions they cannot get out of once interest rates rise.

Management is never to blame. Once again they will lay off tens of thousands to pay for their incompetence but they will never be held accountable. We’ve already seen that with the mortgage crisis. Not one Wall street banker when to prison. Hey, you just pay the Secretary of State $675,000 in “speaking fees” so they “speak into the right ear” and banks just pay a token fine. Oh don’t worry. All of those noble public servants who were “investigating” the banking fraud will suddenly have cushy high paying jobs at the banks themselves or a Super PAC funded by the banks or a lobbyist firm funded in one way or another by the banks. That’s the way the One Percenters do things. They buy a few peasants who were supposed to keep them honest to keep graft and corruption rolling merrily on. Don’t worry. The media outlets masquerading as journalistic news shows won’t bother following up on the careers of those who cut the deals. They too get bought and sold by Wall Street.

Personally I don’t believe, even with both parties looking to bring back Glass-Steagall that either will bother to do it now, before the next financial crisis hits. An awful lot of people don’t expect the next market implosion to wait until after the election. If they were actually public servants they would enact that legislation now so we can get these “too big to fail” banks broken up. The bond market implosion will still happen but it will have much less of an impact if Washington really does let the investment banks and insurers go under this time.

Once interest rates start rising the bond market implosion will start to happen. It is happening now even without raising interest rates. The Fed has held them near zero for a very long time trying to buy corporate America time to restructure its debt and corporate America has thanked them by going even further into debt instead of paying it off. I mean, it’s “free money” why wouldn’t you just keep gorging yourself?

There is little one can do to shield themselves from this pending nuclear strike level fallout. If you are in a mutual fund you most likely have severe exposure. If you can find a bean counter which a person can actually trust (they are like unicorns) you might be able to find companies with little to no debt not horribly overpriced (an even rarer unicorn). Even if you find that unicorn they will still be impacted. The company will make something or provide some service which won’t be in great demand while companies are going bankrupt and tens of thousands are once again being laid off. Don’t worry, management will still get their parachute packages. They will land softly with no fear of prison.

Our current Fed rate is “n.a.” for 1-month financial loans and it needs to be north of 1% with the multi-month loans north of 2%. Not in the future, but right now. The current lack of interest is encouraging consumers to rack up debt instead of save. Why put your money in a savings or money market account if it earns near zero interest.

Adding insult to injury is consumer debt is increasing without increasing GDP. Why? Primarily because manufacturing was moved to third world countries so consumer debt isn’t creating jobs in America it is financing communism and other unsavory things despite what Forbes says.

When the bond implosion happens we will see yet another housing market free fall. You see, Forbes was correct about the credit card and student loan debt. As upper management slashes jobs to pay for its own mistakes debt ridden college graduates will begin defaulting on student loans like a tidal wave. Consumers, many of them recent college graduates, will also default on auto loans because they cannot get a real middle class job. Some or all of this debt is bundled into various financial instruments that are either directly or indirectly part of the bond market.

People of a certain age were raised with the mantra “you need $1 million in a retirement fund earning 6% to retire comfortably.” For many their home was to be a large part of that “retirement fund” and that was wiped out during the mortgage crisis. Their 401K and KEOGH accounts also took massive hits. Some who were in indexed funds “might” have recovered, but most were in mutual funds that have yet to outrun the damage caused by the mortgage crisis.

The real boot to the head is that mantra is wrong. It became wrong quite some time ago. In order to _hope_ to retire comfortably a person or couple needs $2 million in their retirement fund earning 6%, a paid up long term care policy and no housing payment.

Most have heard about the slide/erosion of the “middle class.” What most haven’t heard is the “definition” of middle class. It hasn’t really changed over the years. The token few news stories which bother to put a number on it will quietly mention $45,000/yr. Yes, you can live okay on $45,000/yr in rural America but for most major cities that’s well below the poverty line. When you divide $2 million by $45,000 you come up with 44.444 years. That’s how long it would take you to physically earn $2 million. Not net, but earn.

The DOT-BOMB flame out of the Clinton years combined with the mortgage crisis of the Bush years (yes, Obamma took office in time to sweep it up but the pin was out of the grenade while George W. was President) have wiped out returns and a future for many Americans. The scams of “Rightsizing” and “off-shoring” have wiped out most of the good paying jobs which could have lifted people out of poverty. The flood of visa workers (both legal and illegal) have decimated wages to the point where a very large portion of the American population is now facing the reality of never being able to retire.

Our impending bond market bubble burst is coming and it is going to be bad.