Leading Investor: The Next Financial Downturn Will Be Caused By Corporate Debt

The last recession in 2008 was spurred by excessive debt in the private sector, mostly in the housing market.  But this time, it’ll be worst and much more difficult, as the problem will be caused by corporate debt, according to several leading investors.

The ensuing downturn could be immediate and sharp, once the bull market ends. But some, such as Peter Schiff, already believe we are in a bear market. “Stocks are expensive. The bull market is over. It’s now a bear market. People want to get out. People are allocating out. Growth is slowing whether people want to acknowledge it or not,” said Schiff.

But others still think they have yet to hit the top. “Once we peak, our work shows that we should expect maybe a 40% decline in equities from their peak,” Scott Minerd, chairman of Guggenheim Investments, told Yahoo Finance. “I’m talking about a recession, possibly in early 2020. Stocks tend to do well two years before a recession. But in this rally, it’s the opportunity to sell.”

At the Milken Institute Global Conference in Los Angeles, the world’s top investors are asking how much longer the good times can last. They claim the current bull-market rally began in 2009, making it one of the longest on record. But others, such as Peter Schiff, said it’s a false recovery because of the money printing scheme employed.

“When we do all that [print money to recover from a recession], the dollar is going to implode because everybody is going to know that the [money printing scheme] experiment failed. Everybody is going to know there is no way out of this box. There is no normalization of rates. That is ever going to happen. Their [The Federal Reserve’s] balance sheet is never going to shrink. The balance sheet is going to grow permanently, which means this banana republic debt monetization. They can no longer pretend that they’re not doing the same things as South American banana republics. It’s a pure ‘we just print money to finance government spending,’ which is going to explode,” said Schiff. –SHTFPlan

The good news, if there is any to be had, is that the tax cuts President Donald Trump signed in 2017 could juice markets a bit longer by leaving more money in American’s pockets. But some investors gathered at the Milken Conference also feel that the corporate forces are now swirling that will trigger the next downturn.

Because the tax cuts didn’t offer a decrease in the size of government, they will add to US government debt. Spending, not taxation, is the problem and will be until the government is reduced. And while the Federal Reserve is gradually raising interest rates, they may still not be high enough to allow for aggressive monetary policy by the time a recession hits and the Fed needs to cut interest rates. “We’re in danger of having a collision between monetary policy and fiscal policy,” Minerd says.  Once interest rates rise, the amount owed on the massive amount of debt corporations hold will increase along with the debt owed by the federal government.

We are in for a rough ride, everyone.

If Minerd is right, some of the riskiest investments include high-yield bonds, other fixed-income securities, and eventually stocks. But some investors will undoubtedly hold on, hoping to squeeze out the last gains before the market turns.

Yahoo‘s suggestion? Keep a parachute handy. But we prefer you actually prepare and store things that are of use. Prepping can be difficult and it’s often hard to take that first step, but if you’re new and interested in learning, it’s never too late to start preparing for any potential outcome.  The book titled The Prepper’s Blueprint offers a simplistic and easy to follow guideline for those who would like to take that first step.

Bad News For The Economy: Some Have Stopped Paying Loans On Mobile Homes

Some people in the United States have stopped paying their loans on mobile homes. This is a bad sign for the economy as many no longer can afford the increase in interest rates.

According to a report by Yahoo Finance, the mobile home market is showing the first signs of stress.  The delinquency rate on mobile home loans has increased by 200 basis points, or 2 percentage points, over the past year, according to research cited by UBS. The 30-day-plus delinquency level is now about 5%, the highest level since 2005.

The increase in the number of struggling mobile-home borrowers suggests that a large chunk of these people haven’t benefitted from the economic growth of the past few years, despite the low unemployment level. For those living paycheck to paycheck, even the slightest increase in interest rates could force them to decide whether to eat or pay their loan on their home.

“We interpret this data to mean that these individuals have not largely benefitted from these macro-dynamics, and may also be disproportionately exposed to industries that have experienced compression — rather than expansion — in the current economic conditions, such as retail or some areas of energy extraction,” UBS said.

Although this is a warning sign for the economy, conventional single-family residential loan delinquencies haven’t seen a similar uptick. Instead, they are continuing their steady downward path through the post-recession recovery.  But many analysists would argue there was never actually a recovery. In 2016, Peter Schiff warned that we were in a false recovery: one that’s worse than a legitimate recession. 

“The real choice is not between recession now or recession later. It’s between a massive recession now, or an even more devastating one later … Now is the time to bite the bullet, endure the pain, and allow the wound to actually heal,” said Schiff, who accurately predicted the 2008 recession and says the recovery isn’t a real one.

Since 2009, all of the standard metrics for indicating a recovery have shown sub-par results. The only growth has occurred in asset prices. However, higher prices in stocks and bonds haven’t occurred because of upward pressure from a free market, but have been artificially inflated by easy borrowing and risky speculation. Consequently, the “recovery” we’re supposedly experiencing is as artificial as asset prices themselves. The next bubble that will have to burst is the Fed’s own fantasy it’s been selling investors. –Schiff Gold

The truth is, the US economy is stuck; raising rates will send the US into a recession, but keeping them the same will make the eventual pain of an economic crash much worse. “I agree with those who believe that rate hikes now will bring on a recession,” Peter Schiff stated in an article. “But I disagree that we should keep rates where they are … despite the short term pain that will surely follow, we need to raise rates now to break the addiction before it gets worse.”

But UBS did admit that losses will start to impact other debts as well, and likely soon. “We believe weakness in these two groups [lower and middle class] will drive higher credit losses at some stage over the next few years — particularly in credit card, installment, and student loans — with macroeconomic inflection from job growth to job loss as a likely catalyst,” UBS said.

Now is a great time to prepare for the economic collapse.  The economy won’t last forever being propped up by debt and Feds manipulation of the markets. But the good news is, prepping for the eventual collapse is made easy with the book titled The Prepper’s Blueprint.  It’s a great resource for those just starting out and for those who may have overlooked something.

Could Cheap Car Loans Be The Cause Of The Next Economic Collapse?

Ten years ago, sub-prime mortgages were getting the blame for the economic collapse which followed. Could the low rates of car loans be the next vehicle which will fling us into an even more unstable economy? Some experts seem to think so.

The car financing industry is confident that this new breed of ultra-low-cost loans, which account for 82% of all new car registrations and are known as personal contract plans (PCPs), are a safe and secure way of financing the newest cars. It also claims that sub-prime lenders, who offer loans to people with erratic incomes and damaged credit ratings, account for only 3% of the market and the industry can cope with any destabilizing events coming down the pipelines. But experts aren’t as confident.

Experts are now warning that lending will be dramatically affected by even the slightest downturn in the economy, let alone widespread unemployment. Bank of England economists who wrote in a blog post titled, “Car finance – is the industry speeding?” argue that “the industry’s growing reliance on PCPs has made it more vulnerable to macroeconomic downturns”. There is also the concern that the banking industry, which provides most of the underlying finance, is offering the same platitudes as it did before the 2008 crash. The vast majority of loans are rock solid, it says, except the industry has failed to introduce a standard way to calculate customer arrears and repossessions, which means that the 3% sub-prime figure could be much bigger than alleged.

PCPs have increased in popularity because they put in place a new way of calculating the loan. Instead of spreading the loan and interest charge over the whole cost of the car, only the cost of depreciation is taken into account. This means that some of the most expensive Mercedes, Audi, Volvo and Land Rover models, which maintain their value and depreciate the least, have suddenly become affordable to those on a lower income.  But experts warn that these loans are the ones that could exasperate an economic meltdown. 

Cash purchases for cars are all but unknown anymore, and with disposable incomes shrinking thanks to the constantly increasing taxes and harsher regulations, any borrowing could stretch a family beyond its financial limits.  But this is especially a problem when considering diesel powered vehicles.

“PCP car finance relies on the lenders’ ability to realize guaranteed future values, which can only happen in a strong used car market; but if hundreds of thousands of diesel drivers were to use consumer law to return their PCP-financed cars early – passing the early-termination losses back to the lenders – the cost would be so great that many finance companies wouldn’t be able to cope. It’s no exaggeration to speculate whether this could become the next financial crisis,” Simon Empson of Broadspeed.com said.

So the problem is now the UK government’s interference with diesel vehicles, and rather than let the market sort it out, their insistence on getting involved could facilitate a crash. An attempt by the new government to curb emissions could ensure the end of high-end diesel cars, millions of which have been sold through these PCP plans. Diesel vehicles values could plummet by 40%, forcing borrowers to return the cars and passing the loss onto the lender. This could spur another economic downturn as those lenders likely cannot cope with such a loss.  Buckle-up. It could get bumpy.

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Author: Mac Slavo
Views: Read by 59 people
Date: June 11th, 2017
Website: www.SHTFplan.com

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