Stock Deflation

The Fed will kill your portfolio by Martin Weiss, 1/11/16

The easy-money era is over! Now, recession redux is upon us. It may seem early because it still feels like we are coming out of the last one. But a 50% stock tumble is not out of the question, and by the time you realize what's happening, it might be too late to protect your portfolio.

America is in the midst of the sixth-longest expansion since the Civil War, and we haven't had a meaningful equities correction in nearly 5 years. The Federal Reserve, citing significant improvements in the labor market, tells us it's time to normalize monetary policy. But we look around and see that, for most Americans, there is no boom and incomes have barely budged, putting a lid on consumer spending - which makes up more that 70% of the U.S. economy.

Source: Money and Markets

Comments

The Fed turned off the bubble machine and is attempting to “normalize” our economy.  Our 37% real unemployment and the lack of money for consumers lowers demand, so overall prices remain close to flat. 

The stock market bubble was caused by the Fed’s zero interest rate policy.  The loose money provided cash and low interest rates made stocks the easiest place to get a return.  Consequently stock prices rose above their traditional value based on price v. earnings.

The US federal government needs to cut spending and pay down its debt, so that CDs and savings interest can rise a bit.  US immigration will need to stop to allow more US citizens to find jobs. 

Global corporations are planning layoffs and will continue to send jobs to low labor cost countries, so the US “Main Street” economy will remain poor for decades.

We do have lots of oil and natural gas to export, so when oil prices rise to cover brake-even expenses, the US could close its “trade deficit”.  This US increase in production of oil and natural gas should create jobs for drillers and pipeline and port facility builders.    

Other needs include water reservoirs and the electric grid upgrade.

Norb Leahy, Dunwoody GA Tea Party Leader