Do you truly believe that our nation is in a stronger economic state than what we were in 2009? While is it true that the Dow Jones Industrial Average has battled from about $6,500 to where it is now at $14,500, are we really better off than we were before? I’d say that if you would ignore the title of this post for a moment, most people would say that we’re much better off as a nation than what we were just a few years ago. After all, the unemployment rate is down, the rate of foreclosures has declined, the value of homes is on the rise, and as we already mentioned, the stock market is at an all-time high! Things couldn’t be looking better for the economy, right? Wrong. In fact, I believe that the next stock market crash is coming soon.
I hate to be that “doom and gloom” guy that continually says the sky is falling, but when I dig into the true facts of our economy it’s pretty evident that our nation’s “strength” is built on false hope and rising debt.
But What About the Increase in Jobs?
Yes, there are more jobs available today than there were just a couple of years ago. In fact, the private sector has gained almost 4 million jobs since The Great Recession. But, have you ever thought about how those jobs were produced? Is it because small business is thriving? Or maybe it’s because the large blue chip companies are showing a great improvement and are hiring hand over fist? Nope. This is not the case. In reality, many of these new jobs are coming through government subsidized programs. The big wigs in politics believe that they are helping the jobless situation, but these unnecessary (non-economy driven) jobs are only prolonging and intensifying our sharp economic decline.
The Nation’s Debt
Since the great recession began in 2008, there have been many efforts by the government to dig ourselves out and to once again be a thriving, successful nation. While I commend all the efforts, the simple facts show that while our perceived economic state is on the rise, the actual foundation of our country is crumbling. Over the past 4 years, our national debt has risen from $10 trillion to nearly $17 trillion and is even more rapidly out of control today. The “improved” economy is mainly the result of excessive government spending, which cannot be sustained for much longer.
Increased Retirement, Decreased Investing
The baby boomers aren’t getting any younger these days. In fact, hospitals and retirement homes are filling up like never before because of the increased medical needs of this generation. It seems like the increased cash flow coming into these business segments would boost the economy right? Well, yes and no. While there is more spending in the healthcare sector, think about where the money is coming from. For the most part, these hospital visits and retirement home stays are coming from retirees that no longer earn a paycheck through a conventional job. No, they’re paying their bills by taking money out of the stock market. With a decline in investor demand, companies will soon be devalued, which will then decrease the need for workers, and our “strong” economic state will soon spiral out of control. Robert Kiyosaki predicted this stock market crash many years ago, and he said it’s coming in 2016. I think he’s almost dead on.
Investing on Margin
When I’m out and about, I overhear many people blaming the government for the “mess that we’re in today”. Sure, I don’t often agree with the new bills and policies that are presented in Congress, but I realize that this mess is the result of all of us as well. Did you know that on average, investors are buying stock on 70% margin? This means that to buy $100,000 worth of stock, most people are only putting $30,000 in to make the trades. If the stock goes up, they win big. If it goes down, they might just lose their shirt! It’s basically gambling in the market.
The most interesting part of this is the correlation between the margin debt and the movement of the stock market. When people are buying more quantities of stock on margin (with debt), the market goes up. When they don’t, the market goes down. It makes complete sense, doesn’t it?! When there’s more demand, prices increase. The same thing is happening in the market. When the demand goes up, companies are valued at a higher price, which means that the overall market increases! The only problem is, the increase in the market is inflated because of the “fake” demand (people buying with margin).
Take a look at the graph on the left. You can see that the correlation is uncanny! And, take notice of the peaks toward the right hand side. These are the stock market crashes of the dot com bubble burst in the early 2000’s, and the collapse of the housing market in 2008-2009. Guess what? The next peak is on the way. According to Steven Keen, a highly regarded economist, based on the direction we’re heading, the next stock market crash is coming very soon – either in 2014 or 2015. Personally, I think that he’s 100% right on the money.
What To Do?
With all of this doom and gloom on the way, what are we to do? First of all, it should be fairly obvious that you shouldn’t put all of your faith in the stock market. I’m not saying that you need to pull all of your money out right away. More than likely, the stock market will continue to rise on this bubble for the next year or so. But, if you currently have all of your retirement money in the stock market, you should definitely consider pulling some of it out and investing in foreign currencies, precious metals, real estate – just do your best to diversify. Also, I would strongly encourage everyone to diversify your income as well. If you are surviving on a single income source for your livelihood, explore other options. The more income sources the better.
What do you think about another stock market crash? Do you believe it’s coming?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.