Is an Avalanche Waiting to Hit the U.S. Stock Market? (The Slippery Slope of Stupidity)
Bennett Group Financial Services
By Dawn Bennett
February 28th, 2014
The U.S. economy as we know it is headed for a huge correction. The only questions remaining are when will it start and what will be the trigger that starts the cascade? Financial and economic implosion is always a slow and stealthy process that grows over time behind the scenes. All the while quietly picking up strength in size and weight as it evolves; not dissimilar to an avalanche that occurs in the mountains. It begins high in the mountain, this layered ice and snow mass quietly sitting there and then all of a sudden it gets pushed or unsettled and it falls down the mountain and starts to accelerate rapidly while growing in mass. They are so destructive because by the time you are aware of them, it is often too late.
The peaks in our financial life are easy to ignore because they may not be easily visible. When the financial avalanche begins, it may be too late for most to escape. Our view is that the economic mess we have today in the U.S. is a slow to start, but fast growing financial avalanche soon to consume the wealth of Americans who have not prepared in advance.
Investors should continually question what they own in their investment portfolios. According to data released the week of February 17 by Wolfe Research, only 166 companies of the S&P 500 have given forward earnings guidance; that is a very bearish sign for U.S. stocks because it shows a lack of confidence in earnings. Only 25% said they would earn more than analysts are predicting; this is a negative sign for investment portfolios with U.S. stocks. This is down from 36% from only a quarter ago. At the same time, stock analysts cut their earnings growth forecasts down 11.5% at the beginning of 2014. So earnings won’t be there for U.S. investors’ portfolio either.
Even the Wilshire 5000 Index is showing weakness and inflation, which is rotten for both stock and bond portfolios. The Wilshire 5000 Index has seen its list of companies shrink by almost half since 1998. Back then there were 7,562 stocks or companies, and today there are only 3,666 stocks; yet, at the same time, its total market cap has doubled from $11.7 Trillion to $22.5 Trillion. So unless it’s the Bureau of Labor Statistics or the Federal Reserve, most would call that inflation, which is bad for investments.
Bank of America Merrill Lynch’s February survey of global fund managers shows cash balances moving higher, to the highest level since July of 2012. If bull markets are real and have the capacity to keep going, money managers won’t keep high cash levels. This is another bearish sign for equities. The Dow Jones Transportation Average has retreated below its 50 day moving average – bearish. Gold and silver are up +10.2% and +8.6%, respectively. Soros Fund Management reported in its latest 13F filing that its put legacy hedge position has been rolling over every quarter since 2010 and it just rose to a record $1.3 billion. That’s a 154% increase quarter over quarter, which means billionaire George Soros, 83, is also expecting a large downside.
Lastly, the Chinese government dumped the second largest amount of U.S. Treasuries, $48 billion, in December of 2013. They, too, are trying to protect their portfolio from the U.S. And, this was at a time when they didn’t need the money, their FX Reserves, their liquid cash, soared to an all-time high. So, China has all this cash but doesn’t want to invest in U.S. Treasuries…interesting right? Right…you see they don’t want to own US treasuries because they are afraid they are going to get paid back in funny money! This should be troubling to anyone who owns U.S. Treasuries. You see it is obvious that China does not have confidence in U.S. stock or bond markets. So, investors must question every asset class and investment that they own in their investment portfolios; otherwise, they may get caught in a coming financial avalanche.