Top Trends 2019

Economic 911

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Household debt from 2004 Q1 to 2018 Q1
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On September 19, two days before U.S. equity markets hit new highs, we alerted Trends Journal subscribers to prepare for an “Economic 9/11.”

The Central Bankers, the economic terrorists who have, by their policies, engineered every boom bust cycle over the past 100 years, would strike again.

Having artificially pumped up the global economy with negative/zero interest rates and Quantitative Easing monetary methadone following the Panic of ’08, the $250 trillion global debt bomb they created is ready to explode.

In fact, last December, in one of our Top Trends for 2018, “Market Shock, Mass Murder,” we warned that rising U.S. interest rates and a strengthening dollar would not only signal the end of the Trump Rally we had forecast in November 2016, it would push currencies lower, weaken economies and sink equity markets across the globe. And that is precisely what has occurred.

In just a few weeks after making our “Economic 9/11 forecast,” the Nasdaq slumped 9 percent, its biggest drop since the Panic of ’08, and the S&P 500 lost 7 percent, its worst month since September 2011.

As we go to press, both indexes are in correction territory, down over 10 percent. And the Dow, which at one point was up more than 8 percent for 2018, has erased its gains for the year and also is in correction territory, while the small cap stocks entered bear market territory, with Russell 2000 benchmark down 20 percent from its August high.

And on the global scale, with much of the world’s $250 trillion debt dollar based, as the dollar grows stronger and global currencies get weaker, the cost burden of servicing that debt grows heavier.

Also as forecast, economies worldwide are slowing, stagnating and/or falling into recession.

In China, the world’s second largest economy, third quarter GDP growth has slowed to Panic of ‘08 levels, auto sales are on track for their first annual sales decline since the 1990s, and retail sales grew in November at their slowest pace in 15 years.

Reflecting the economic pain, the Shanghai Composite Index is down over 25 percent and keeps falling. Overall, the MSCI Asia-Pacific Index has plunged into bear territory, losing over $5 trillion this year.

Japan, with its Gross Domestic Product falling at an annualized pace of 2.5 percent in 3 months through September, is also in economic decline despite its central bank’s bond buying spree and negative interest rate cheap money injections. In fact, Bank of Japan’s total holdings hit $4.9 trillion, which is bigger than the country’s annual GDP.

And in Europe, despite its central bank injecting some $4 trillion in Quantitative Easing monetary meth for almost four years to pump up the economy (which is now ending), its third quarter GDP growth of .02 percent was the weakest in four years.

On the market front, the DAX index of 30 companies is in bear territory, plunging over 20 percent from its January high, while the FTSE 100 is down 10 percent, its worst performance since the peak of the 2012 eurozone crisis.

On the Emerging Market front, the MSCI Emerging Market stock index has tumbled 25 percent from its January peak.

And while the United States’ relatively strong GDP and employment numbers suggest a healthy economy, the total debt incurred by Americans hit another record in the last quarter rising to $13.5 trillion.

And with total household debt now $837 billion higher than its 2008 peak, when the last recession hit, America, like the rest of world, cannot take higher interest rates.

Further, U.S. durable goods orders fell 4.4 percent in October, the largest decline in 15 months, and the third successive month of decline.

And mortgage refinance applications hit an 18-year low in the U.S. this November. Since the Federal Reserve raised rates a mere .25 basis points in September, mortgage applications have steadily declined.

With rates at their highest point in eight years for mortgage refinances, volume is down a whopping 40 percent since a year ago. Subsequently, shares of homebuilders stocks have slumped nearly 30 percent.

Student loan delinquencies are up, new car loan applications are down, as are credit card applications… virtually every financial indicator related to credit availability and affordability, is down. As we have consistently demonstrated, based on the facts and our daily trend-tracking analysis, the world, including the U.S., cannot taker higher interest rates.

In India, despite Prime Minister Narendra Modi’s war of words for the Reserve Bank of India not to raise interest rates, third quarter Gross Domestic Product fell to 7.1 percent from 8.2 percent in the second quarter.

PUBLISHER’S NOTE: Since the beginning of this year, and now at the end year, following Donald Trump’s and Xi Jinping discussions at the December G-20 conference, the mainstream media continually attributes equity market volatility and global economic slowdowns to U.S.-China trade wars and tariffs.

In fact, there is no trade war and “Tariff Man” Trump’s imposed tariffs only account for 0.7 percent of China’s GDP, while the U.S. trade deficit widened for the fifth straight month in October, with the deficit now bigger than it has been in 10 years.

Yet, for example, as China’s economy slows to an expected 6.3 percent in 2019, its real estate market cools, luxury goods purchases fall, auto sales plunge 13 percent in October and the Chinese stock market index slumps deep into bear territory, the business media still blames the declines on trade tensions with Washington rather than basic economic fundamentals.


TREND FORECAST

In 2019, “Economic 9/11” is poised to strike and cause equity and market meltdowns worldwide.

What can pause the crash? At this juncture, the same measures that were taken that have artificially pumped up stock and real estate markets to soaring heights following the Panic of ’08: Cheap Money. More rounds of lowering interest rates and more trillions of Quantitative Easing.

Indeed, it was not basic economic fundamentals that put the world on the path of recovery following the Great Recession. It was the central banks injecting heavy doses of monetary methadone to boost failing economies and financial markets.

Yet this time, considering the $250 trillion massive debt load weighing down the global economy, another monetary drug fix will only push markets up temporarily before they OD.

Therefore, as the economic health of these money-drugged induced economies worsens, demand for gold, the ultimate safe-haven asset will increase. We maintain our forecast that gold prices’ bottom range is around $1,200 per ounce and prices will not spike until gold solidifies above $1,450 per ounce.