Here is a brief overview of some of the dynamics that you should really give some serious consideration to as they relate to your financial and economic well-being over the next few months and years:
Economics:
• The continuing weakness in the U.S. job market is beginning to signal the real possibility that the economy will likely grow at a much more subdued level than we all have grown accustomed to over the last few years. Moreover, a renewed decline in real GDP is a distinct possibility. If any concrete evidence that the U.S. economy is slowing emerges in near term economic reports, the global equity markets will react very negatively.
• The risks of some country (possibly Greece, Spain, Italy or Portugal) defaulting on its debt is becoming increasingly likely unless dramatic measures are taken soon. Any sovereign debt defaults will likely raise concerns about a domino effect that will cause other countries to default as well.
• The risks of some state (e.g., California, Michigan or New York and potentially others) technically defaulting on its debt is now a real possibility. Any default by a state would be very damaging to markets and market confidence.
Click here to see Bloomberg TV's "Is California The Nation's First Failed State?"
• There is growing concern that the growth that we have seen so far in the U.S. economy is due primarily to monetary and fiscal stimulus programs. There is concern that once this stimulus is removed, the economy will not be able to grow on its own. The Federal Reserve has stated that it will remove its monetary stimulus from the mortgage market in March, 2010. This could cause mortgage rates to rise.
Markets:
• Some stock markets around the world have already entered a corrective phase (e.g., China, Brazil, Greece, Spain, etc.). Given the global connectedness of markets around the world, there is a good chance that this correction could spread globally.
• The U.S. stock markets are starting to show technical signs of distribution (i.e., more selling than buying). This would suggest that some degree of a correction is beginning in the U.S. stock market. Given the many challenges facing the global economy and financial markets, a correction in the U.S. stock market could be severe if it materializes.
• From a relative performance standpoint, growth stocks are underperforming value stocks. This is the market’s way of signaling that there is concern about growth in the economy.
• Moreover, the S&P 500 industry sectors that should be leading the market, if we are truly in an economic expansion, are starting to under-perform those industry sectors that typically lead the market during an economic contraction.
Money:
• Despite the myriad of monetary stimulus programs that the Federal Reserve has instituted over the last couple of years, credit availability for businesses is still limited. Credit is vital to the growth of the U.S. economy, and without it, growth will not be significant.
• The voices of concern about the federal budget deficit are growing on a daily basis, as they should. The Obama administration recognizes this and is beginning to focus on the deficit. Unfortunately, this problem is so large and the potential solutions are limited. Nonetheless, it is potentially the most significant problem facing the U.S. over the longer term. Despite what we will be told by the powers-that-be, income taxes will be rising for all of us eventually. There is simply no way to avoid this.
Click here to see just how bad the deficit is: "Ten Trillion And Counting"
Charts of Interest
The following chart shows the YTD performance of the different industry sectors in the S&P 500 Index. The healthcare sector is leading and this should not be the case when the economy is expanding. The healthcare sector is a sector that money flows to in times of distress:
The chart below shows the year-over-year percentage change in the amount of commercial and industrial loans provided by commercial banks. The trend has been down since the beginning of the recession, but shows faint signs of bottoming out:
The chart below shows the U.S. unemployment rate and the number of claims for unemployment insurance as of December, 2009. Many experts question whether the unemployment rate that is published is actually reflective of the real unemployment situation. Most importantly, the official unemployment rate excludes so-called "discouraged workers" from the calculation. It is believed that the unemployment rate would be at least 0.5% higher if these individuals were included in the calculation:
The chart below shows an ETF that mirrors the performance of the China stock market. It is showing real technical signs that a correction in that market is underway:
Stay tuned.........................