The War of Stocks and Bonds

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Jerome Powell dangled the morsel yesterday — rate cuts are on the way.

And like Pavlov’s famously conditioned dogs, Wall Street heard the opening bell this morning… and began drooling.

The major indexes were instantly up and away.

They lost momentum after the president intimated he may take a swing at Iran for downing a U.S. drone.

“You’ll soon find out” was his response when asked if the U.S. would retaliate.

The bulls nonetheless won the day…

The Dow Jones was up 249 points at closing whistle. The S&P gained 28; the Nasdaq, 64 points.

Gold, meantime, went skyshooting $44.50 today — $44.50!

Combine the prospects of vastcentral bank easing with possible fireworks in the Persian Gulf… and you have your answer.

What about the bond market?

Stocks vs. Bonds

The bellwether 10-year Treasury slipped to 1.98% this morning… its lowest point since the 2016 election.

And so the infinitely expanding gulf between stock market and bond market widens further yet.

One vision is bright, cheery, trusting. The other is dark, dour… and morose.

One of these markets will be proven right. One will be proven wrong.

Our money is on the bond market.

We have furnished ample evidence that recession is likely on tap within three months of the next rate cut.

Here analyst Sven Henrich reinforces our deep faith in the calendar of misfortune:

Every single time the Fed cut rates when unemployment was below 4%, a recession immediately ensued & unemployment shot to 67%. Again: Every. single. time.

We remind you:

The United States unemployment rate presently stands at 3.6% — the lowest in 50 years.

“A Gorgeously Wrapped Gift Box Containing a Time Bomb”

An unemployment rate below 4% is a false prize, a sugar-coated poison… a gorgeously wrapped gift box containing a time bomb.

Unemployment previously slipped beneath 4% in April 2000 — at the peak of the dot-com delirium.

The economy was in recession by March 2001.

Prior to 2000, unemployment had previously fallen below 4% in December 1969.

The economy was sunk in recession shortly thereafter.

The pattern stretches to the 1950s.

The proof, clear as gin… and equally as stiff:

Chart

And unemployment often bottoms nine months before recession’s onset… according to the National Bureau of Economic Research.

Meantime, it is 10 years into the present economic “expansion.” Next month will establish a record.

A Very Strange Expansion

An expanding economy is generally a time of surplus.

It is a time to store in reserves, to squirrel away acorns, to save against the rainy day — the inevitable rainy day.

These savings will see you through.

But during this economic expansion, during this season of bounty… the United States has only sunk deeper into debt.

The cupboards are empty.

Trillion-dollar annual deficits are presently in sight.

The national debt rises to $22.3 trillion — some 105% of GDP.

And interest payments on the debt alone will likely eclipse defense spending by 2025.

Come the inevitable recession, Uncle Samuel will plunge even deeper into debt.

That is, he will reach even further into the future… to rob it for our benefit today.

Deficits may double — or more.

How is the business at all sustainable?

But it’s not only a doddering old uncle going under the water…

The Corporate Debt Bomb

Corporations have loaded themselves to the gunwales with cheap debt — cheap debt coming by way of the Federal Reserve.

First-quarter nonfinancial corporate debt increased to $9.93 trillion. That is a record.

And this we learn from the Treasury Department:

Today’s nonfinancial corporate debt-to-GDP ratio is the highest since 1947… when records began.

And here we spot a straw swaying menacingly in the wind…

Fitch informs us nearly $10 billion of high-yield corporate bonds have already defaulted in the second quarter — double the amount of first-quarter defaults.

Warns Troy Gayeski, co-chief investment officer at SkyBridge Capital:

“Whatever the cause [of the next recession] may be, the acute point of pain will be in corporate credit.”

Depends on it.

Finally we come to the fabulously and grotesquely indebted American consumer…

Consumers Drowning in Debt

Total U.S. consumer debt notched $14 trillion in the first quarter — exceeding the roughly $13 trillion before the financial crisis.

Twenty-three percent of Americans claim that life’s essentials — food, rent, utilities — constitute the bulk of their credit card purchases.

And 60% of Americans hold less than $1,000 in savings.

How will they keep up come the next recession? How will they meet their debts?

They already groan under the load — and the economy is still expanding.

Meantime, the cost of a middle-class lifestyle has surged 30% over the past two decades.

But Pew Research reports the average American worker wields no more purchasing power today… than he did 40 years ago.

That is, he has jogged in place 40 years.

Utter and Complete Failure

The past 10 years of central bank intervention on a grand and heroic scale have worked little benefit.

The coming recession will bring yet more intervention— on an even grander and more heroic scale.

But why should we expect it to yield any difference whatsoever?

For the overall view, we turn to Mr. Sven Henrich:

The grand central bank experiment of the last 10 years has ended in utter and complete failure. The games of cheap money and constant intervention that have brought you record global debt to the tune of $250 trillion and record wealth inequality are about to embark on a new round… The new global rate-cutting cycle begins anew before the last one ever ended. Brace yourselves, as no one, absolutely no one, can know how this will turn out…

We are witnessing a historic unraveling here. Everything every central banker has uttered last year was completely wrong. Every projection they made over the last 10 years has been wrong… Why place confidence in people who are staring at the ruins of the policies they unleashed on the world and are about to unleash again?…

All the distortions of 10 years of cheap money, debt, wealth inequality, zombie companies, negative debt… will all be further exacerbated by hapless and scared central bankers whose only solution to failure is to embark on the same cheap money train again. All under the banner to “extend the business cycle” at all costs. Never asking whether they should nor considering the consequences. But since they are not elected by the people and face zero consequences for failure, they don’t have to consider the collateral damage they inflict.

Unfortunately, the rest of us do…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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The Worst Jobs Report Since 2017

This post The Worst Jobs Report Since 2017 appeared first on Daily Reckoning.

The big story today is the February jobs report.

In the parlance of the trade, it was a “miss.” And not by a jot, not by a tittle, not by a whisker.

Economists as a whole divined the economy would add 175,000 jobs last month.

What was the actual number?

A mere 20,000 — miles and miles beneath expectations — and the worst monthly showing since September 2017.

Consider: The United States economy has averaged over 200,000 new jobs 12 months running.

Among the report’s “highlights”:

Manufacturing jobs fell 8,000 below estimate. Retail jobs disappointed to the sour tune of 6,100. Construction jobs fell a full 31,000 short of the glory.

Today’s report sent stocks into red numbers for the fifth straight day — despite a late uprising.

The Dow Jones closed the day down 23 points. The S&P lost 6, the Nasdaq 13.

But markets should take heart…

Bad News Is Good News for Stocks

Today’s unemployment report means Jerome Powell will not be raising interest rates soon.

In fact, we suspect Mr. Powell is inwardly pleased today.

The report gives him every excuse to hold — or even cut rates.

And the president will stop battering him about interest rates.

Affirms Mark Hamrick, senior economic analyst for Bankrate.com:

“All of this shows the Federal Reserve can continue to wait before raising interest rates, if at all this year.”

Today fed funds futures are in fact giving a 25% chance of a rate cut by next January — up 5% from yesterday.

What precisely does this morning’s grim report portend for the American economy?

“The sharp slowdown in payroll employment growth in February provides further evidence that economic growth has slowed in the first quarter,” says Michael Pearce, senior U.S. economist at Capital Economics.

“This is a disappointing report,” moans Carl Tannenbaum, chief economist of Northern Trust, adding:

“I don’t think there’s any way to sugarcoat it.”

But that does not mean the rah-rah men did not try…

Mother Nature and Uncle Sam Are to Blame

It was the month’s lousy weather, they bellow. Of course construction jobs are down. And do not forget about the government shutdown.

On hand with his sack of sugar was professional optimist Larry Kudlow, the president’s economic point man.

“Fluky,” is how he describes this morning’s report:

I think you have timing issues with respect to the government shutdown, winter seasonal issues. I think it’s very fluky. I wouldn’t pay any attention to it to be honest with you.

“I think the federal shutdown and the weather are playing games with the numbers,” adds Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Just so.

We are in no position to question a director of the United States National Economic Council… or a chief investment officer at Independent Advisor Alliance.

However…

The professional men had forecast 175,000 jobs.

Were they not aware of the lousy weather… the government shutdown… and all the temporary hobgoblins tormenting February’s employment market?

What is the point of having experts?

Mr. Jonathan Doe or Mrs. Jane Doe could scarcely botch things so badly.

And if the number did come ringing in at 175,000 — depend on it — the same experts would seize upon it as proof of a raging economy.

We wonder when they will be exhausted of excuses.

Nearly 10 years running, disappointing economic data have resulted from the weather. Or this temporary malady. Or that brief detour.

It has been a permanent chasing of rainbows.

Yet there has been no pot of gold at rainbow’s end.

Perhaps today’s woeful unemployment says what it means and means what it says…

The “New Normal”

The economy is staggering to a crawl.

GDP growth peaked at 4.2% in last year’s second quarter.

The quarters following turned in 3.4%… and 2.6%.

After today’s botchwork you must dose any expert prognostication with heaping amounts of table salt.

But Goldman now projects 0.9% Q1 GDP growth.

The Federal Reserve’s New York garrison has it at 0.88%.

Its Atlanta branch now estimates Q1 growth of merely 0.5%.

Meantime, the New York Fed’s No. 1 man says he expects 2019 GDP to print just 2%.

But the same John Williams is neither concerned… nor surprised.

Diminished growth is merely the “new normal”:

I know this talk of slowing growth is causing uncertainty, some hand-wringing and even fear of recession. But slower growth shouldn’t necessarily come as a surprise. Instead, it’s the “new normal” we should expect.

But with the highest respect to Mr. Williams… why shouldn’t we expect more?

Plenty of Bang, Not Much Buck

The United States government has borrowed in excess of $10 trillion over the prior decade.

$10 trillion is plenty handsome.

Yet that $10 trillion of debt yielded only $3 trillion of real GDP.

To hone in closer, the nation’s debt increases roughly $100 billion per month.

But GDP only increases some $40 billion per month.

We are getting plenty of buck, that is. But not much bang.

The nation’s debt-to-GDP ratio already exceeds 100% — its highest since WWII.

But where are the Nazis? Where are the Japanese?

What Manhattan Project is the United States government financing?

The standard formula says deficits should decline during economic expansions. Come the inevitable recession, the government then has a full war chest to throw at it.

But a decade into the current expansion… the Treasury is depleted.

And the debt-to-GDP ratio is projected at 115% within three years.

Meantime, the Federal Reserve expects long-term GDP growth of 1.9%.

It is a grim calculus.

So Far, So Good

Yet the president of the New York branch of the Federal Reserve is unconcerned.

We are reminded of the blind fellow who falls off the 100-story building.

“So far, so good,” he assures himself 80 floors down.

We suspect the United States is 80 floors down. Or perhaps 73. Or 68.

Either way, the pavement is coming up fast…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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12 Steps You Can Take if You Lose Your Job

This post 12 Steps You Can Take if You Lose Your Job appeared first on Daily Reckoning.

Losing your job is one of the most devastating life events both emotionally and financially.

Open the paper or do a quick Google search online and you’ll see all the recent corporate layoffs happening in America.

This month, General Motors said it was starting to hand pink slips to about 4,000 salaried workers in the latest round of restructuring.

In January, CNBC reported Verizon Media Group, formerly known as Oath, would be laying off 7% of its workforce, affecting approximately 800 employees. Buzzfeed, another media company, said it was cutting about 15%, or 250 of its employees.

And very recently, it was announced PepsiCo will begin a four-year restructuring plan expected to cost the company hundreds of millions of dollars in severance pay. PepsiCo CEO, Ramon Laguarta said last Friday it will be “relentlessly” investing in automation.

If the company you work for is in a similar position or you’ve recently been shown the door by an employer, the good news is there are some actionable steps you can take today to help get you back on your feet.

Although layoffs can be emotional, a pink slip should be a call to action — to get your finances in order, including spending, savings, health insurance, and credit.

If you’re single or a sole breadwinner my advice will be different than if you’re part of a dual-earner household. If you’re living paycheck-to-paycheck versus you have some savings, my advice changes as well.

Two things that will stay constant throughout the process of overcoming job loss though are your focus: looking for a new job and attending to your emotional and psychological well-being.

On top of that, here are 12 steps I recommend you take immediately after you lose your job to keep your financial house in order.

Step 1: Make a Plan

If you’ve never created a budget before, now is the time to learn. You need a detailed view of your income and expenses.

Start with the income side, list your inflows of cash, including severance and unemployment payments. How much do you have in savings? Also include potential loans either from family, credit cards and home equity lines of credit. But, keep high-interest options as last resorts.

Next, list your expenses. What are your fixed monthly expenses that won’t change, think mortgage or rent and car payments. What are your variable expenses that you have immediate control over, like gym memberships, subscription services, eating out?

Figure out what your bare-bones baseline budget looks like.

Step 2: Take Care of Your Four Pillars

When you create your plan to manage the short-term impact of losing your job, you need to maintain your four financial pillars: Food, shelter, transportation and utilities.

Don’t worry about your company 401(k). Leave the money in your former employer’s plan while you take care of more pressing tasks. Now is not the time to make quick irrational moves with your retirement nest egg. Your focus needs to be on cash flow.

Medical and credit card bills can wait. Although paying the minimums is preferable than not paying at all.

Step 3: Take Control of Spending

Losing your job is a crisis on earnings, but in the short term, you have more control over your spending, so reign it in.

Look at the last three months of credit and debit card bills and ruthlessly cut optional expenses. Your goal should be to get back to the bare minimum. Dining out, Netflix, HBO, hair and nail salons, expensive gym memberships all have to go.

Step 4: Stop Saving

Job loss is temporary, so stop all saving in the short term to keep cash flowing. Any college savings plans, IRAs, etc. stop funneling cash into these accounts until you find another job.

Step 5: Don’t Pay Extra; Pay the Minimum

If you were paying extra on your mortgage, credit cards, car loan, stop! Drop those payments down to the minimum. Preserving cash is priority.

And if your spouse is working, lower the tax withholdings. You need the money now, not next April.

Step 6: Dip Into Savings

You know that emergency fund you’ve been building? Now is the time to use it. If you have money saved outside your retirement plan, use it to cover some short-term expenses.

Step 7: Don’t Drop Health Insurance

Most employer health insurance will have you covered until the end of the month, so if you can go to the doctor or dentist before it expires. You can continue your health coverage under COBRA for 18 months, but that can be costly.

I recommend searching for cheaper private insurance. If you’re a healthy single person, you might look for a bare-bones high-deductible policy that covers emergency situations, at least for the short term.

If you’re in a dual-earning household, your spouse that’s still working might be able to pick up the lost health coverage.

Step 8: Ask About Benefits

It’s not easy, but you should talk to your former employer to find out what your group policies are for long-term care insurance and life insurance. If you’re single and nobody depends on your income, you can probably forgo life insurance to cut down expenses in the short term.

Step 9: Contact Creditors

Do this immediately. You don’t’ have to give them a sob story, just be honest and realistic about the situation. Surprisingly, creditors can help if you’re up front and proactive, reaching out before payments get missed.

They can sometimes offer to defer payments or lower your interest rate. If your job prospects are looking grim, also consider refinancing or consolidating multiple loans.

You can also reach out to your utility company, which may have hardship programs offering temporary breaks on costs. For your mortgage, talk to a mortgage servicer and explain the situation. Ask about foreclosure options in worse case. Whatever you do, don’t stop opening bills.

Step 10: Don’t Neglect Your Credit Scores

If it’s real crisis mode, don’t’ worry about your creditworthiness. But, if you can help it, try to keep your credit scores in good standing.

The main factors affecting your scores are paying bills on time (see Step 9) and the amounts you owe, relative to how much credit you have available.

You don’t want to wreck your credit scores if you can help it. This will make job recovery even harder. Some employers actually conduct credit checks before hiring. And if you have to relocate, a landlord might check your credit and decide your unfit to rent.

Step 11: Seek Out Help

Talking to a financial planner is not a bad idea if your situation isn’t 911. You can glean some advice on which accounts are best to tap during this hardship. And if you have a substantial amount of assets with one financial institution, you might even qualify for free advice.

Support groups for unemployed people can also be helpful, both psychologically and your job prospects. Some government job centers have job-retraining and grants available too.

Step 12: Avoid Desperation

Tapping into your 401(k) is not a good idea. You’ll have to pay taxes on the money plus a 10% early withdrawal penalty if you’re younger than 55.

Another thing should try to avoid is having to move. Some jobs take longer than others to replace. If you really need to lower costs, one way to get by is by renting out your home for the cost of the mortgage payment and move somewhere cheaper temporarily.

As a last resort, you can file for bankruptcy. Just know it’s not an easy process and not all debts will be dismissed. Your credit will be trashed for 10 years in the case of Chapter 7 bankruptcy.

Losing your job might seem like the end of the world. Just know that some very successful people have lost their jobs and bounced back — so will you.

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, Rich Life Roadmap

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