Has Our Economy Become Caught in a Bubble?

5 Charts that Suggest the Value of Your Nest Egg Could Soon Drop.
 
Just when you thought your savings were secure, and that you were ahead of the game. Sure, we’ve heard the adage “what goes up must come down.” But never did it occur to most of us this particular stock market – one that’s been endlessly screaming “up, up, and away” – could turn around so fast.
 
The most recent reason for this market about-face has been the meetup – bumping of heads is more like it – between Congress and the President on the health-care bill last week. If Congress doesn’t give Trump what he wants, the pushback will send a signal to Wall Street that the President is going to have trouble with his proposals for taxes and the infrastructure.
 
Much of the recent stock market climb can be attributed to Wall Street’s optimism about these issues. March 23rd, 2017, House Republicans announced a postponement of the vote on the Affordable Health Care Act. Now the President has more time to garner additional support.
 
Still, observers and traders have been aware a market turnaround has been in the cards for a while. Have a look at Chart 1 on stocks purchased with margin/leverage Debt:
 
margin debt
 
When investors “buy on margin,” they buy up to 50% of the price of a stock with a loan from their broker or bank, using the stock itself as collateral. Needless to say, the investor/borrower is taking a risk. If the stock moves down in market price, he’s liable for the loss. If it goes up, he can claim a windfall.
 
Chart 1, then, is one measure of the optimism of investors. It shows the rate of margin-buying from 2009 through 2016 -a clear sign of investor’s upward expectation of the S&P 500, as expressed by their willingness to take out loans for additional share purchases.
 
These expectations are bound to be dashed or, at the very least, modified if the President of the United States is unable to make good on his economic promises. It means less money for investing in re-building and development of the infrastructure. Particularly if you’re holding stocks in your portfolio related to construction or finance, you have a legitimate cause for concern.
 
Now look at chart 2.
 
S&P
 
After a promising recovery in 2016, the stock-market climb is beginning to show a flattening-out curve in 2017. According to the Daily Reckoning:
 
“When stock market prices reach such highs, some would argue that it becomes outright dangerous to own and invest in stocks. The potential for a massive bubble at such heights in places seen like the Russell 2000 should offer particular alarm.”
 
Chart 3 reveals another alarming trend:
 
Stock_Market
 
As the price levels of S&P 500 stocks have climbed since 2014, their earnings have decreased. Stocks can’t continue to sustain high prices with decreasing earnings. Clearly, a correction is at hand. And it would behoove you to prepare for such a correction if you’re holding any of the S&P 500 in your portfolio.
 
Now look at chart 4:
 
Housing Prices
 
The price of real estate is moving up. This development, coupled with the Fed Hikes in interest rates mapped out for the rest of the year, is bound to take a chunk out of the American consumer’s wallet. And this goes hand-in-hand with the development presented in chart 5:
 
Household Debt
 
Household debt is high. How high is “high”? One way to measure household debt is to express it as a percentage of Gross Domestic Product. Obviously, we’ve come a long way since 1968. Americans have taken on quite a financial burden since that time.
 
Given these trends, then – the percentage of stocks bought on margin, the overall reduction in stock purchases, the decrease in earnings of S&P stocks, the price of real estate, and the climb in household debt, it’s fair to say the United States is approaching a sizable economic bubble.
 
All indicators suggest we should now be relying on hard assets rather than paper assets. Once again, we can only stress that physical gold remains the most reliable of all the hard assets. It’s proven itself over thousands of years, it represents no one’s liability, and it has survived almost every form of fiat currency up until the present day. The jury is out on the dollars you now hold.
 
Request more information now or call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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