Serving the High Plains
Serving the High Plains
Another decade, another bubble, and then another recession, beginning either this year or next.
At least that’s what some Wall Street wizards are saying.
One, Robert Kessler, recently appeared on a show called Wealthtrack on PBS, which advises high rollers who rise early on Sundays about ways to preserve or grow their riches.
Kessler sees a bubble getting ready to pop in low-grade corporate debt, which could be accompanied by a long fall.
Consumer spending rallies usually pull ailing economies back to health, but Kessler doesn’t see that happening this time.
The latest tax cut, he said, benefited wealthy banks and families, but since the gains were used to increase value artificially, through parlor tricks like stock buy-backs, it didn’t get to consumers. “The consumer doesn’t have a lot,” Kessler said, but burdens like credit card debt and student loans “put the consumer in a position where they can’t continue.”
Low unemployment means there are more jobs, but Kessler is concerned that the new jobs aren’t good jobs. About 80 percent of families live paycheck to paycheck, he noted, and 7 million car loans are in default, both of which are well-documented in the news.
While corporations have been making money with money rather than production, they have also been piling up low-quality debt.
As the outlook for overseas economies is slowing, he said, U.S. debt is likely to sink into sub-investment or “junk” status, but unlike the 1980s’ issues, the next junk bonds may not sell. Too risky, Kessler says.
In the past, consumer spending has rallied to pull the economy back to health. Kessler thinks that today, the consumer cavalry just doesn’t have the horses to ride to the rescue.
What will come to the rescue?
“I don’t know,” Kessler said.
That signals a recession, he thinks.
Kessler isn’t alone.
Writing in Forbes magazine, Raul Elizalde, an investment adviser, agrees.
“Since income is not strong enough to soften the impact, a market decline may well lead to households feeling poorer, which in turn will likely lead to spending less,” Elizalde wrote.
Another sign of impending recession is the “inverted yield curve,” which occurs when long-term yields, or bond interest rates, sink below short-term yields
Usually short-term debt yields are lower than long-term rates. Optimistic investors assume the long-term yields must be high enough to account for an inflationary strong economy.
Lower long-term yields, however, indicate less long-term optimism. Many bankers and investors say that’s a sure-fire predictor of a recession.
The best advice for investors seems to be to play it safe. Financial media report that many are now using some of their stock-buying money to hedge their hopes of continued stock market rises with “just in case” purchases of U.S. Treasury bonds or very high-quality corporate bonds.
For even struggling families, it is likely to pay if even a little of the family income goes into some kind of bank account, many advisers say.
The rainy day you’re saving for may come sooner than you think.
Steve Hansen writes about our life and times from his perspective of a semi-retired Tucumcari journalist. Contact him at:
