The 13 Triggers for the Next Global Financial Crisis

While financial analysts, economists, and their dogs continue to proclaim that we’re finally in a more sustainable recovery, that we’ve finally put the great recession of 2008 behind us, we continue to disagree.

They say stocks are only modestly overvalued, as they were in late 2007 before the last crash.

They say interest rates may be rising, but they’re still low compared to historical standards.

They say a Fed tapering will be very gradual and won’t hurt that much.

We say: “Really?!”

We say if we hadn’t had unprecedented stimulus around the world, we wouldn’t even have any feeble recovery to argue about.

And now we say there are 13 triggers to watch for as we barrel toward the great crash of 2014…

The ’08 global crisis was triggered by a sub-prime crisis in real estate and lending focused in just four U.S. states: California, Florida, Arizona and Nevada.

That’s all it took to pop the bubble in a debt-stretched global economy.

Today the economy is even more distorted. Debt has grown nearly three times the GDP since 1983.

Here are the new potential triggers:

Trigger #1: The southern Europe crisis shows no signs of turning around, despite endless bailouts and European Central Bank (ECB) pledges to buy the bonds of failing nations. Seriously, how long can these countries stay in a modern-day depression and not see even more public revolts and calls to exit the euro?

Trigger #2: Greece needs a new bailout after the last three, the ones that were supposed to last into 2020, and won’t survive to the end of the year. What does that tell you?

Trigger #3: Spain’s real-estate bubble, the largest by far in Europe, continues to collapse, and bad loans keep rising. Spain is too big to bailout, unlike Greece, Portugal and Ireland.

Trigger #4: Commodity prices have been falling for months now, hurting emerging countries that largely live on exporting them. That backs up onto China, which now exports more to them than to developed countries like North America and Europe.

Trigger #5: As China’s exports fall, its export-driven economy keeps slowing. That causes commodity prices to fall further because China is the greatest importer of most industrial resources, which it uses to fuel its export machine.

Trigger #6: China is losing control over its private-shadow banking sector, which continues to fuel the out-of-control real-estate bubble its government is trying to slow. Ironically, this is the very bubble it created in the first place with its over-investment in everything.

Trigger #7: The faux U.S. real-estate recovery since 2012 looks to be faltering as interest rates rise and investors start to back off after price gains from renting and flipping look less attractive.

Trigger #8: The recent rise in interest rates (that we’ve been forecasting) will not only affect the prices and demand for housing, but the valuations of stock prices that do better when such rates are lower. We see rates going higher still in the next several months – ouch!

Trigger #9: About 40% of the stock gains in the last five years have come from corporate buy-backs driven by government-manipulated low interest rates. That is already abating quickly with rising interest rates and slowing stock-price growth ahead.

Trigger #10: Companies’ earnings growth is slowing after a stimulus-fueled recovery (also something we forecast months ago). This will likely continue ahead.

Trigger #11: July showed the first major declines in new-home sales and durable goods, and both are leading indicators of the economy. Such trends are likely to continue ahead.

Trigger #12: The Fed is increasingly in checkmate as rising growth in the economy will force it to taper and withdraw the crack… but if the economy continues to falter, it’ll become increasingly clear that the stimulus is no longer working, just like what we saw in Europe in 2012.

Trigger #13: And finally, we have civil wars throughout the Middle East, particularly in Egypt and now Syria, which is coming to a head soon.

That’s 13 possible triggers for the next great crash. And all it takes is just one or two.

Is that enough to worry about?

Stock valuations are moderate in the face of these risks. The stock market simply isn’t that worried because it thinks the Fed and central banks will bail everyone out again and again.

Are you willing to bet your ass-ets on that assumption?

We’re not. And we’d advise you against it as well.

By early 2014, we expect the next great global crisis and stock crash to begin.

Are you ready for that?

Do you think gold will protect you from that?

The truth is it didn’t protect gold bugs in the crash of ’08. And it won’t protect them now either.

Your best protection against what lies ahead is information. That’s why I urge you to attend our Irrational Economics Summit this November 6 to 8. There, you’ll meet me, Rodney, Adam and some of the best economists out there, including George Gilder (our keynote speaker) and Dr. Lacy Hunt.

Together, we’ll help you understand the reality of what is going on, and what you must do to survive and prosper.

Harry

 

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About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.