Who Will Be Hit Hardest When the Next Great Crash Comes

Publisher’s Note: If you missed Harry on CNBC yesterday,
watch the recording now.

There is no question that the average household Homer Simpson was hit the hardest after the 2008 crash and the great recession that followed.

In surveys late last year, 78% of respondents said we never came out of that recession. Many called it a great depression.

Until recently, many of the people’s mortgages were underwater. Their wages have been falling while inflation rose steadily. Their unemployment rates are high, between 8% and 12%, if you ignore the B.S. and get more realistic by counting those people who’ve given up looking for work.

Only 20% say the economy is better than ever.

And just guess who those people are…

They’re the ones with college degrees and unemployment rates more like 3.5%.

Their salaries have been rising, not falling.

They’ve had more equity in their home and are less likely to have mortgages underwater, if they have mortgages at all.

But more important, they’re the ones who own most of the financial securities that have been the biggest beneficiaries of the latest Fed-stimulated stock and financial market bubble.

That’s right. When the Fed goosed back up the stock, bond and commodity markets by pushing free money into the system, it wasn’t the average person, who has more net worth in their homes and very modest amounts in their 401K plans, who benefited. It was the wealthy top 10% who benefitted.

Talk about irony. The people who needed the Fed’s help the most were the hardest hit by the Fed’s ill-considered, idiotic actions.

The top 1% of the population earns 18% of the income. The top 10% earn a whopping 46% of the income.

They are the consumers still spending and feeling good. That’s why Tiffany’s and Saks are doing better than Wal-Mart and Target in this recovery.

They are the ones calling this a “recovery.”

But the tables are about to turn…

We see another financial meltdown in the near future, we’re talking between Q4 2013 and 2015 here, simply because we’ve never addressed the problems that brought us to our knees in 2008.

We have unprecedented debt ratios in the U.S., and around the world. Governments have created artificial money and increased their debt to save the financial system and to keep it from deleveraging.

For nothing.

Not only did all of that wasted effort produce results for the wrong group of people, it was doomed to fail because we now face a demographic crisis never seen before. We’re roaring towards a demographic cliff – one with millions of people reaching that time in their lives where they save more and spend less (particularly on credit) – and there’s not a damn thing any central bank can do about it.

All it will take is one trigger for chaos to be unleashed on us all. Like the subprime crisis in the U.S. triggered the 2008 crisis, it could be southern European countries that finally fail or are forced to exit the euro… it could be China’s debt and real estate bubble finally bursting (which looks more and more likely)… it could be a spike in interest rates in Japan that causes its 250% government debt-to-GDP to explode with interest costs… it could even be a spike in interest rates that kills the housing “recovery” in the U.S.

Regardless of what the final trigger will be, we think the odds of the world economy getting through another year without the next great crash are low!

Only, this time it’ll be the people that have the most income and the most wealth who will feel the pain more.

When this bubble finally deleverages, the households that benefited the most from the bubble will get hurt the most from falling stocks.

So what do you do?

If you have any exposure to equities, commodities or bonds, start protecting and sheltering the assets you have, while you still can.

Start thinking more like a trader and less like an investor.

Subscribe to Boom & Bust so you can follow our model portfolio, which Adam strategically positions to take advantage of current market sentiment and our forecasts (not an easy line to tread, I must say, but Adam’s track record to date proves he’s up to the task).

Whether you’re a Homer Simpson or a Great Gatsby, there’s still money to be made in the stock market. You just need a solid strategy, the right support, and an iron constitution.

Harry

P.S. While the Demographic Cliff ahead of us will rock the global economy to its very core, over the next six to 10 years, it won’t be all downhill. There are many services and products that an aging population simply cannot live without. That’s the great thing about our Spending Wave. We know who will need what and when. And to make it easier for you to see these predictable cycles – and put them to use in your financial strategies – we’ve plotted out the demand curves for more than 200 products. Get all the details here.

 

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Categories: Economy

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.