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Europe Greece Economy

The economic news of this weekend was dominated by Greece and it’s ongoing negotiations to alter the path of the depression it is in.

Poor Greece is in much more than the tough situation that appears on the surface. Sure, the economy has tanked and debt levels are so high that even Dubai skyscrapers look small in comparison.

Whatever happens, there are huge changes coming to the Greek economy – even bigger than those that have already been experienced.

However, the real problem is everyone else in Europe. Within Brussels circles it has long been recognised that easing the treatment on one country in financial trouble provides a precedent for other countries to renegotiate. The EU does not suddenly want to have to try and renegotiate with Ireland or Spain, for example.

In the first two minutes of this interview with Boom Bust, the new Greek Finance Minister, Yanis Varoufakis explained the situation in January 2014. Greece needed to go through further pain so that Italy learns a lesson!

The current negotiations put Greece into a terrible jam. On the one hand, the EU cannot and will not give ground for the reason above. On the other hand, the Greek people have legitimately voted in a government on an anti-austerity ticket. The new Greek government cannot be seen to take backward steps no matter what situation it finds itself in.

The reality, of course, is that both sides need to edge towards each other and find a compromise. If one cannot be found then money will stop flowing and Greece will go broke in the summer.

If that happens, the likelyhood is high that the Greek coalition will collapse and the next government voted in will be even more hardline – and they will need to be if the people are to have any say in their futures.

Meanwhile, in the other 27 member states, politicians are desperately following the news relating to cats stuck in trees, divorce statistics and whatever else happens to be dominating their own news cycle. Are they listening carefully enough to the message being given to Greece? Or are the Greek people being taught for nothing?

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January Existing Home Sales Report

January Existing Home Sales ReportOn Monday, we can expect to see the release of existing home sales data from the United States. This is a key signal for those that watch the United States economy or investors interested in US assets. So, today, we’ll briefly discuss what the data is, talk a bit about what we can expect to see and why, and finally, we’ll discuss why investors and economists alike care so much about the data.

What Is The Existing Home Sales Report?

The existing home sales report is released monthly. The data provided gives investors and economists an opportunity to look into the growth or lack there of in sales of homes that already exist. Essentially, the report tallies the number of previously constructed co-ops, condos, and houses that were sold throughout the month prior. Because there are far more existing homes than new homes, the existing home market gives economists and investors a way to spot and react to housing trends (We’ll get to that later).

What Can We Expect To See From The Data?

Before I get into speculation with regard to what to expect, please remember that my predictions are just for fun. Before making an investment decision, you should do you own research or talk to a certified financial planner.

With all of that said, I think we’re going to see strong new home sales. There are a few reasons for that prediction…

  • Non-Farm Payrolls – New non-farm payroll data shows that American’s aren’t struggling to get jobs as much as they were before. As a matter of fact, the data in the last non-farm payroll report absolutely blew away expectations;adding 257,000 new jobs in January compared to the expected 234,000. As more and more American consumers start to find meaningful employment, I can only imagine that tons of them will want to consider purchasing a home.

  • Consumer Spending – Another bit of data that became available recently is trends in United States consumer spending. Unfortunately, these trends weren’t so positive. While consumers are finding meaningful employment, and many part time workers are converting to full time, it seems as though consumers just aren’t spending enough money. So, we know that consumers are earning money and we know that they’re not spending much more than they used to. So, much of this most of the new money is being saved or spent elsewhere.

  • US Economic Outlook – It seems as though recently every report we’ve received about the US Economy has been overwhelmingly positive. From low jobless claims to positive corporate gains and more, all we seem to be seeing is good news. The bottom line is that consumers don’t buy houses in a down economy; they buy houses when the economic outlook seems favorable.

All in all, because of the reasons outlined above, I have to say that I expect to see positive growth in existing home sales.

Why Investors And Economists Care

As mentioned above, existing homes take the lion’s share of the market. With that said, the existing homes data we’ll be reading gives us an idea of much more than the housing market; it gives us a look into how stable consumers think our economy is. The bottom line is that few people are going to buy homes if they are not 100% sure in their mind that they will be able to pay for it over the long run. Those types of decisions just aren’t made during poor economic times. So, if the report is positive, it tells us that the economy is continuing to gain moment. However, if the report is negative, it tells us that consumers are still worried about economic conditions in the United States.

What Do You Think?

Do you think we’ll see a positive or negative existing home sales report? Let me know in the comments below.

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Will Greece Reach Deal With Europe

Will Greece Reach Deal With EuropeOne of the biggest stories in the eurozone today is Greece. Recently, a new government was elected that vowed to end many of the spending cuts the country has been facing. The only problem is that Greece is currently receiving financial assistance as the economy in the country doesn’t seem to be able to maintain itself as it is. In order to keep its promise to reduce spending cuts, the Greek government will need to be granted an extension on debts, but their requests to date have been declined.

A Bit About The New Greek Government

Led by Alexis Tsipras, the new Geek is thought by some experts to be a “coalition government of left and right, united only by their desire to defy the European financial establishment and shrug off the constraints of austerity.”

Once in office, the new government vowed to the people that “the end of humiliation has come”. They believe that the programs imposed on the country by creditors is unfair and belittles the Greek people. As a result, they have vowed to end these programs and replace them with policies designed to help the large percentage of Greek’s consumers who are living in poverty. As a result of this vow, the new government has been incredibly stiff with with regard to their willingness to adapt to demands made by creditors.

Now Greece And Creditors Are Negotiating Terms

While Greece has several lenders, the country’s largest lender by far is the powerhouse of the eurozone; Germany. With that said, one could imagine that when it comes to credit decisions, what Germany says goes. With that said, Greece and Germany (along with other creditors) are negotiating terms to keep the country funded.

The most recent move in this negotiation was a move by Greece to ask the eurozone for a 6 month extension on the loan program. However, it only took Germany a couple of hours to bat down that request. In response to the request for a six month extension, the Berlin Government stated that the request for a loan extension as well as an extension on negotiations was “no sustainable solution. Here’s what else Germany’s leaders had to say….

In truth it goes in the direction of a bridge financing, without fulfilling the demands of the program. The letter does not meet the criteria agreed by the Eurogroup on Monday,”

Greece Needs To Come Up With A Real Plan

The bottom line here is that if Greece doesn’t do something soon, the country is going to run out of money. To date, they haven’t been able to come up with a sustainable plan to combat both poverty and overzealous government spending in the country. However, that all may change tomorrow as the eurozone finance ministers meet.

What Is Most Likely Going To Happen In Friday’s Meeting?

In my opinion, nothing! The new Greek government is proving to be incredibly stubborn. With that said, I’m not sure we’re going to see anything productive come out of tomorrow’s meeting. However, only time will tell! I’ll keep you posted.

What Do You Think?

Do you think the Greek government is right in the fight or do you think they should honor their obligations to the Eurozone. Let me know in the comments below.

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Euro Zone Making A Come Back

Euro Zone Making A Come BackIf you follow my content around the web, you know that I’ve been tracking the euro zone closely since late 2013. After being hired to write about economic conditions in Europe, I started to grow more and more personal interest in the topic. After all, the euro is one of the most complex currencies around. Anyway, when I first started looking into Europe’s economy, it seemed like they were finally making a recovery from the depths of financial recession. Unfortunately, several months in and everything seemed to start heading the wrong direction. The fall in economic activity has continued…but wait, has it? Recent data from Europe shows that the 18 member currency zone may be pulling its self off of the brink of recession.

Leading Up To Europe’s Most Recent Economic Crisis

What led to the crisis in the first place? In early 2013, everything seemed great. Germany was the steam engine that powered the euro zone and economic recovery was all but guaranteed. Unfortunately, this didn’t last long. In Mid 2013, Russia started to move in on Ukraine owned land called the Crimea Peninsula. This lead to disputes between Russia and the West.

Soon following the invasion, the United States, Europe, and other western nations started to place sanctions on Russia. As Russia’s activity in Ukraine continued, sanctions continued to become more and more strict. Because Russia is a major trading partner with Europe, as sanctions continued to become more and more strict, consumer, investor, and business sentiment started to fall throughout Europe. As a result, what seemed like a recovery quickly become an economic tragedy; eventually forcing the ECB to reduce interest rates further and create a plan for quantitative easing.

New Data Shows That Europe May Actually Be Making A Recovery

Just aver the ECB announced their plan for quantitative easing, new data has emerged suggesting that Europe’s economy isn’t doing as bad as many thought. As a matter of fact, economy growth throughout the 18 member euro zone increased by 0.3% quarter over quarter in Q4 of 2014. Economists only predicted growth of 0.2%. Overall, Europe’s GDP grew by 1.4% in the year 2014.

Was Quantitative Easing Really Necessary?

The positive data that has surfaced suggests that consumers within the euro zone are starting to become more comfortable with spending once again. This brings two question to light. First off, “Will QE even work in Europe?”, and “Was quantitative easing really necessary?” Personally, I have mixed feelings as to whether or not quantitative easing will actually work in Europe. Here’s what I think…

Will QE Work In Europe?

I really don’t think so. When it comes to quantitative easing in the euro zone, there are two major hindrances to the effectiveness of the plan.

  • Governments Need To Follow Through – The euro zone is a currency zone with 18 different countries. This means that unlike the Federal Reserve who only has one government to deal with, the ECB has to deal with 18 different governments; many of whom are opposed to the QE concept. Therefore, getting the governments to work in tandem in order to see QE goals to come to fruition may be nearly impossible.
  • What Works For You May Not Work For Me – As mentioned above, Europe is a very interesting economy. That’s because instead of the currency being used by only one country, it’s used by 18. The problem here is that while some economies might be doing well, for the currency to do well as a whole, all of the countries in the zone must contribute. So, while some countries may need quantitative easing, others really don’t! Putting stimulus in play where it’s not needed could be very dangerous for regional economies in the euro zone. The bottom line is that what works for one area may not work for another; which is why I believe the euro may be a broken currency.

Was Quantitative Easing Even Necessary?

That’s a very hard question to answer. As mentioned above, there are 18 countries in the euro zone. While the fourth quarter growth was better than expected, if you break down the numbers, that growth is largely due to Germany and Spain and has very little to do with the other 16 countries involved in the currency. So, are there countries that could benefit from QE in the euro zone? Of course there are, but another question that needs to be asked is, are there members of the currency zone that may not benefit from QE?

What Do You Think?

Do you think Europe will continue on a solid growth path? What are your thoughts on quantitative easing in the 18 member currency zone? Let me know in the comments below!

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Strong United States Dollar

Strong United States DollarRecently, I’ve had quite a bit to say about the fast paced growth we’ve seen in the US economy. My biggest problem with growth at an unsustainable rate is that it tends to push the value of the dollar up; harming foreign trade in the process. While this is a real concern, I do want to be clear that not all major stocks will be affected by the fast growing dollar’s value. So, I’m going to share a few industries and specific stocks with you that are safe from the damaging effects a strong United States Dollar. We’ll also talk about some of the stocks that will most likely continue to struggle. So, let’s get right to it!

Small Caps Are Somewhat Of A Safe Bet

When the value of the dollar rises at a much faster rate than other currencies around the world, big companies that are major players in the foreign trade suffer. However, the smaller companies tend to do most of their business locally. With that said, small cap assets are most likely not going to have to worry about lower foreign sales. Then again, small cap investments aren’t necessarily as stable as the types of assets you’d see on the Dow Jones or S&P 500. So, there is a bit of a trade off. However, small caps aren’t the only ways to avoid the danger of fast paced US Dollar growth.

Larger Stocks That Will Be Safe From The Growing US Dollar’s Value

Aside from small caps, there are also several large companies that will most likely not be affected by the strong dollar. Here are my favorites by industry…

  • Big Media – Big media providers that do most of their business here in the United States will not be affected by a strengthening United States Dollar. My favorite big media stocks include Comcast ((CMCSA) even though their customer service is garbage) and CBS (CBS).
  • Retailers – While we would generally expect for retailers to have their hands in quite a bit of foreign trade, there are several retail giants that do most of their business here in the United States. These giants are most likely going to enjoy the strong dollar. They include CVS (CVS), Nordstrom (JWN), Home Depot (HD), Kroger (KR), and L Brands (LB).
  • Tax Prep Leaders – I couldn’t imagine tax prep leaders having any reason to do mass amounts of foreign trade. So, in my eyes, this is a very safe industry. The bigger players here are H & R Block (HRB) and Intuit (INTU).
  • Food & Beverage – Food and beverage makers that are widely known in the United States rather than around the world will most likely do very well as well. Some of my favorites in this space include Hormel (HRL), Dr. Pepper Snapple (DPS), Tyson (TSN), and Kraft (KRFT).
  • Electric Utilities – This is another great sector that won’t have to worry about foreign trade, or the fall of oil prices for that matter. Great electric utilities stocks to follow include Southern Company (SO), Duke Energy (DUK), and Dominion Resources (D).
  • Big Tobacco – While some big tobacco companies are going to run into foreign trade struggles, there are a couple of them that won’t have that issue. Both Lorillard (LO) and Reynolds American (RAI) do most of their sales here in the United States.

Companies That Will Struggle With Foreign Trade

While there are quite a few companies that aren’t going to have any problems with the fast paced growth of the United States dollar, there are also quite a few that will. Here are some big brands I’ve been following that have openly announced that foreign trade is an issue…

  • Google (GOOG) – In Google’s Q4 summary, they made it clear that the strong US Dollar was an issue. Essentially, in Google’s case, because of the currency conversion, people in other nations aren’t willing to pay as much money per click as they once were.
  • Coca Cola (KO) – While Coca Cola’s North American revenue was up due to the consumer’s willingness to pay more for unhealthy soft drinks, foreign trade drove their Q4 revenue down by around 55%. This will continue to be a problem moving forward.
  • Microsoft (MSFT) – For Microsoft, PC sales were on the decline in Q4 and their earnings fell hard. The company placed the blame on the strong US Dollar causing foreign sales to drop dramatically.
  • Other Big Names – Some other of the many stocks that are going to have foreign trade issues as a result of the continually strengthening US Dollar include Proctor and Gamble (PG), Caterpillar (CAT), and Pfizer (PFE).

Final Thoughts

The bottom line is that the fast paced growth in the US Dollar is becoming the talk of the town. As more and more corporations point the finger at the strong US Dollar as a reason for drops in revenue, more and more investors are growing concerned that foreign trade is going to start to put their portfolios at risk. While concerns over foreign trade may be a cause to move a few things around, it’s important to remember that even in the large cap market, there are several companies that do most of their business right here in the United States!

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Janet Yellen

Janet YellenThis week is a huge week for major household brands as well as the United States economy. Recently, oil prices have begun to stabilize, positive economic data has been reported, and things seem to be going better than expected for the US economy. However, this week’s reports give us a close up of what to expect moving forward. With major brands providing details about their Q4 earnings, we can start to gauge whether or not consumers are spending more money as a result of the added jobs and positive economic climate. So, what reports are coming out and when, what kind of results are expected, and could there be any negative repercussions of overly positive reports? We’ll discuss all of that today!

Household Brand Earning Report Schedule

This week, we are expecting to see reports from Kraft, Kellogg, Coke, Pepsi, and Whole Foods. Each of these companies are household names and provide products that consumers buy on a regular basis. Here’s when the reports will be coming…

  • Coke – Tuesday
  • Pepsi | Whole Foods – Wednesday
  • Kraft | Kellogg – Thursday

What Results Are We Expected To See?

The overwhelming opinion in the market is that we’re going to see positive earning reports. The bottom line is that in the fourth quarter, the United States added 257,000 new jobs to non-farm payrolls and grew full-time employment figures at an astonishing rate. With so many new jobs added, we have to imagine that overall, consumers are going to be spending more money. After all, if consumers aren’t spending more money, the corporations can’t afford to hire at the pace we’ve seen. So, it would only make sense that we would see overwhelmingly positive reports throughout the week.

Could There Be Any Negative Side Effects To Overwhelmingly Positive News?

Unfortunately, the answer is yes. However, the negatives would come in the long term. First, with some of our biggest trading partners around the world going through economic struggles, the values of currencies are falling; making foreign products more and more expensive. Therefore, as the United States economy continues to grow at a fast pace, the US dollar grows stronger and stronger at the same pace. As a result, foreign trade suffers because foreign consumers simply can’t afford to buy American made products. So, from a foreign trade standpoint, it is important that the economy grow at a slower pace than what we’re already seeing. With better than expected ports most likely on the horizons, we could see that growth kick into hyper drive; making a problem we’re already seeing worse.

Another thing that we have to keep in mind is the fact that the Federal Reserve is offering incredibly low interest rates right now. However, the interest rate hasn’t been that low forever and isn’t planned to stay there very much longer either. However, if the Federal Reserve starts increasing the rate too early, we could see major backlash in economic activity. While the Fed is pretty secretive about what they plan to do with the rate, we all know that when the economy is viewed as stable, we’re going to start seeing increases. If this was to happen as soon as some experts are expecting, we could see economic growth turn around; which is a very scary concept considering that we still haven’t completely recovered from the last recession.

Final Thoughts

What I’m hoping for is to see reports that show growth as expected or just below expectations. In this case, the economic would be growing; however, it would be growing at a rate that’s more sustainable. If we see the reports smash expectations and blow everyone away, the news might equate to bad news in the long run as the US Dollar will most likely start growing too fast and the Federal Reserve will most likely increase interest rates sooner than later. I’ll keep you posted as the reports become available.

US Dollar Is Up On Jobs Report

US Dollar Is Up On Jobs ReportAs I mentioned in a post yesterday, US non-farm payroll data became available today; and as expected, employers hired steadily last month. According to the United States Labor Department, the United States added a seasonally adjusted total of 257,000 new jobs in the Month of January. Today, we’ll dig further into the data released in comparison to analyst expectations, talk about the United States Dollar’s reaction to the news, and discuss what the better than expected jobs report could mean for the United States economy in the long run.

January Non-Farm Payroll Data Breakdown

  • Seasonally Adjusted Total Jobs Added – 257,000
  • Full Time Workers – Added 777,000
    • Totals are now at more than 120 million.
    • We now have more full time employees than we’ve seen since 2008.
  • Past 3 Month Job Creation Average – 336,000

How The Value Of The United States Dollar Reacted To The News

Following the positive non-farm payroll data, the United States Dollar went on a sharp increase in value. The United States Dollar index started the day off at 94.47. Following the strong non-farm payroll data, the index increased sharply throughout the morning. The climb continued until the index peaked at 94.90 around mid-day. Throughout most of the afternoon, the index would go on a slow, yet steady fall. However, an end of day rally brought the USD back to 94.84 for an impressive daily gain.

Thank you for the chart I used for this brief analysis.

Based on the increasingly positive news with regard to employment in the United States as well as the early reaction we saw from the United States Dollar, I think we are going to continue to see the value of the currency grow.

Long Run Effects The Increasingly Positive Economic Data Will Most Likely Have On The United States Economy

Great employment data is great news, there’s definitely no discounting that. So, in the short term, this is going to be great for the United States. We’ll see more spending, more investing, more hiring, more economic activity as a whole. However, as I said in yesterday’s post, a strengthening United States Dollar and faster than expected economic growth aren’t necessarily good things. Here’s why…

  • Foreign Trade – The United States economy, as with any other major economy relies heavily on foreign trade. Unfortunately, there are several other currencies that are losing value. Therefore, as the USD strengthens, those in other countries, especially those where currency is losing value, will have a harder and harder time affording American made goods. Therefore, as the United States dollar continues to strengthen, we can expect foreign trade to slow.

  • Interest Rates – Currently, the Federal Reserve has pretty low rates. The interest rates are low as part of a plan to stimulate the economy following the last recession. However, the Federal Reserve has openly talked about the interest rate being increased and recently changed the language they use in announcements surrounding the interest rate; making most investors expect for it to happen soon. With increasingly good jobs data, the Federal Reserve may be inclined to increase interest rates earlier than they should. As a matter of fact, that’s the same thing that we saw towards the end of the last recovery!

Final Thoughts

In my opinion, I think the better than expected non-farm payroll report is a good and bad thing. Of course I love to see the United States economy on an upward pace, but the implications of growing too fast could also prove to be a bad thing. With that said, I would have loved to see a report that barely missed expectations. However, with the jobs numbers blowing expectations away, I think we may see the United States dollar grow dangerously fast and the Federal Reserve may increase interest rates too fast, too early.

What Do You Think

Do you think the overwhelmingly positive report is a good thing in the long run? Let me know in the comments below!

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Non-Farm Payroll Report

Non-Farm Payroll ReportRecently, we’ve seen all eyes on United States economic data. After all, strong data could mean higher interest rates very soon; while weak data could mean a troubling outlook for the United States economy. Nonetheless, the overall opinion seems to be that investors are expecting the non-farm payroll data to bring good news. Today we’ll go over why investors are expecting strong data to be released Friday, where the US dollar is now, what strong data could mean for the currency, and how a strong report could turn out to be a bad thing overall.

Why Are Investors Expecting A Strong Non-Farm Payroll Report?

Non-farm payroll data has been know to be positively correlated to US labor market data, and other data points. So far, everything we’ve seen points to strong expectations for Friday’s non-farm payroll data.

With the US labor market in mind, jobless claims numbers rose less than expected last week. In the week ending January 31st, new claims for state unemployment benefits rose 11,000 to 278,000 (seasonally adjusted). Prior to the report, economists forecast an increase to 290,000.

All Correlations Aside

Even if we take away all data points that have correlated positively with non-farm payroll data in the past out of the equation, there are other signs pointing to strong expectations. For example, over the past 12 months, average non-farm payroll gains have been incredibly high. At an average rate of 223,480, this is the strongest rate of growth we’ve seen since 1998. So, all in all, we would generally expect this strong trend to continue.

What Will Strong Data Do To The Value Of The Dollar?

With so many signs pointing to a positive report, forex trading experts are doing all they can to keep their mouths from watering. That’s because experts know that strong data means gains! At this point, there is no reason to expect a poor report. So, with positive data just over the horizons, most are expecting the US dollar to increase in value.

Will Positive Data Be Good News Or Bad News In The Long Run?

In the short run, positive data will definitely be positive for the United States economy. In the long run on the other hand, this may be bad news. I know that it may be hard to fathom the idea of positive data being bad news, but overall, we’ve already started to see the negative side effects of a strong dollar. Here are a couple of reasons that positive data may prove to be a bad thing for the US economy overall…

  • A Strong United States Dollar Isn’t Always A Good Thing – As mentioned above, we’ve already seen the beginning side effects of a United States dollar that is starting to grow too fast. With poor economic conditions around the world, other currencies around the world are losing value. Because the dollar is gaining value and these other currencies are losing, consumers in other nations are experiencing higher costs for American made goods. As a result, we’re starting to see a bit of a decline in foreign trade.
  • Think About Interest Rates – Currently, the Federal Reserve’s interest rates are low as the result of an attempt to stimulate the economy. If too much positive news comes out too quickly, the Federal Reserve may be prompted to raise interest rates earlier than they should. This is the same thing that has harmed the United States economy in the past!

Final Thoughts
While I do think we’re going to see positive data Friday and I agree that it will be good news for the short term, in the long run, I’m starting to grow more and more concerned over foreign trade and interest rates. With the economic data being overwhelmingly positive, I think that we can expect the Federal Reserve to move more quickly with regard to interest rates. Also, it’s important to remember that no economy can grow on a long term level without strong foreign trade. If the United States dollar continues to grow too quickly and other currencies continue to lose value, I fear what we could see in foreign trade moving forward.

What Are Your Thoughts?

Do you think we’re going to see positive non-farm payroll data? How do you think the dollar will react to the news? Finally, are you concerned about long term economic trends? Let me know in the comments below!

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Is The Market Going To Fall

The stock market is such an interesting concept to me. Driven by demand for partial ownership in this asset or that one, the stock market almost becomes a living entity in and of itself. Through researching how the financial markets work, the history of the stock market, and more, I’ve learned quite a bit. I think one of the biggest lessons I’ve learned is that while the market can be incredibly volatile at times, for the most part, things move in waves; what most people like to call trends.

One trend that most finance professionals pay close attention to is the occurrence of financial recessions from here to there and the affect of those recessions on the stock market. So, today I thought I would take a look at the historic charts of the Dow Jones Industrial Average. What I saw made me want to look further into the S&P 500, NASDAQ, and economic as well as geopolitical conditions at specific times. After doing so, I think I may have uncovered a disturbing trend. So, today we’ll talk about why I think we’re going to see the beginning of a financial recession before the end of 2015 and what you can do to protect your assets.

The 7 Year Trend

When I looked at the Dow Jones Industrial Average, something popped out at me almost immediately. The trend is simple. The last two financial recessions were separated by about 7 years. Today, we’re at that point. As a matter of fact, we are currently about 7 years and 3 months away from the last peak in the market.Dow Jones Trend

When we look closer at the specific points mentioned here, the trend becomes even more visible. Here’s a comparison of 3 months following the marks made on the chart above…

Dow Jones Year 2000
Here’s how the Dow Jones Industrial Average Looked Toward The End of 2000.
Dow Jones 2007
Here’s how the Dow Jones Industrial Average looked toward the end of the year 2007.
Dow Jones Today
Here’s the Dow Jones over the past 3 months.

While today’s Dow isn’t quite as volatile as we’ve seen in the past, there are some striking similarities.

Signs Of The Trend You Won’t Find On A Chart

Sure, we can see the basic outline of a trend on a chart, but what about the details. What supporting factors are happening right now that show that we’re headed in the same direction? Well, there are a few…

The 2001-2002 Recession Started In ’99

Following a strong recovery from the 1990-1991 mild recession, the Federal reserve decided that it was time to start increasing interest rates in 1999. Between June of 1999 and May of 2000, the federal reserve increased interest rates 6 times. The goal in slowly increasing the interest rate was to slowly level the market at a higher rate without causing turmoil in the process. Unfortunately, that plan didn’t work out too well. Instead, the increased interest rates caused the stock market bubble to burst; ultimately starting a chain reaction that would lead to the financial recession of 2001 and 2002.

Geopolitical Tensions In 2001 Make Matters Worse

In 2001, the market was already struggling as a result of the increased interest rates imposed by the Federal Reserve, but soon, there would be quite a bit more to worry about. On September 11th, 2001 terrorists waged attacks on the United States. These attacks would send the market spiraling down even further and ultimately be the final nail in the coffin for strong economic activity. Soon, the recession was in full swing.

How Conditions Are Similar Today

  • Janet YellenInterest Rates – One of the biggest topics of discussion in the finance realm today is interest rates and the Federal Reserve’s plan to raise them. When the Fed decided to reduce interest rates, we all knew that the low rates couldn’t last forever. Now, investors are trying to predict when the rates will go up, and most believe that will happen some time this year!
  • Geopolitical Conditions – Another thing that’s important to keep in mind here is the fact that geopolitical conditions aren’t necessarily calm at the moment. Russia still refuses to back down, terrorists are a major issue in the middle east, and North Korea is becoming more and more of problem in and of itself.

Fast Forward To 2007

The financial recession that started in late 2007, but was most felt in 2008 and 2009 was a bit different than what we saw in the early 2000’s.  In the great financial recession of 2008, there were a couple of causes….

  • Excessive Risk Taking – Driven by years of low inflation and steady growth, many financiers claimed to have eliminated risk all together, but the risk wasn’t gone. As stated on the economists in the best way possible, these financiers had simply “lost track of [the risk]“.
  • The Housing Bubble – Another major factor in the “2008 financial crisis” was what we know now as the housing bubble. Tons of sub-prime mortgages were issued in the years prior to the crisis. When the sub-prime mortgages started to default, the floor fell out from underneath the housing market.

How Conditions Are Similar Today

OK, we’re not looking at anything like a housing market bubble right now, but that was only a piece of what caused the recession overall. Another major factor that’s seldom talked about is the excessive risk taking in the market leading to the financial crisis. If we look at the market as it is today, we are seeing the same types of excessive risks. As a matter of fact, in August of 2014, excessive risk taking got to such a level that major figures in the finance industry started to issue warnings!

All Signs Point To Another Recession

Signs Point To Recession

When i first noticed the trend, I thought to myself, “There’s no way that we can forecast financial recessions like weather…this must be coincidental…”, but after the research I’ve done on the causes of the last to recessions and comparing those causes to what we’re seeing in the market today, I noticed some strong similarities.

Personally, I don’t like to be the “teller of doom” when it comes to market predictions, but it’s hard to ignore the mile high red flags I noticed during my research. With that said, while I maintain faith in market growth, I am going to start positioning myself for a foreseeable recession.

Want To Protect Your Investments? Here’s How!

Buy gold online with Goldbroker.comHere’s a quick step by step guide to protecting your funds from a possible financial recession…

1. Don’t Over React! – When bad news come out, too many investors over react. Just remember, knee jerk reactions can lead to major losses. So, don’t do anything just yet. Sit back, think about your goals and your portfolio and move on to the next step.

2. Add Precious Metals To Your Portfolio – It doesn’t have to be a lot, but it’s best to have at least a small amount of precious metals in your portfolio when things are looking like the economy could possibly take a down turn. After all, gold is a great safe haven!

3. Watch The Market Closely – As I mentioned above, we’re seeing the same types of trends that we saw before the big collapses in the early 2000’s and again in 2008. However, keep in mind that we’ve got a bit of time. Chances are that things won’t start getting too bad until the Federal Reserve increases interest rates. So, in the mean time, do a bit of research on what really happened during the last couple of recessions and make yourself aware of the signs to look for.

4. Make Your Move When The Time Is Right – Based on everything you’ve learned here and from the research you do later on, make your move to larger amounts in safe haven investments once market conditions get a bit too out of control for your comfort level. If you’re not knowledgeable of what qualifies as a safe haven or the best moves to take in the midst of a recession, it may be best to speak with a CFA or CFP in your area to discuss your goals and level of comfort with regard to risk.

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