2017 Economic Commentary
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or those of you who have been following me through the years, you know I’ve been posting Economic Commentary for some time, and my predictions and have been very consistent and accurate
It was a crazy close to 2016 and 2017 has started out in a similar way. We have Brexit, with Britain leaving the Euro Zone, we now have a President Donald Trump, and there’s been a lot of upheaval around the world.
There’s also a lot of optimism. While President Trump can do a lot of things to help this country, and help growth, I think cutting and reducing taxes is going to be good. The animal spirits are coming back.
I think there are going to be a lot of good things that are going to happen in 2017, but let me tell you what President Trump cannot fix:
- Demographics
- Debt
- Deleveraging
None of that is going away.
We have seen interest rates in the short term come up a little, but if you go back to 2012, they’re still probably lower than what they were in 2012. Even though interest rates have come up, they’ve come up from a very low base.
Could interest rates go up a little bit more? Sure they could. I’m saying we’re not going to see interest rates of 5-6-7-8-10%, we’re just not going to see that.
We are in a country that is 20 trillion dollars in debt, we’re in a world where governments are 60 trillion in debt. Well what is debt? It’s just taking from the future and spending it today.
For example, let’s say it’s football season and you want to watch the Super Bowl on a brand new big screen TV but you don’t have any money in your pocket, you go down to Best Buy, you take out your credit card, you’re happy to swipe it for $1,500 and you get to watch the entire season on a brand new big screen TV.
Well what did you just do, you took $1,500 of your future and you spent it today. What I am telling you is governments have taken 60 trillion from our future, and it’s gone. So, by definition what does our future look like? 60 Trillion + interest, less than what it coulda-woulda-should be.
What happens when you’re paying off your debt? What aren’t you doing? You’re not spending it or saving it.
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The paying off of debt is called deleveraging, it’s highly deflationary. And how do governments get out of debt? Well, typically they raise taxes and they cut spending. That strangles an economy. That’s highly deflationary.
Now, the third way to get out of debt is what President Trump is talking about, which is growth, and growth is the best. We hardly ever hear about it, but now we’re starting to hear about it. But, we can’t grow enough because of the 3rd big D, which is demographics.
We’re getting old. Europe is old. Japan is very very old. China will get old before they get rich. Do you understand old people don’t spend any money?
So think about this, these 78 million Baby Boomers, every single day for the rest of our lives, they’re going to be spending less, and less, and less, and less. Europe is going to be spending less, and less, and less. Japan is going to spend less, and less, and less.
So, here’s the deal. Right now, I think the United States is the cleanest shirt in the dirty laundry. So yes, we have problems, but we don’t have as big of problems as Europe, Japan or China.
My prediction is that when the market crashes, and I don’t know when it will, but it will. I don’t think it will be US based reasoning, I think it will be something overseas:
- Italy has huge problems with the Italian banks, they are zombies, banks could fail.
- Greece is still in huge trouble.
- Other countries could choose to leave the euro.
- If a Spain or Italy or Germany or France left the Euro, that’s game over. The Euro will be done. And that could cause huge problems with many banks.
- There’s also a big problem in China with their debt, and the growth rate has been slowing, and they’ve been playing all sorts of games to make that do better or look better, so I think China has big problem.
- Japan is way worse than we are.
So if you want to know what’s going to happen in the United States, like our debt and our deficit, watch Greece and watch Japan. We’ll know what’s going to happen to us by watching what happens to them. They’re way worse than us.
So what I would tell you is this: In the short term, it will be party on, and everything is going to go good, and the DOW will go up. But I think it’s not probably going to be sustained. And I don’t believe interest rates will head much higher.
I think there’s going to be some trouble somewhere in the world that will spark some big trouble over here. You could see the market crash significantly, and at that time interest rates would drop significantly, and I think we’re going to continue to have very low interest rates as far as my eyeballs can see.
While things are good for us now, we need to make the most of it. For those of you who do client presentations or seminars, I’ve compiled a deck for you that includes 247 of my best slides to help you simplify and present complex retirement income planning solutions to your clients. This compilation will help you explain in simple terms how your clients can protect their future, and set themselves up for a secure and happy retirement.
-Tom
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