We in America are facing multiple serious threats simultaneously; each of which has the potential to hinder our ability to maintain our standard of living. The stock market is once again nearing bubble levels and a significant stock market crash may already be underway. But there are several other high-probability threats that can be potentially devastating to our way of life—threats that are economic and geopolitical in nature but will directly impact what happens financially. Here are a few of those threats.
Our national debt has grown exponentially with growing dependence on potentially hostile nations for funding. Every additional dollar we borrow adds to their power while decreasing ours. The United States of America enjoys tremendous benefits as a result of its currency having ‘reserve’ status. Should that status be lost, the ability of our economy to sustain itself would be greatly impacted.
The US Dollar is at risk globally. Russia, China, Brazil and many nations in the Middle East have established a banking system that will now compete against the banking system imposed and run by the United States. This competing system is not based on the U.S. dollar and further threatens USD dominance.
Foreign nations have cyber warfare capabilities that could wipe out financial markets directly impacting you and your ability to plan for retirement or remain retired. For instance, the USA Today reported this week that “Federal Officials warned companies Monday that hackers have stolen more than 500 million financial records over the past 12 months, essentially breaking into banks without ever entering a building.” Few are aware that Russia and China recognize the U.S’s vulnerability to cyber-security threats.
I am not highlighting these threats to scare people. Instead, I am focused on identifying and developing a plan of action so that I (and my business and clients) can be better prepared to safely navigate through them. In early November, I will be one of only 15-20 financial advisors from across America that will be meeting with leaders such as Kevin Freeman, Lt. General (ret) Jerry Boykin, Frank Gaffney, and Governor Frank Keating. Our purpose is to review potential economic and national security threats we face and develop proactive strategies. As part of the founder’s class, I will be part of a professional financial organization called the National Security Investment Consultant Institute and look forward to providing further updates.
Regarding the markets…
Don’t be lulled into a sense of complacency by the relative calm being exhibited in the stock market the past few days. The imbalances that led to the declines over the past weeks and months are still there and it is likely that the markets have further downside ahead—possibly a lot more. The S&P 500 is still up over 4% for the year, but it has fallen 4.8% since its September 19 high. The Russell 2000 growth index (RUT) is down 5.74% for the year. It has declined 9.6% from the intraday all-time-high recorded on July 1, 2014.
The relatively mild declines in the major indexes mask the devastation that is happening in individual stocks. Several of the stocks in the Russell 2000 have plunged over 20% from their recent highs. And I believe the Russell 2000 index is still hugely overvalued.
For those that haven’t followed the advice that I’ve been giving the last weeks and months to reduce equity positions and increase bond holdings, I suggest you use rallies as an opportunity to reduce equity positions. I wouldn’t necessarily suggest moving the proceeds directly into bonds right now because there has already been a big move in Treasuries. Perhaps keeping the funds in cash until yields move back up to around 2.30% or higher on the 10-year. Thanks for reading.
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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.