11/16/2005
I would like to draw your attention to an AP article that came out last week entitled "Real Estate Collapse Could Cause Recession, Job Losses." The thrust of the article states that many top think-tank economists and financial advisory firms, including the likes of Lehman Brothers and Merrill Lynch, have all concurred that the imminent decline in the US real estate market will cause a recession, and most likely, a severe one.
Lehman cites that a full one-third of the economic activity from the last year was a result of the housing boom and 5% of the nation's economy is tied to construction. As a result, a decline in the housing market would translate to roughly 1.3 million jobs lost. The Center for Economic and Policy Research goes on to say that there is more that $5 trillion dollars in "bubble wealth" that will evaporate in the bursting of the US real estate bubble.
These are frightening statistics, and ones we should be mindful of in planning for risk mitigation in the coming year, and the years to follow. If you have not already done so, I would like you to get a copy of "Boom to Bust: How to Plan, Protect and Profit When the Bubble Bursts". This is my 28-page special report dedicated to helping my readers survive and thrive in the imminent real estate decline. Worksheets, tips, charts and in-depth analysis will help you devise a plan for managing all of your assets during the tumultuous financial times that lie ahead for housing and the economy. For more information, go to my website at http://www.dougfabian.com.The market has made impressive gains over the last couple of weeks, but the upward momentum seems to be losing steam as investors weigh inflation and earnings prospects.
Fed chairman nominee Ben Bernanke's comments reveal that he, like Alan Greenspan, is intent on battling inflation. He may be slightly more formulaic in his approach, but Bernanke seems to promise a fairly seamless transition from the Greenspan years to the new era at the Federal Reserve.
On the international front, Japan appears to be emerging from its 14-year malaise, and South Korea is on fire as its established economy is growing at a rate of about 6%. The international market is rife with opportunities and I encourage you to consider allocating as much as 30%-50% of your entire portfolio to select international ETFs.
The U.S. is just not growing at the rate of many emerging nations, particularly in Asia. China foresees continued growth in the area of 9%, while the U.S. anticipates growth in the neighborhood of 3%.
It's not un-American to buy international funds. In fact, it's very American to follow the pursuit of making and keeping a buck. In fact, it's the American Way. It's the classic "follow the money" scenario and the money is pouring into the Asia Pacific region.
I am currently advising my Successful Investing subscribers to take a larger position in international investments, particularly those in the Asia-Pacific region. I am recommending that my subscribers make an allocation to the Japanese and South Korean ETFs with an appropriate distribution of assets. And I am carefully watching China as well as those countries that benefit from her explosive growth.
The world is changing and you have to consistently rethink your strategy. That's what I do. I have to in order to keep my investors on top of the most influential trends that drive the big gains. And getting in at the beginning of those trends is where most of the money is made.
Most investors are over 90% invested in domestic markets only. That's just not going to cut it. The U.S. economy is fraught with challenges and it's time you explored ways to safely invest beyond our borders. And there's no better way than with the unbelievable selection of ETFs traded on our very own Wall Street, making it easy for your to safely garner big yields in the international arena.
Would you like to know the names of the ETFs my Successful Investing subscribers just bought to jump in on the gains in the Asia-Pacific region, as well as the tech funds that I foresee overshadowing all of the others? If so, then you should try Successful Investing free for six months and I will name names —not just today, but for every buy and sell signal for the next 6 months while you decide whether or not you want to keep your subscription. And even if you cancel, you will get every penny of your money back and 6 months of some of the best investment advice available today. You have nothing to lose, so check it out:
Well, we seem to be having our end-of-the-year rally, albeit a subdued one, and we are preparing a foundation for building profits in 2006. In doing so, it is paramount that my readers are, first and foremost, mindful of the risk I feel the current economic climate poses to your assets going forward.
The stock market hasn't delivered a rockem-sockem year since 1999, but people hopefully anticipate that with the arrival of each new year, there will be a resurrection of the bull market. If that does happen, we will be there ready to profit from it. However, there are forces at play in the economy that threaten the fortunes of the buy-and-hold optimist who lacks a strong self discipline.
I see compelling evidence of a credit bubble that could put a real damper on future spending, particularly if the Fed marches on in its campaign to raise interest rates. South Korea is just now emerging out of a two-year recession arising out of a high consumer debt load that choked off spending and forced the government to step up with strong incentives to move the consumer engine forward.
Consumer debt is at its highest level ever in our country's history. And floating-rate debt, debt that is tied to increasing interest rates, will continue to bloat. Since the Fed has made knocking out inflation job #1, interest rates could continue their ascent well into 2006.
Investors are confident in this market as the inflow into equities is near its highest level of allocation this year. This raises a warning flag in my mind as we have additional worrisome signs foretelling weakness as investors rush headlong into the marketplace.
Some issues that particularly concern me are:
The US real estate bubble: This is a biggie. The largest single asset class in our economy is in the beginning stages of a downturn of unknown severity, which could cause a severe recession.
Budget deficits: The municipal, state and federal governments continue to spend more than they take in and add it to their credit card. The recent election in California in which all four of Governor Schwarzenegger's attempts to diminish the outflows into government-sponsored union programs fell on their faces with a resounding thud. Where's the money going to come from? My guess is that higher taxes are inevitable and they will create a hostile environment for investors.
Trade deficit: We continue to buy more and more from our international neighbors than we sell to them. What we are selling to them is our jobs. The economic power will shift dramatically if we continue to support the import market without making ourselves competitive in the export market.
Alan Greenspan warned about the trade deficit earlier this week citing that foreign investors may grow weary of funding our trade deficit. He added that the U.S. economy could absorb the blow. I'm not so sure about that. Perhaps if the trade deficit were the only trouble spot in our economy I would agree, but we have major fires popping up all over our economy, some of which I have covered here. If all the dominoes fall at once, it could create quite a shock to our economic system.
Credit bubble: I have already covered this issue in detail. I can add only one comment. Be mindful of the recently passed bankruptcy bill that makes it next to impossible to wipe the slate clean on consumer debt. People are tied to their obligations until they can be paid. This is a major triumph for lenders who, in my opinion, use unscrupulous techniques to lure people to succumb to the instant gratification that credit provides and them slam the iron jaw on their futures.
Look, I'm not a gloom and doomer. I have faith in the free enterprise, capitalistic system. You have to accept, however, that the system works in an ebb and flow pattern in which there are cycles of strength and cycles of weakness. We have seen both over the last couple of decades, but I want my readers to understand that the growth period of the 80's and 90's was an anomaly. It was a period of unprecedented growth and I don't want you to be misled to invest with the belief that such gains are a matter of fact when they are really a matter of hope. We may be in a prolonged cycle of low yields. That's not a bad thing. You can make a lot of money in a low yield environment, but you have to follow the trends with a strong discipline that will enable you to lock in gains and avoid big losses.
"My dear friends, so often we resist change because it is new and, honestly, it's frightening. However, change is how we grow, learn and ultimately, survive. Adapting to the changes around you is what will make you strong and secure. Keep learning, keep evolving and remember this: Growth is the only evidence of life."
~John Henry Newman