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The 5 Biggest Threats To The Economy Right Now

Speaker 1 (00:00):
Hi guys, I’m Tim Melvin. And welcome back to a better way to wealth. Now, today, we’re going to talk about something that could end up being critically important to you over the next several months. Now I’ve talked to you guys before about the fact that this stock market is really overvalued. In fact, when you look at the market cap of the us stocks to the U S gross domestic product, it’s the highest it’s ever been. Why is that important? This is the measure that Warren buffet has called the single best measurement of the value of the stock market. It’s higher than it was in 1999. It’s higher than it was in 2007. It’s very dangerous levels. The 10 year average PE ratio. One of my favorite measures is also a dangerously high levels compared to the past. This market’s been going up steadily since 2009, with just a short break last year that the fed ended almost immediately, when the decline comes, it could be disastrous.

Speaker 1 (00:59):
You need to be prepared. And we’ve talked about that a little bit. You need to start implementing a black Swan strategy. Like I talked about a few weeks ago, and we’ll talk more about that in the days and weeks ahead. But today I want to share with you what I think are the five biggest dangers to the stock market and the things that you really need to be watching out for now, the first for real simple folks, inflation that causes higher interest rates. This market’s entire case is based on the fact that low interest rates justify very high valuations. If rates start moving higher on the 10 and 30 year bonds, and that starts to drag up the short end of the interest rate market, the stock market is in deep, deep trouble. It doesn’t take a lot of move in interest rates for stocks to be worth a lot less than the current prices.

Speaker 1 (01:52):
Now, there is a theory going around out there that it’s going to be okay. You know, we have inflation inflation historically has been good for stocks. And so you hear that all the time. Here’s the problem with it. It’s not true. So professors at duke university and Sue commodity traders for men incorporated got together this year and did a study. What does well in inflationary times, folks buying and holding stocks, doesn’t do it buying and holding bonds. Well, that’s a recipe for disaster, but you don’t make any money owning stocks and inflationary period. There’s some evidence that you can make a little bit of money trading stocks based on certain trend indicators, but it’s not a lot of money. So really nothing except direct ownership of commodities seems to work inflationary times. Stocks is not the answer. So if rates start to go up and we have inflation, the market could get absolutely blasted.

Speaker 1 (02:53):
Now, what I like to watch here is the move in the ten-year bonds. And I also watched the change in high yield credit spreads. Now, all that sounds boring and that’s okay. You’ve got me to do that for you. My paid subscribers will be told, Hey guys, it’s time for us to get out of here or load up on the black Swan strategy, go back and watch that black Swan video. You need to see that the second biggest threat guys it’s China, China has decided that they really are not afraid of the United States, and they don’t need us to rebuild their economy the way they did back in the 1990s, or even the first part of two of the 2006 or 2021 period. They are pushing us away rather aggressively. They’ve indicated they’re not afraid of us. They can take us. They play cat and mouse game through us in the south China sea all day every day.

Speaker 1 (03:45):
And do not kid yourself. They’re looking at Taiwan. They want Taiwan back, everybody that is a political observer expects. At some point, GGN paying is going to try to do exactly that common wisdom says he won’t do it until after next year’s winter Olympics, because that’s worth a lot of money to China. Xi Jinping has also quite aware of what the common wisdom is. And he’s got a pretty good reputation for acting against that common wisdom, any type of military action from China against anybody in the United States, Japan, a move towards Taiwan threats to any of their, of the Southeast Asian nations is going to be a problem for the stock market to digest. We also have the fact that China has decided they don’t really, you know, need to trade with us as much as they did. They’re building their own internal. Middle-Class the G the Chinese regulators are really clamping down, both on companies that can do business in Japan and where, I mean, Japan, China, and where Chinese companies can list their stocks. All of this means we have to keep our eyes on China because actions, my China could break the stock market in the years ahead. So we’ll be keeping a very close eye on that as

Speaker 2 (05:02):
Well. Now, the third one,

Speaker 1 (05:05):
That’s just the politically unpopular one. Let’s just dive right in. If the pandemic continues to spread, it’s going to be a problem. And it doesn’t matter what your political view of the pandemic is. There are governors and mayors across the United States that are going to move aggressively to lock down portions of the economy. The supply chain is going to clog back up because it’s going to be hard to get workers in those tight confined spaces. Then you’re going to have European nations, which will lock down. They will lock down for extended periods of time. We also know that Asian nations will do that. The global economy slows that eventually spills into our economy. There’s no way around it. So if the pandemic does not begin to abate, that could be very negative for the us stock market. So that’s another thing that we really kind of need to keep our eye on.

Speaker 2 (05:57):
Okay. Ah, here’s

Speaker 1 (05:59):
One, this one’s up in the air and it depends what you read as to how everybody thinks it’s going to go, thinks it’s going to go. But if the Democrats start to gain ground and I don’t care what political party you’re from or affiliated with, this is just a fact. Democrats are perceived as a higher tax, higher regulatory political party. If it starts to look like they’re going to gain seats in the Senate and continue to hold control of the house. And in particular, if the progressive wing of the squad, if you were begins to gain more ground inside the party, the stock, market’s going to react very negatively to that. So again, you don’t necessarily have to stay on top of it. Yours truly is a political junkie. I’m going to be reading this stuff anyway. So I might as well come back, share it with you in, in this this free letter.

Speaker 1 (06:50):
And we’ll talk about it, of course, for paid subscribers, with little tighter detail on exactly what politics is doing to the stock market at any given moment in time. So, and finally, here’s one that I think we’re starting to see signs of this. We’re going to get, Hey, this is as good as it gets. The reality of that. And that’s a lot of truth to that folks. Second quarter of 2021 to a very large, the degree is as good as it gets. They had the easiest earnings comparison for S and P 500. And even as the smaller companies, I think in history, because earnings have been so decimated last year by the initial wave of pandemic lockdowns, most people lost money. Companies showed massive profit gains. They slaughtered the analyst estimates because analysts still to this day, a little bit confused about exactly what’s going on in the economy.

Speaker 1 (07:42):
They had raised her yesterday. High enough. Now wall street is, is pack animals. Okay, they’re going to do what the lead animal does. So once the guy Goldman Sachs and a couple of other very influential firms start to raise their rates after these massive positive earnings surprises in the second quarter of 2021, they’re going to raise them too high, setting the stage for you guys, a wave of third quarter earnings disappointments. We also have to accept the reality that even if everything stays great for the economy, the feds are going to start tapering their purchases of us treasury and mortgage bonds. Last time they talked about that guys, back in 2015, the market got crushed just at the mere idea that they might and think about what happened in late 2018 with stock prices. When it looked like the fed might raise interest rates. So very difficult situation there is that, you know, we all look around and say, okay, we’ve beat the pandemic.

Speaker 1 (08:44):
The economy is going great. This is it. We’re back about 2019 levels. In most industries. Some industries are not back to there and they’re not coming back for a very long time. So I think a sense of it’s, this is as good as it gets, could put at least a short-term hop in the stock market. So we’ll be keeping an eye on that as well. So those are the five biggest threats that I see to the stock market right now with inflation, probably being the biggest one, because sustained inflation guys, if you weren’t around in the 1970s, the last time we had really long-term sustained inflation, it was brutal for the average stock market investor. It was brutal for the average real estate investor. It just was not a fun time to be trying to find a way to earn a decent return on your money. So we’re going to watch the inflationary indicators. We’ve got a pretty good set of those that have been pretty accurate over the last three decades. So watch this space. We’ll let you know what to do. Go back and watch that black Swan video cause that’s your single best strategy for protecting your stock portfolio in the event of a full-blown stock market retreat. So, anyway, guys, I’m Tim, Melvin, this has been a better way to wealth. Thanks for watching. And we’ll talk again soon.