“It took us three years to find someone to manage our wealth, and we can now sleep at night! ”

Darren and Ruth Johnston (Semi-retired entrepreneurs) (N Wales) (2011)

US economy gone negative

Posted by jdavis on April 20, 2011

You may have noticed the news that one of the three major US ratings agencies, on Monday 18 April 2011, moved from being Neutral to Negative on US debt.  In other words, they are becoming increasingly concerned that the US debts and borrowings (deficit) are becoming unrepayable.

In our view, it has been unrepayable for years.

In other breaking news, another ratings agency has downgraded Ancient Rome due to the Vesuvius eruption bringing catastrophe to Ancient Pompeii.  ‘It may have a detrimental effect on the national economy’ is their conclusion.

I jest.

However, it is little more than a farce that only now do they have concerns over US finances.  (Note how all the ratings agencies gave AAA ratings to all the banks and all the mortgage-backed securities prior and up to the biggest collapse in history.)  Obama has spent $4Trns of borrowings, pumping it into Wall St billionaire’s pockets, for little or no return to the real economy.  They have raging inflation (though, naturally, the Central Bank says it is contained), they pay masses of interest to creditors (the banks) out of their taxes, they have a crumbling public sector (they will undergo similar ‘austerity’ to Greece, Spain etc (ie much more severe than the UKs – which will likely come after the next election), their house prices are down 40-50% and home repossessions (and evictions) are counted in the millions, they have an overhang of unsold housing stock of several years pointing to further price falls, their tax take is crumbling, the rich pay little tax, the international corporations pay less, 1 in 7 of their population is on food stamps (think about that for a moment) – not soup kitchens like the 1930s but no real difference just more privacy and using a plastic ID card in Wal Mart rather than standing in a 100 long queue – 1 in 6 is out of work, and the Democrats and the Republicans made great theatre recently arguing over literally 1% of the annual borrowings.  Alternatively, they could have argued about sorting out the country’s finances.  But that would have been sensible and shown leadership.

I noticed the BBC had the US downview – arguably the single most important economic announcement in the 21st Century so far – as its 5th item on the main News…

The US is on its knees.  Everyone knows it but no-one will do anything about it as it is not politically expedient.  Obama is the most highly Wall St funded President in history, by a mile.
Congress is too.  For the next election the parties will spend billions to win – money provided mainly from Wall St.  (Our political parties spend about £50m - in total – on a general election!)  In 2006, when he was a Senator, Obama railed loudly against the raising of more debts.

There is practically no-one in their parliament who is incentivised to sort the problem.  Thus, the market will make it happen over the next few years. 
Just like Greece, Ireland and Portugal found that they couldn’t borrow any more at subsidised rates so will occur for the US and most other countries.

Yet, whenever you hear so-called experts talking about he economy all we hear is we need growth and it has to come from government support.  THE GOVERNMENT HAS NO MONEY!  It borrows £1 for every 4 or 5 it spends.  Those who say this is OK are denying absolute truths.

Video of US government statistics - this is how bad things are
If you watched the 3 minute video, I will now ask if you think the UK is in a stronger position than the US. It is not. The UK will have ‘ours’ I suspect after the next election when our national debt largely falls due.

In case you still don’t accept that things are as bad as I have reported and that the way out of the catastrophe is to default on the reckless and fraudulent loans:
The TRUTH about Ireland's bailout, Part 1

Part 2

Iceland which intelligently told the banks where to go and decided against repaying reckless and fraudulent loans, is now one of the strongest growing countries on the planet (nb rightly, they still will pay back depositors just over 90% of original deposits – which they do not have to).  Finland has just voted in a party which is against paying for bankrupted profligate countries.  Why don’t we?  Its just not politically expedient – until it becomes so which will be far far too late.

As for elsewhere, I see the following:

  • 99p shops are the fastest growing tenancies in UK high streets – hardly pointing to a strong consumer-based economy.
  • We see front line services cut one after the other – by local authority CEOs and deputies and managers who lord it on unaffected high incomes and benefits.
  • There is an expectation that CPI, which determines pension increases and influences wage claims, will include house prices.  Interesting, we had a 15 year boom and no inclusion thus interest rates were kept inappropriately low and now that house prices are falling long term they will be included, thus keeping interest rates inappropriately low... and bring higher costs and lower standards of living.  House sales’ numbers are at their lowest since the lowest point in the 2008/2009 recession.  I can’t see how they will rise.  You may be interested to know that, in at least one region of the UK, house prices are down nearly a half since 2007 – prices are falling everywhere.
  • Our costs of living are rising fast while earnings are rising barely at all – thus we have falling standards of living.
  • The public sector cuts officially started 2 weeks ago.  Students will have £30-40,000 of debt on graduation.  1 in 3 call centre workers in the UK is a graduate earning not much more than minimum wage.


  •  It is reported that Beijing house prices have fallen over 10% in the year to April 2011 (clients may recall, from review discussions, a basic tenet of my current hypothesis is the falling growth / recession of China).  NB. There are 64 MILLION empty apartments in China.  Yes, 64 million.
  • Middle East despots are at war with their citizens in order to stay in power.
  • Have you seen any bankers prosecuted for their part in the biggest financial fraud in history?  No, neither have I.
  • Japan’s manufacturing is practically shutting down and is affecting Western manufacturing (but we were told the Tsunami and nuclear melt down would hardly affect the global economy)
  • etc

 For updating you, I hadn’t intended to write up the current state of play at this time, however the US downgrade was far too important to miss.

It remains our view that this Spring / Summer we will see at least a 20% pullback in stock market prices and our client portfolios are well set for this.  However, first, it is our contention that the market may yet still have one more try at highs, even potentially taking us slightly higher than the February high.  (Yes, the market is lower than 2 months ago.) 
If markets go higher we do not believe it will be the continuation of the bull market.  Instead it will be one last gasp up.  On the other had, if it does not go higher and continues to fall for some months then our portfolios will directly benefit.

Markets normally take a number of months, with choppy movements, to change a major trend.

As I write previously, the only thing holding up the market has been money printing.  There is now an expectation that Quantitative Easing 111 will not follow QE11 immediately.  Thus, markets are faltering.  It is our expectation that the market will need to come back significantly for the Federal Reserve to have the justification for QE111.

I remind you that we are not trying to ‘beat the markets’ for now.  All we seek is to preserve capital and try to grow it from lower prices.  We feel that late Summer will bring another super buying opportunity for cash holdings.




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