Why a Collapse Is “Practically Unavoidable”

According to George Soros, China’s debt collapse has begun… 

According to Soros, a major crisis in China is “practically unavoidable.” 

• China is the world’s second-largest economy... 

And it’s the world’s largest commodity consumer and exporter. 

China has grown rapidly over the past two decades. It has fueled that growth with obscene amounts of borrowing. Its debt-to-GDP ratio stands at 250%. In other words, China owes 2.5x more than it produces in a year.

DYI Comments:  This could be the moment that China's financial debt bomb explodes. China the worlds 2nd largest economy there certainly will have ripple effects in the world economy.  Japan who are deeply in debt as well and dependent upon exports a world wide recession would decimate their economy.  Europe is a basket case especially Italian banks that are teertering on the precipice.  Where the EU leaders believe that to solve a debt problem is with more debt.  Similar in an attempt to drink yourself sober.

• The U.S. is even more indebted than China… 

The U.S. federal government owes a record $19 trillion. Its debt has more than doubled since 2007. 

Dispatch readers know the U.S. government launched all sorts of extreme measures after the 2007–2009 financial crisis. It borrowed trillions of dollars…created trillions more out of thin air…and cut rates to effectively zero. 

These policies were supposed to stimulate the economy…but the U.S. economy is growing at the slowest pace in decades. 

Casey Research founder Doug Casey says the government’s reckless policies have set us up for a financial catastrophe.

DYI:  How long will the U.S. economy continue to dance on the head of a pin between slow growth and recession is anyone's guess.  What powers stock prices is prosperity(what little there is) take that away and stock and bond(especially junk) prices will decline.  With prices in bubble land any recession will decimate prices.  DYI's best estimate is for stocks using the S&P 500 as our proxy to decline on the order of magnitude between 45% to 60%.  This decline would be "run of the mill" simply corresponding to the massive over valuation.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  4/1/16

Active Allocation Bands (excluding cash) 0% to 60%

85% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

If the world wide economy goes into a tail spin pushing oil prices to a teenager level lump summing into the Adams Natural Resource fund symbol PEO for oil/gas/service companies will be on the give - away - table.  Gary Shilling an excellent economist with a great track record continues to believe it is still very possible and probable.  My take?  I'll be honest.  I don't know. However, be a Boy Scout...BE PREPARED!  If it does happen I'll be ready to snap up shares of PEO at bargain prices setting up for nice gains in the years ahead.

   

Time Bomb Ticking In The Global Bond Market—-$17 Trillion Of Governments Yield Less Than 1%, Duration Risk Soaring

by Bloomberg Business • April 26, 2016

Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years. Central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options.

DYI Comments:  Just as with stocks our weighted formula has "kicked us out" of the debt markets. Interest rates using the U.S. 10 year Treasury note as our proxy is now on a price to interest basis 136% above its historical average since 1871.  Bubble land?  You bet it is.  However, as I've stated many times before deflation will continue to reign supreme for the next 4 to 6 years and for that time period those buying long dated bonds will be winners.  This will set up the backdrop to lull individuals and a good portion of professional investors to believe that deflation is permanent.  As the Boomers retire the pressure on government liabilities especially Social Security and Medicare Congress along with who ever is President will push the Federal Reserve to soak up the remaining costs through debasement(inflation).  The 2020's will be marked by high taxes, high inflation, increasing interest rates and a labor shortage(Boomers exit work force but continue to consume).

Long dated bonds such as 30 year Treasuries have been winners since 1981 when Fed Chief Paul Volker slammed on the brakes driving interest rates to the moon taming the inflation monster(that the Fed's created) setting up a long term bullish play on long dated debt.  Interest rates my even go negative here in the U.S. lulling investors into believing it is forever.  When the turn will happen I don't know but this secular bullish phase for bonds are at the tail end.       

Shocking admission by IRS commish

On March 18, the Commissioner of the Internal Revenue Service, John Koskinen, filed his reply, in 11th Circuit Appeals case 16-10071. He admitted he did not and will not investigate and collect taxes, from the taxpayers identified giving and receiving kickbacks. The CIR admits he deliberately and knowingly blocked any investigations of the thousands of identified taxpayers violating the tax code per information relayed to the IRS office. He alleged that he has the discretionary authority not to conduct any investigation and not to collect any taxes due. He provided no statute giving him this authority. In all denials, the CIR never gave a reason why he used his discretionary authority. The Tax code says just the opposite, he is authorized and required to make inquires, determinations, assessments and collect all taxes under the tax code.

Our nation will continue to lose more manufacturing companies, then it creates. The cause of this is the burden of carrying the national healthcare costs. Until this cost is dramatically lowered, we will never be able to compete internationally. The Commissioner has not denied the facts the patients' bills determine the taxable revenue earned by the providers, or the difference between the amount billed and the amount paid by the insurance company is a kickback. 

 The way to break up this oligopoly, is the same way Al Capone was stopped, by enforcing our tax code. I have estimated the healthcare industry owes, 1.5 trillion dollars in uncollected taxes, for the kickbacks paid, for each of the past 6 years.

DYI Comments:  Corruption to the highest levels of government with an IRS chief that openly admits to playing favorites to whomever provides high amounts of campaign dollars.  A government that is up for sale. Any wonder why Trump and Sanders are doing so well.  The public are tired of this crap right along with this blogger as well.  I'm hoping this righteous indignation of the American public has political legs.  It will be needed in order to bring back the rule of law and imprison those such as IRS chief John Koskinen who believe that it is the rule of men.

DYI