Your Internet Stock Broker Should Tell You This
Here’s a question for your internet stock broker. “What is likely to be happening on the world’s stock markets from the autumn of 2009?” Even if you have a full service broker who advises on a pro-active basis about actual and prospective investments, I doubt he’ll raise this with you. To be fair, it’s probably because he hasn’t thought things through, or doesn’t want to believe the current market rally will end soon.
It’s very likely that the present bull market in shares, that started in March 2009, is but a short-term rally in a largely bear market. Just take a look at the present situation both in the US and in the UK and many other western countries as well.
The economies of the US, the UK and most other western countries are drowning in debt. Take the US. The government has a tax revenue income of around $2 trillion a year. Added to that is around another $2 trillion that it is somehow able to borrow. It has a Treasury Bond Debt (or national debt, if you like) of $12 trillion. Some people maintain the true figure is much higher, but nobody seems to know for sure. $12 trillion seems a conservative estimate, but lets stick to that for now.
Added even further to that is $65 trillion of unfunded social security and Medicare debt and the 2009 budget deficit of $2 trillion. That’s a total of $79 trillion total debt owed by the United States government. Future generations of taxpayers will have to struggle to cope with the repayments of capital and interest.
In the UK it’s not quite as bad, but still pretty awful all the same. Its growing debt burden is expected by S&P to balloon to 100 per cent of its GDP by mid-2010.
In the US banks are again lending recklessly to individuals and companies with little chance of ever repaying it. To be more precise, they are continuing to make corporate loans that for the most part won’t be repaid. And they won’t be repaid because the recession is hitting both the retail and manufacturing sectors, causing bankruptcies and insolvencies, the most famous of which has been of General Motors.
This lending is in fact responsible for the mini-boom consumers (or at least those that still have jobs or businesses) have been enjoying for the last few months. But this mini-boom cannot last. The underlying recession, loss of jobs and rising insolvencies will see to that. And the corporate debt sector is already around three times the size of the sub-prime mortgage sector that has caused so much trouble up to now.
So you can see for yourself that the rally in share prices of the period April to June 2009 is just that – a rally in a bear market. Check with your online stock brokerage that they provide the facility of purchasing “put” warrants, so that you can short companies set to spectacularly lose their share value. And then wait for the autumn.
Philip Gegan
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