The “Forgotten Crisis”

 

We’ve hit the debt ceiling. And in early August, Treasury Secretary Timothy Geithner will run out of strings to pull to keep us from defaulting. That’s undermining confidence in our bonds.

We’ve all been paying more for everything from gas to food. That’s driving investors to seek out hedges, including investments in the commodity and metals markets.

We’re spooking our foreign creditors with our massive borrowing and spending binges. That’s putting pressure on the U.S. dollar.

But today I want to talk about what I call the “Forgotten Crisis” — the ECONOMIC crisis. Because we are undoubtedly facing one, based on virtually all the incoming reports I’m seeing.

When the Free Money Runs Out,
This Is What You’re Left With!

The massive economic stimulus package from a few quarters back, plus the Federal Reserve’s unprecedented wave of money printing, didn’t buy us much. We printed, borrowed, and spent more than $2 trillion. And all it bought us was a few quarters of tepid GDP growth.

Now the end of QE2 is looming in just six weeks. The federal government is tapped out, what with the debt ceiling pressure. So we’re left with an economy that has to stand on its own two feet … and it appears it just can’t!

GDP growth already slowed from 3.1 percent in the fourth quarter of 2010 to 1.8 percent in the first quarter of this year. Now it looks like things could be even worse in the current quarter. I told you about some of the bad news last week, and this week, it kept on coming …

* The Empire Manufacturing Index, which measures activity in the greater New York area, plunged to 11.9 in May from 21.7 a month earlier. That was far worse than the 19.6 economists were expecting. Meanwhile, the Philadelphia Fed index tanked to 3.9 in May from 18.5 in April. That was the weakest in seven months and far below forecasts for a slight increase to 20.

* The NAHB’s Housing Market Index, which measures builder confidence, remained mired in the muck at 16 in May.

The Treasury is about out of options. And the economy is about out of steam!

* At the same time, April housing starts plunged 10.6 percent and building permits slumped 4 percent. We’ve now been stuck at a dismal level of about 500,000 to 600,000 starts for two-and-a-half years, despite hundreds of billions of dollars in aid being thrown at the market by the “fixers” in Washington!

* Industrial production flat-lined in April, confounding economists who were looking for a gain of 0.4 percent. Factories used just 76.9 percent of their available capacity, far below the 77.6 percent that the market was expecting.

Bottom line: The American economic engine is starting to sputter again!

How I’m Adjusting —
and How You Can Profit!

So what am I DOING about this? What can you do too?

Well, I can’t share all my tactics and techniques. That just wouldn’t be fair to my paying subscribers. They were positioned for this slowdown and are starting to rack up profits as a result. If you want to join them for only $2.18 a day, just click here. Or call us at 800-393-1706.

But I will say that I’ve been taking gains off the table on longer-term trades, and aggressively playing the downside in my shorter-term trading services.

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I recommend you consider establishing some hedges yourself, using inverse ETFs that rise in value when parts of the stock market fall. A simple position like the ProShares Short S&P500 (SH), which is designed to climb 1 percent for every 1 percent drop in the S&P 500, can go a long way to providing peace of mind.

So far this is just a slowdown. But I’m definitely keeping my eyes on the data to see if it turns into something more — like a bona fide recession. Stay tuned!

Until next time,

Mike

http://www.moneyandmarkets.com/the-%e2%80%9cforgotten-crisis%e2%80%9d-44763