Election years have historically presented financial upsets in the market. People are nervous and wondering where things are headed. We are not prognosticators, but we will summarize the key factors we are personally contemplating.
Here are some statistics worth considering:
1. The Bloomberg Commodities Index is down 61 percent from its 2008 peak and 46 percent from the 2011 post-crisis high. A slowdown in the global economy is always signaled by a drop in commodity prices. Let’s look at a couple of commodities, oil and copper:
- Oil has consistently declined and has sunk below its 2008 low point. Fadel Gheit has predicted that half of the U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium. Even Jim Cramer has suggested that a number of the domestic oil companies are at risk of going under.
- Copper has plunged to $2.02. China’s slowdown is playing a huge role in the decreasing copper demand picture, and that trend will continue. The last time the copper price was this low was just prior to the market crash of 2008.
2. The specific import/export numbers for 2015 are:
- Exports were $2,230.3 billion, down $112.9 billion or 4.8 percent.
- Imports were $2,761.8 billion, down $89.7 billion or 3.1 percent.
3. Slowing growth overseas, a stronger US dollar and low oil prices all weighed on factory production, as US manufacturing shrank by the greatest amount for six years in December 2015. U.S. manufacturing is contracting at the fastest pace since 2009. (CNN Money, January 4, 2016)
4. Consumer spending is declining. 2015 was the worst year for holiday spending since 2008. Reuters reports that consumer households are saving the extra cash from cheaper gasoline, not spending it.
5. Finally, the most dangerous factor is the excessive derivative exposure held by the bloated big banks.
The Big 5 U.S. Banks have more than 247 trillion dollars in derivatives contracts exposure on a collective basis! This exposure is more than 13 times the U.S. national debt of $19 trillion.
The derivatives market is currently a whopping $552.9 TRILLION. The entire economy of the world in real goods and services is $78 trillion annually. The derivative market is currently 7x the value of every good and every service provided annually.
Here is where the top 5 Big Banks stand on assets vs. derivatives exposure:
Bank of America
Assets: Just over 2.1 trillion
Derivatives Exposure: 45 trillion
Morgan Stanley
Assets: Less than 1 trillion
Derivatives Exposure: 31 trillion
J.P. Morgan
Assets: 2.4 trillion
Derivatives Exposure: 51 trillion
Citigroup
Assets: 1.8 trillion
Derivatives Exposure: 53 trillion
Goldman Sachs
Assets: Less than 1 trillion
Derivatives Exposure: 51 trillion
Despite industry experts claiming that all is well in the U.S. economy (usually a warning signal in and of itself), we are wary when we assess these summarized factors.
