Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why

Economics / Economic Collapse May 27, 2016 - 10:12 AM GMT

By: Steve_St_Angelo

Economics

Investors better be prepared as the next crash of the U.S. economy is coming.  This is not based on hype or speculation, rather due to the disintegration of the underlying fundamentals.  Matter-a-fact, the fundamentals are so completely AWFUL, that the next market crash will make 2008 look quite tame indeed.


To get the skinny on the lousy fundamental data, let’s first look at the Auto Industry.  The next series of charts come from the article, More Warnings–Unsustainable Auto Sales & Stock PE Ratios:

Ever since the supposed economic turnaround, the amount of outstanding auto loans has increased dramatically from less that $700 billion in 2010 to over $1 trillion in the fourth quarter of 2015.  According to Wolf Richter, quoted in the article:

“Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.

When I was younger, the longest automobile loan an individual could get was 48 months.  However, you were considered to be a REAL LOSER if you had to finance an automobile that long.  Now, 84 months is becoming the norm….LOL.

This is just one factor that shows just how weak the economy has become if Americans have to finance a car for seven years.

Here is another chart from the article linked above.  It shows just how inflated the S&P 500 index has become:

According to Michael Lebowitz of 720 Global Research (quoted in the article):

Since October 1, 2011, the S&P 500 has risen 82% on the heels of a 0.75% decline in earnings. The price to earnings ratio over that time period has risen 83%, with price gains contributing 99% to the increase. Prices have risen substantially, while earnings have actually fallen. The chart below highlights the growing gap between earnings and the S&P 500.”

As we can see from the chart, the S &P 500  and earnings have been surviving on HOT AIR, especially since the latter part of 2014.  When QE (money printing) and zero interest rates no longer provided enough bounce in the markets, the Fed, Central Banks and the Plunge Protection Team stepped in a BIG WAY to keep the markets from crashing.

So, not only do we have a highly over-leveraged automobile financed industry, the broader stock market valuations are in bubble territory.  Unfortunately, this is only part of the story.  If we look at the disintegrating U.S. Energy Industry, the situation is even more dire.

The Coming Collapse Of The U.S. Energy Industry

Today I did an interview with Money Metals Exchange.  I will be putting out the interview when it’s published.  However, I discussed this energy subject matter during the interview.  When I first started the interview, I said the precious metals community was guilty of propagating hype and short-term surging price moves that never came true.  Thus, we have frustrated a lot of precious metals investors because the COLLAPSE of the Dollar, DEFAULT of the COMEX or much HIGHER gold and silver prices have not yet occurred.

So, am I guilty myself by putting out a new a headline that reads, “The Coming Collapse of the U.S. Energy Industry?”  No…. here’s why.

The situation in the U.S. Energy Industry is so AWFUL, I wouldn’t be surprised to see half of the industry go bankrupt over the next few years.  Of course, the U.S. Government could step in and either bail out or nationalize the energy industry, but this would stop the impending collapse.

Let’s take a look at this next chart.  The U.S. Energy Industry has added so much debt that it took nearly half of all its operating profits to just pay the interest on its debt in 2015:

While this was bad, it was even worse in the first quarter of 2016.  According to the article, Why Oil & Gas Companies Are Barely Scraping By, the U.S. Energy Sector paid 86% of its total profits just to service the interest on its debt.  Can you imagine that?

This chart from the article shows the huge change of interest payments on debt of the percentage of operating income in the U.S. Energy Sector:

Since 2000, the U.S. Energy Sector was paying (on average) between 10-15% of its operating income to service its debt.  However, that changed significantly in 2014 as the price of oil plunged.  The reason this percentage jumped over 20% in 1998 was due to the price of oil falling below $15 compared to $22 in 1996.

So, why is the U.S. Energy Sector interest on the debt so much worse now with the price of oil more than double the 1998 price??  Again, the average annual price of oil in 1998 was $15 compared to $33 in Q1 2016.  Why did the U.S. Oil and Gas Industry have to pay 86% of its operating income to service its debt during the first quarter of 2016 on the back of a $33 oil compared to 25% on $15 oil in 1998?

BECAUSE…. The U.S. Oil & Gas Industry has gone into massive debt to bring on very expensive energy supplies.

Here is one more chart from the energy article linked above:

This chart shows the U.S. Energy Sector maturing debt outstanding for each year.  According to the article:

While $5.1 billion of U.S. energy debt matures this year, $25.1 billion will mature in 2017. The number risies to $52.5 billion in 2020.

“There’s not a lot of this debt that comes due in 2016. But in 2017—that’s when the rubber will really hit the road. Now a lot of these companies are already looking to bankruptcy because people know that the bond position is untenable,” said Dicker.

As the article states, the outstanding U.S. energy debt that matures in 2017 ($25.1 billions) is five times what matures this year ($5.1 billion).  How can the U.S. Energy Industry pay back this debt when it can barely pay the interest on its debt currently?

And… to make matters even worse, U.S. oil production is falling rapidly:

U.S. domestic oil production peaked at 9.6 million barrels per day (mbd) in June 2015 and is currently at 8.7 mbd.  This is nearly a 10% decline in U.S. oil production in less than a year.  Some may think this huge decline is due to lower oil prices.  That may be partly true, however U.S. oil production was going to decline even with higher oil prices.

Which means, the U.S. Energy Sector will be in even more trouble as oil production declines further as the amount of debt that matures continues to increase over the next several years.  This is extremely bad news for the U.S. economy as it will have to import more foreign oil to make up for declining domestic production.

Of course, this means the market will have to react by offering 96 and 108 month payment plans to keep the automobile financing bubble from popping.  Furthermore, I would imagine the Plunge Protection Team will work overtime just to keep the markets from imploding.

As the fundamentals of the market continue to deteriorate, the precious metals offer the only real safe haven.  As I mentioned in a previous article, Something Big Happened In The Gold Market, mainstream investors flocked into Gold ETF’s in record numbers during Q1 2016:

Investors moved into Gold ETF’s in a big way during the first quarter of 2016 on a mere 2,000 point drop of the Dow Jones.  Why would investors move into Gold ETF in such a large degree as the market sustained a normal 15% correction??  Hell, in the first quarter of 2009, flows of gold into Gold ETF’s surged to a record 465 metric tons, but this was when the Dow Jones was crashing to its lows of 6,700.

I talk to several people in the industry, and the word out there is that mainstream investors are worried as hell about the markets.  I believe when the broader markets really start their NEXT BIG CRASH, investors will flow into gold and silver in record volume.

This is not a matter of “IF”, but “WHEN.”  However, if we go by the disintegration market fundamentals, that day will likely be sooner, rather than much later.

Lastly, if you haven’t checked out our new PRECIOUS METALS INVESTING page, I highly recommend you do.

Check back for new articles and updates at the SRSrocco Report.  You can also follow us at Twitter, Facebook and Youtube.

SRSroccoReport Twitter Button

2016 Copyright Steve St .Angelo - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules