Are Things Really Improving? (1-27-12)
Although there are small signs of recovery in the U.S., there are serious issues at hand. The underlying issues haven’t changed.
While most news media are reporting that the housing market is starting to rise, December was the worst month in history for selling houses, with little more than 300,000 houses sold nationwide. Most experts in the housing field suggest that 2012 will be another year of price declines as more foreclosed housing comes to market driving prices down. And, although the government celebrates the few hundred jobs added the last couple of months, they fail to note that most of those jobs were seasonal due to the Christmas season hiring. So are things really improving? Well, the announcement yesterday from the Federal Reserve should tell you the answer.
Quoting Sean Goldsmith in the S&A Digest he wrote yesterday, “The Federal Reserve today said interest rates will stay low until at least late 2014. And, it expects unemployment will remain high and inflation will remain ‘subdued.’ At last appearance, our central bank said it would keep rates near zero percent until the middle of 2013.”
Now, from the Fed comes, “The Committee expects to maintain a highly accommodative stance for monetary policy." And, today the Fed's Federal Open Market Committee said,"Economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."
This may sound like great news for those who want to borrow money, but is it really great news? Yes, if you have debt, you can refinance that debt at record low levels and you should do that. For those that need a home, mortgage rates will be and will continue to stay at record low levels. This is great news to the consumer, but for the long term this is horrible news! To understand the magnitude of that announcement, you need to read between the lines.
Read the following words out loud and shout them: THINGS ARE NOT GOOD! THERE IS TROUBLE AHEAD! The economy is not growing and financial problems are increasing! That is what the announcement should sound like to you. Let’s take a look at the European issue at hand. S&P just downgraded the credit worthiness of nine nations a week ago.
USA 1/13/12
The cuts eliminated France and Austria's triple-A status and dealt a heavy blow to the currency union's ability to fight off a worsening debt crisis. In total, the S&P cut its ratings on nine Eurozone countries.
France and Austria both dropped one notch to AA+. Italy was lowered from A to BBB+, and Spain fell to A from AA-. Portugal and Cyprus also dropped two notches. The agency also cut ratings on Malta, Slovakia, and Slovenia.
As far as Greece is concerned, all agree it will default in March. It doesn’t have the money to pay its debt payment due in March. The world is watching to see how Europe handles this one.
Friend, as I have been saying, the world is a mess. We need to be aware of these facts, but not live in fear. The federal government just gave you a bit more time to get your affairs in order, so do it!
1. Get out of debt. I am talking about all consumer debt. Pay off all credit cards, all consumer loans, and any other outstanding debt besides your mortgage. Make sure your mortgage rate is in the 3-4% range and is a fixed rate.
2. Once your consumer debt is paid, begin to stockpile cash. Your bank is safe enough for now, as is any place that has government backing. Note: we do suggest some gold and silver as a back up as well since we know that the U.S. dollar is also is in severe trouble. There is always a chance that Europe blows up financially or some other event may trigger a major financial crisis. When I am talking about putting some cash aside I am not talking about your retirement accounts, IRA’s. or 401k’s. These are to be put some place safe out of the markets. If you need some help with these you can email me. I am talking about six months to a year’s worth of income put some place liquid that you could use to live on if your were to lose your job.
3. Once you have a year’s income set aside, then start working on your mortgage. Or, if your mortgage is at a very low rate of interest, invest in assets that will produce an income stream. That could be distressed real estate that you buy at extremely low rates, or a business.
The bottom line is: follow the Lord in these things, let Him build the house and it will stand in the day of adversity!
