Are We Headed Toward Another Stock Market Crash?

Available for Interviews: Harry Abrahamsen.

Harry J. Abrahamsen is Founder & CEO Abrahamsen Financial Group. His company offers customized wealth management solutions—creating plans and portfolios that protect, preserve, and grow client’s wealth. He was selected as one of the ten most dependable Wealth Managers in the Mid-Atlantic as published in Forbes magazine. 

 

Talking Points from Harry Abramhamsen on
If We Are Heading Toward a Stock Market Crash:

As we navigate uncharted waters in our modern day pandemic, there is a tremendous financial impact felt in both global markets and by people around the world.

many questions Abound

Isn’t it amazing what’s happening in the markets? How is our country going to deal with all of this? How many times will Americans be okay with losing 30, 50 or even 70 percent of what they’ve made to Wall Street before they finally say enough is enough? Doesn’t it usually happen about every six to eight years? Wouldn’t you be further ahead if you built a strategy that will never lose any of your money? And you know they’re not finished with you yet. You still have to deal with the Internal Revenue Service—which will take 20, 30 or even 40 percent of what’s left? But they are not done yet, are they? Now they will pour salt in the wound and print an enormous amount of money. Won’t that reduce the purchasing power of the little money you have left? What if none of that had to happen to you? And even better, what if you could take advantage of those occurrences?

Government to the Rescue

Congress created over $2 trillion dollars of “fiscal” stimulus. The Federal Reserve created over $3 trillion of “monetary” stimulus. That is a total of $5 trillion of stimulus provided by our government in three days. $5 trillion is 25% of the Gross Domestic Product (GDP) of our country. We just printed 25% of our economy and the stimulus was only enough to increase the market by approximately 20%, while still leaving us in Bear Market territory.

Scott Pelly, from 60 Minutes, interviewed the current president of the Federal Reserve Bank in Minneapolis, Neel Kashkari, on March 22, 2020. He is one of 12 regional bank presidents. He is the only person serving who participated in the financial crisis of 2007 and 2008. He was the head of the Troubled Asset Relief Program (TARP) which was one of the stimulus programs used to restart our economy in March of 2009. During the segment, Bank President Kashkari clearly states that the Federal Reserve will print ANY amount of money necessary to keep the economy liquid. He clearly states that the number one priority of the Federal Reserve is to print whatever money is necessary to keep our economy liquid. He describes the Federal Reserve as the “Lender of Last Resort.” This clarification was backed today by Federal Reserve Chairman Powell who declared that the Federal Reserve will provide unlimited monetary stimulus or whatever money our economy requires. How will they do that?

Our government will be bailing out almost every industry in America and yes, they will even have to bail out state and local governments. Think about this: If no one is working how do the states collect taxes to provide the promised, and yes, even required services? As part of the new legislation passed by Congress called the CARES Act, they even defer the employer side of the Social Security taxes until 2021 and 2022. What impact will that have on the financial soundness of Social Security? The CARES Act also provides a waiver of required minimum distributions for Qualified Retirement Plans and IRA’s for the year 2020. Doesn’t that mean lower tax revenue? How will they make up the difference if Social Security is already paying out more than it is taking in? Will the government have to increase taxes once they feel they have alleviated the economic catastrophe being caused by the coronavirus? Will they have to print even more money?

They will provide quantitative easing to eternity. They will buy back $500 billion of government bonds from the banks. They will buy back $250 billion of Mortgage bonds. In the $9 trillion corporate bond market, the Federal Reserve will be buying $1 trillion or more of corporate bonds to maintain liquidity in those markets. Remember, there are now many investment grade bonds that are being downgraded to junk bonds because the companies don’t have any revenue to pay the interest payments. The high yield (junk bonds) market is now a $10 trillion-dollar market and growing. The Federal Reserve will work to keep that market liquid. The Federal Reserve will have to liquify the Municipal Bond Market. States and counties and cities are seeing dramatically reduced revenues. Businesses are closed. Workers are laid off. How do the states and municipalities pay the interest on these bonds?

The Federal Reserve has even offered to provide $1 trillion per week to the Repurchase Agreement overnight market. However, because most businesses are closed, there are no takers for this money. Finally, the Federal Reserve is preventing Eurodollars from crashing. This is vital. Those are actually dollars held by foreign banks. Why do those banks hold American dollars? We are the reserve currency of the planet. Commodities such as oil are traded using U.S. dollars. If there are not enough U.S. dollars available to foreign banks, the entire planet could be affected. This will surprise you; the Federal Reserve has no idea how many Eurodollars are out there. How much longer will the rest of the world allow us to reduce the purchasing power of our money before they decide to look for another “Reserve Currency,” such as bitcoin, for an example? With the Federal Reserve being defined as “The Lender of Last Resort,” and as we get deeper and deeper in debt, won’t the Federal Reserve have to print even more money? This event is a real turning point in the future for world economics.

 Here is a list of all the things that must and will be bailed out by all the “fiscal” and “monetary” stimulus. Airline Industry—thousands of jobs lost, the airlines are asking for $50 billion just to stay afloat. Cargo Airlines, Airports, Auto Industry, Auto Supply Industry, Hospitals, Restaurants, Bars, Commercial Real Estate, Casinos, Indian Casinos, Oil Industry, Brick and Mortar Retailers, Aerospace and Defense Industry Banks 80% of all bank assets in the United States are in the 5 biggest banks. Credit Unions, Savings & Loans, Foreign Banks—This is necessary because of all the Eurodollars, i.e., American dollars that are used by foreign countries all across the globe. 

You heard New York Governor, Andrew Cuomo complain that they were only receiving $3.8 billion when they needed $15 billion. As the focal point of the illness—and to be honest the focal point of our financial crisis—don’t you believe New York will require even more than $15 billion as this catastrophe moves forward? Counties, cities, municipalities of all sizes.

We the People

This is just a short list. Have you realized who was not on the list? That’s right, People, Workers, Taxpayers. They will get something; however, it will be very little compared to everyone else. According to Federal Reserve Governor, Neel Kashkari in his interview on 60 Minutes, it took people 10 years to recover from 2007 and 2008. How long will it take people this time?”

No one can predict the future, but I think we are all in for an interesting 2020 ride—and beyond.