10 WARNING SIGNS FOR INVESTORS IN 2016
Here are ten salient warning signs that astute investors should heed as we roll into 2016. By Michael Pento, for CNBC.com http://cnb.cx/1OKRWOf
- •The Baltic Dry IndexThis is a measure of shipping rates and a barometer for worldwide commodity demand, recently fell to its lowest level since 1985. This index clearly portrays the dramatic decrease in global trade and forebodes a worldwide recession.
- •Global commoditiesFurther validating the significant slowdown in global growth is the CRB index that charts nineteen global commodities. After a modest recovery in 2011, it has now dropped below the 2009 level—which was the nadir of the Great Recession.
- •Nominal gross domestic productNominal gross domestic product for the third quarter of 2015 was just 2.7 percent. Janet Yellen wants to finally begin raising rates. The last time the Federal Reserve began a rate hike cycle was in the second quarter of 2004. Back then nominal GDP was a robust 6.6 percent. Furthermore, the last several times the Fed began to raise interest rates nominal GDP ranged between 5 percent to 7 percent.
- •The total business-inventories-to-sales ratioThe total business-inventories-to-sales ratio shows an ominous overhang: Sales are declining as inventories are increasing. This has been the hallmark of every recession.
- •The Treasury yield curveIt measures the spread between 2 and 10 year notes, and it's narrowing. Recently, the 10-year benchmark Treasury bond saw its yield falling to a three-week low,while the yield on the two-year note pushed up to a five-year high. This is happening because the short end of the curve is anticipating the Fed's December hike, while the long end is concerned about slow growth and deflation.
- •EarningsS&P 500 non-GAAP earnings for the third quarter were down 1 percent; on a GAAP basis earnings were down 14 percent. It is clear that companies are desperate to make Wall Street happy and are becoming more aggressive in their classification of non-recurring items to make their numbers look better.
- •The rising U.S. dollarAs the dollar index breaks above 100 on the DXY, multinational companies, which are already struggling to make earnings from a slowing global economy, are going to have to grapple with the effects of an even more unfavorable currency translation. In the long-term, a rising U.S. dollar is great for America. However, it in the short-term it will not only negatively affect S&P 500 earnings but also place extreme duress on the over $9 trillion worth of non-financial companies outside of the U.S.A.
- •ManufacturingRecent data confirms that the U.S. is currently in a manufacturing recession. (see link for more details on the data)
- •Credit spreads9. Credit spreads are widening as investors flee corporate debt for the safety of Treasuries. The TED spread, the difference between the interest rates on inter-bank loans and on short-term U.S. government debt (T-bills), has been on a steady rise since October of 2013; at the end of September it was at its widest since August of 2012 at the height of the European debt crisis.
- •The S&P 500The S&P 500 is at the second highest valuation in its history. Investors should proceed with extreme caution. (see link for more details on the data)