A Shocking Number of Americans Are Barely Scraping By
A shocking number of Americans are barely scraping by... 'Get ready for some real fireworks'... Trade War fears are now 'on hold'... Banking reform is almost here... But the deals have already started... Checking in on Sjug's 'early warning' indicators...
The numbers are staggering...
A new study conducted by the United Way shows far more Americans are suffering from financial hardship than official numbers would suggest.
As of the end of 2016 – the most recent data available – 34.7 million U.S. households were living above the poverty line but unable to afford "ordinary expenses," such as rent, transportation, child care, and a cellphone.
These are households with adults who are working but still make too little to make ends meet. And they represent more than double the 16.1 million households that officially live in poverty today.
All told, it means nearly 51 million households – or more than 40% of all U.S. households – can't afford even the basics of a middle-class lifestyle.
Given these shocking statistics, is it any wonder the poorest Americans now hold debts in excess of 250% of their incomes? While these debts surely include plenty of irresponsible borrowing, the data suggest a substantial number of these folks have been taking on debt to simply get by.
Worse, this is happening despite an officially growing economy, record-low unemployment, and the federal government spending more on welfare and "safety net" programs than ever before.
This situation cannot continue forever...
Eventually, the credit-default cycle we've been tracking will begin... the global debt bubble will implode... and the cheap credit these folks have become dependent on will disappear. And while we can't predict exactly when it will end, we can guarantee it will not end well. As Porter explained in the November 17 Digest...
Do you think we're prepared as a nation to ride out this storm? No way. Get ready for some real political fireworks.
Do you think the "marginalized" members of our society are angry today, crying over statues, bitching about who gets to play quarterback, and rioting over a few police shootings? Just wait until their food stamps won't cash... until doctors stop showing up for Medicare work... until their pensions collapse... and until the police strike over unpaid wages.
Oh, yes... it's all coming. And maybe a "Debt Jubilee," too.
Of course, as we often say, inevitable does not mean imminent...
And for now, the markets continue to shrug off these concerns. In fact, they were downright giddy today on news that trade tensions with China appear to be easing. As financial-news network CNBC reported this morning...
Treasury Secretary Steven Mnuchin said over the weekend the prospect of a trade war was "on hold" following an agreement to suspend tariff threats...
Mnuchin told CNBC on Monday the U.S. has made "very meaningful progress" with China on trade matters. "Now it's up to both of us to make sure that we can implement it," Mnuchin told "Squawk Box."
[President Donald] Trump touted the deal, tweeting: "China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products – would be one of the best things to happen to our farmers in many years!"
The administration provided no specific timetable for a deal, and also said it could still impose tariffs if it doesn't reach a deal. But the market was pleased with the news.
All three major U.S. indexes opened in the "green" this morning – led by a 1%-plus gain in the Dow Jones Industrial Average – while the small-cap Russell 2000 Index jumped to another fresh all-time high.
Elsewhere in D.C., Congress' decision to 'roll back' the Dodd-Frank financial regulations could soon become law...
The bill easily passed the Senate in a bipartisan 67-31 vote back in March. Tomorrow, the House of Representatives is scheduled to vote on it. All signs suggest it is likely to easily pass there as well, and President Trump has already signaled he would support it.
In short, the law would dramatically reduce the regulatory burden of many small and midsize banks. And as regular Digest readers know, our colleague Scott Garliss of the Stansberry NewsWire has been all over this story from the beginning.
For months now, Scott has predicted the law would unleash a flurry of mergers and acquisitions in the sector. And it's already looking like he'll be correct...
Last week, we noted Texas-based Cadence Bancorp announced it would buy Georgia's State Bank Financial for $1.4 billion in the biggest bank deal of the year so far. This morning, Fifth Third Bancorp (FITB) has already broken that record. As news service Reuters reported...
U.S. regional bank Fifth Third Bancorp has agreed to buy smaller rival MB Financial Inc in a stock-and-cash deal valued at about $4.7 billion, as it looks to expand in Chicago and broaden its middle market customer base.
A windfall from last year's Republican tax overhaul has encouraged more investment among mid-sized U.S. lenders and banks are also hopeful that legislative moves to roll back some rules on capital requirements will free up more cash.
That runs contrary to several years of minimal merger activity in the sector due to stricter rules set in place after the 2008 financial crisis, which limited expansion.
Scott shared his latest thoughts on the situation with Stansberry NewsWire subscribers this morning...
Because we know many Digest readers are following this trend, he has graciously allowed us to share them with you today. As he wrote...
The timing of this deal is not coincidental. As we have been discussing, the House will vote tomorrow on the Dodd-Frank reform bill. It's expected to receive passage. A key part of this bill is raising the Systemically Important Financial Institution (SIFI) designation from $50 billion to $250 billion.
As a reminder, a financial institution receives the moniker when the government has deemed that its failure could cause traumatic damage, both to financial markets and the larger economy. When assets cross a specific threshold (currently $50 billion), the institution must meet additional guidelines and regulations that increase costs, maintain additional capital buffers, as well as submit to annual stress tests and reviews by the Federal Reserve. The Fed has the ultimate say regarding the institution's ability to conduct share buybacks or issue dividends.
So as some of these regulations are either loosened or torn down, the game becomes a race for assets. Banks will now be free to gather up more assets but keep below the SIFI threshold, preserving margin. Many more acquisitions in the space are likely.
Scott also noted that the recent "flattening" of the yield curve is likely to accelerate this process...
The smaller banks are not seeing a big pick-up in net interest margin (the difference between what they pay to borrow and what they receive when they lend). When interest rates rise, the short end typically rises faster than the long end, until things slow down and even out. This inhibits net interest margin growth.
This means that instead of trying to hold out for higher prices, smaller banks will be quick to sell to the first interest they see from larger banks.
So banks that fall into this middle ground below the pending SIFI threshold change will either want to be acquired or start acquiring. Again, the end goal will be to increase their fee income from a larger asset base.
The best way to play this trend is through the SPDR S&P Regional Banking Fund (KRE). If you're looking for individual banks, look at Regions Financial (RF), First Horizon National (FHN), KeyCorp (KEY), Signature Bank (SBNY), Investors Bancorp (ISBC), TCF Financial (TCF), and Huntington Bancshares (HBAN) to name a few.
But easing trade tensions and an improving regulatory environment aren't the only reasons we're cautiously bullish on stocks...
For past several months, our colleague Steve Sjuggerud has been closely watching several "early warning" indicators.
As we've discussed, these indicators have reliably warned of major market peaks well in advance of the start of a true bear market. And despite plenty of reasons for concern of late, these indicators have continued to give the "all clear" for stocks.
So what are these indicators saying today? Steve shared an update on two of the most important of these signals in our free DailyWealth e-letter this morning...
First up is the advance/decline line. This gave us an extreme early warning in the last great stock market "Melt Up" in 2000... While the Nasdaq Composite Index didn't peak until March 2000, the advance/decline line peaked in 1998.
This is a simple indicator... You take the number of stocks that went up and in a day, and subtract the number that went down that day. That's it. The running total of that is the advance/decline line. It shows when more stocks are rising than falling, or when the opposite is true.
In 1998 to 2000, it was going down. But today, it's hitting new highs. No "early warning" sign here...
Steve is seeing a similar signal from his second indicator: small-cap stocks. As he explained...
Small-cap stocks can tell a similar story to the advance/decline line. If they are weakening while the major indexes are going up, it tells you that the overall stock market is not healthy... that the number of winners is narrowing.
That is not a problem today. Small-cap stocks just hit all-time record highs. Take a look:
And while he didn't update them individually, he also noted his three other top early warning indicators continue to send a bullish message today.
To be clear, this doesn't mean stocks can't fall further in the near term...
As we mentioned last week, we aren't yet ready to declare the recent correction has bottomed. But Steve's indicators are clear... According to history, this is still merely a correction in an ongoing bull market, and not the start of a true bear market.
Yes, this rally is getting "long in the tooth." And yes, a financial reckoning is coming. But these indicators say the rally is likely to continue awhile longer before it does.
Stay long... But keep a close eye on your trailing stops, just in case.
One last note before we sign off today...
While Steve remains bullish on U.S. stocks, we should remind you they are not his favorite opportunity for new money today.
As regular readers know, that distinction goes to Chinese stocks... or more specifically, domestic Chinese stocks.
In short, Steve has been following a literal once-in-a-lifetime event that is set to drive hundreds of billions of dollars into these stocks over the next several years.
It's as close to a "sure thing" as you're ever likely to see in the financial markets... And it's set to begin just 10 days from now, on May 31. Better yet, Steve has identified two stocks in particular that could absolutely soar once it does.
If you don't already own these stocks, Steve says it's not yet too late. Click here for the details on this time-sensitive opportunity.
New 52-week highs (as of 5/18/18): Automatic Data Processing (ADP), ETFMG Prime Mobile Payments Fund (IPAY), Lindsay (LNN), Monsanto (MON), ALPS Medical Breakthroughs Fund (SBIO), and Verisign (VRSN).
Several readers share their thoughts on Friday's Digest from Stansberry Portfolio Solutions portfolio manager Austin Root. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com.
"[Friday's] Digest by Austin Root was tremendous. Such basic, sound advice that makes such good sense in today's market – it resonated with me. I will re-evaluate my whole portfolio based on this conservative but commonsense criteria. I am wanting to stay invested for the Melt Up I agree is likely, but I need to be more selective. Thank you very much Austin." – Paid-up subscriber Linda W.
"Austin, nice article. You did a good job. I like your perspective. As you acknowledge, many think a very significant pullback is looming on the horizon. Me too. Once we get deep into it, I plan to employ my capital using your 3 steps below. Thanks." – Paid-up subscriber Ken L.
"Dear Austin, that's a pretty daunting task, taking on the Friday Digest in Porter's place. However, you handled it admirably. Thank you for the good advice, clearly presented and easy to understand. Once again the Friday Digest has contributed to my investment learning." – Paid-up subscriber CEM
"That was a good read in Porter's absence tonight. I always look forward to his Friday post as I am usually a few beers in and enjoy his arrogant cockiness – which is a compliment. You did well with substance. Thank you." – Paid-up subscriber Gregory H
"Austin, you will probably never be able to stand in for Porter again, oooohhh man, comparing Porter to Warren, god, hope you have another job? Just kidding, but you have been warned!! LOL!" – Paid-up Stansberry Flex member Gord P.
"You did fine Austin, but you need to work on your cynicism. :-)" – Paid-up subscriber Craig R.
Regards,
Justin Brill
Baltimore, Maryland
May 21, 2018