The Turmoil will not start in the United States, but it will reach our shores. The warnings are moving from inevitable Global Turmoil to Imminent Global Turmoil!
The Catalyst will not start in the Equity Markets, but in the Credit and Debt Markets of the World. The Debt Markets dwarf the Equity Markets by a factor of at least 20; the Credit Market is enormous!! Although the Turmoil will not start in the US, the US Dollar will be the cause! In an effort to Save the World, the Central Bankers reduced rates to zero or below and encouraged borrowing; encouraged squander and massive, pervasive Debt! Global rates have risen from 0.1% to over 3.0% in the US. A thirty fold increase! Thirty times more interest; thirty times more tax money to service the debt. To make matters worse, a gamble was taken; betting the US Dollar would indefinitely decline in value and Debt could be rolled over in cheaper and cheaper Dollars. Historical Cycles were ignored; the Day of Reckoning is coming as the Dollar has reversed and is now getting stronger and stronger. The equation of local currency vs the US Dollar is tipping. Not only is the payment rate trending higher, more local currency is needed to buy a US Dollar; a lot more!
Not only Debt repayment will cause Turmoil, but Imports are typically expressed in International measures which is typically the US Dollar. Energy costs will skyrocket in Argentina and Turkey as their respective currencies decline vis-a-vis the US Dollar. Oil and refined petroleum Products will become very expensive and cause hardship on the local populations. Medicine, machine parts, electronics, replacement parts will all become expensive demanding more and more of free cash flow and eventually a breaking point!
Obviously, as more and more Capital is diverted to servicing Debt and rising costs, the Economy will suffer. It will become a Negative Feed Loop Spiral! Eventually, Debt will be Defaulted affecting the Pension Funds, Hedge Funds, Banks, Mutual Funds, Annuities, Sovereign Wealth Funds, and even small family reserves. Collateral Damage will be a Contagion as Peter can no longer pay Paul who then cannot pay Mark!
Bonds will face not only Market Risk as Interest Rates rise causing a relentless decline in value, but also Credit Risk as Defaults rise and credit Quality lowers. It is time to review holdings. It is time to re-allocate. The US Dollar cycles; it will trend lower again. Things and Real Assets will rise substantially in the US like they are now in Turkey and India. Real Things should be accumulated now while our Dollar is high. Commodities such as copper, aluminum, steel, asphalt, agriculture, farms, lumber, and residential rentals can be slowly bought. Cash flowing rentals contain these basic materials and will not only protect their value in the future, but protect the owner with an alternative cash stream when Turmoil reaches our shores.
