As we have been suggesting these past weeks, bitcoin could face a massive sell off if it closed below $18,000 per coin. The same sell off was likely for TSLA if it closed the week below $200/week. Both of those key support levels appear to have been broken this week. So look out below!
The speculative bubble in China’s property market continues to drag down their inflated business model. More and more it appears that the recent years of Gross Domestic Product (GDP) growth has been fueled by low interest rates fueling an unprecedented build up of debt.
The Federal Reserve is now given an impossible task. The major tool they have to reduce inflation is to raise interest rates. However, raising interest rates hurts Companies and Individuals and Governments who have high levels of debt. And who is one of the groups with a great deal of debt? The U.S. Government which has over $31 Trillion of Debt.
As interest rates increase, the amount of interest payments that the Government needs to make each year will increase significantly. Last year almost $350 Billion was spent on interest. This year the amount will be over $500 Billion, approaching the amount spent on Defense.
Without substantial additional taxes, and reduced spending the budget deficit will continue to grow and limit the spending on existing programs. A growing deficit combined with rising intrest rates is a receipe for a financial crisis.
This cannot be good news for the stock or bond markets.
Although I am not an investment advisor, and this is NOT investment advice, keeping a substantial part of your portfolio in short term U.S. Treasury Bills makes sense to me, while this financial hurricane arrives on shore. How severe a storm? No one knows, but I would guess the world’s debt problems suggests this could be significant. I would suggest using rallies to build up cash reserves as we may be heading into a recession.
Reports from China show their economy is heading into a business recession and the Chinese economy is showing some early signs of Deflation.