Wild Cards: Terror, Debt & Politics

04/27/2016 9:00 am EST

Focus: STOCKS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Several wild cards have taken center stage and we want you to be aware of them. Why? Because any one of these could dramatically affect the markets, cautions Mary Anne and Pamela Aden, editors of The Aden Forecast.

One important wild card are the developments in Europe. Specifically, we mean the growing risks of more terrorist attacks.

Many experts believe we’re in the early stages of what could be a wave of terrorism and anti-Christian attacks, which will hit Europe and the US. We don’t say any of this to upset you, but we do want you to be informed.

The US election is another wild card. And here too the repercussions could be wide ranging, depending on the outcome.

For the first time in many years, voters are making it known that they’re tired of politicians who say one thing and do another. So they’re opting for change in a big way.

People are angry about the economic imbalances between the haves and the have nots, technology, globalization and the loss of so many jobs.

Average household income, for example, is lower than it was in 2000. That’s an awfully long time to tough it out. So it’s no wonder the working class is frustrated with the status quo.

Then there’s the older crowd and they’re not happy either; interest rates have been near zero for over seven years and that’s been a huge blow to many retirees.

Monetary policy is a wild card too. The Fed and the world’s central bankers have taken unprecedented measures to boost their economies.

This has included lots of QE, and super low, or negative interest rates, but the results have been disappointing. Deflationary pressures persist. Economies remain sluggish and inflation is low. The markets know the central banks have run out of options.

The bottom line is, the central bankers don’t want a recession and they’ll do whatever they can to avoid one. Does that mean low interest rates and maybe more QE are in our future? It’s clearly a possibility.

But the biggest wild card is debt. It just keeps growing and growing. It’s reached the stage where it’s keeping a lid on economic growth, and it has been for the past few years. And it’s not just the government; US corporate debt ratings are also near a 15-year low.

Several pundits, including Reagan’s former budget director, David Stockman, believe we’re on the edge of another financial meltdown, like in 2000 or 2008. Some of these people have been labeled gloom-and-doomers who are always negative.

But interestingly, Michael Burry, the market genius and hero featured in the movie The Big Short agrees. He notes that the 2008 financial crisis did not result in any positive changes and debt is what makes him most nervous about the future.

So again, we’ll go with what the markets are telling us, but we also want to recognize that wild cards are hanging overhead. Maybe they won’t amount to much, but we have to be aware of them, just in case.

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By Mary Anne and Pamela Aden, Editors of The Aden Forecast

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