These are interesting times in which we live.

• Global stock markets and residential property prices are near all-time highs.
• Interest rates seem to be on the way down.
• World production as measured by Gross Domestic Product continues to rise.

So does that mean that everything is going fine?  What’s Really Going On below the surface? Consider the following facts.

Debt to GDP Ratios
Japan	264%
Greece	173%
Singapore	168%
Italy	142%
United States	129%
France	112%
Spain	112%
Portugal	112%
Canada	107%
Great Britain	92%
India	89%
China	77%
Germany	66%
Australia	40%

• The government debt in the United States is now US$35 trillion. This is larger than their annual Gross Domestic Product (GDP) of approximately US$28 trillion. Therefore, their debt is approximately 129% of GDP.
• Japan’s government debt is 264% of GDP.
• US Government debt is rising at US $1 trillion every 100 days.
• The US government will spend more than $1 trillion on interest payments this year. The only way they can pay this interest bill is to print more money. Money printing is inflationary. Higher inflation causes higher interest rates.
• The US Government will spend more on interest than they will spend on either healthcare or defense this year. Interest payments do nothing to expand or benefit the economy. When they must spend so much on interest, they are unable to spend the money on beneficial items.
• The US government’s annual income is approximately $4.9 trillion. Their expenditure is approximately $6.5 trillion. Their annual deficit is approximately $1.6 trillion per annum. They fund this deficit by printing more money.
• 60% of all money in the United States was printed in the last 3 years. The amount of money printing is beyond anything that we have seen in recent history.
• Neither party in the US has any plans to reduce the deficit. Debt will only increase.
• Price Earnings multiples (as measured by the CAPE Ratio) are near the highest they have ever been. Historically returns have been low, after a period of elevated price earnings ratios. Note that the numbers on the graph provide the percentage return per annum for the next ten years. Therefore, if you invested in the stock market the day before the dot com bubble burst in 2001 you received a return of – 0.5% per annum for the next ten years. Conversely, if you invested in the stock market at the bottom of the Global Financial Crisis in 2009 you achieved a return of 16.25% per annum for the next ten years. Whilst the average return on the stock market over the medium to long term is approximately 8-9% per annum, it matters greatly when you enter the market.

Shiller CAPE Ratio

Subsequent 10 year annualised return with dividends reinvested

The price earnings ratio for the S&P 500 is also near record highs.

S&P 500 P/E

The United States has just experienced one of the longest and deepest yield curves in the past 100 years. (An inverted yield curve is when short term interest rates are higher than long term interest rates). Historically, the longer and deeper the yield curve is inverted, the larger and longer is the fall in the stock market. Falls in the US stock market after seven of the past inverted yield curves have ranged from 27 – 90 %.

Time will tell as to how large the next fall in the stock market will be.

Warren Buffett’s ratio of the total value of the US stock market as compared to GDP is now almost 200%. This is the highest level it has ever been.

US home sales have fallen to their lowest level in the past 20 years.

US home sales have dropped to record low levels

The vacancy rate of commercial property in the US is over 20%. In San Franciso vacancy rates are approximately 40%.

So what is the best strategy in the above scenario?

Many investors may be happy to ride the ups and downs of the stock market, whereas others may prefer to take a more proactive and conservative view going forward. Some commentators believe that Gold and Silver may also be worth considering for investment, as they tend to do well in periods of high inflation and in uncertain times.

To read more about the uncertain times ahead you may be interested in reading my new book called “What’s Really Going On”. It talks about the problems of the past together with many of the current issues that we are facing and an analysis of what lies ahead.

Click on the following link to read more here.