hi I'm Jimmy in this video we're looking at what is keeping the stock market up
at this point and what could very well be the cause of the next stock market
crash okay so I'm sure we can all agree that the stock market has been on a very
serious run for a very long time but the question is when is it going to end we
all know that the stock market is going to crash at some point like it has many
times before obviously trying to determine when it will happen is far
trickier so in my last video I did on the repo market where the Fed is pumping
a ton of money last I heard up to a hundred billion
dollars a day into the banking sector while my conclusion there was although
this was interesting at the end of the day I don't think that this is a
short-term problem that that will be the trigger for the stock market crash but
perhaps it will be a problem in the longer run but it's not like we use that
information in isolation we also do a monthly piece called should we invest
now or wait for a stock market crash and in that series we look at some leading
economic indicators to try to gauge what's happening with the economy and
where we think the markets going to go I've got a link in the description below
to that whole series if you're interest and I'm actually coming out with another
video very soon we're doing at the beginning of each month but the summary
of the last video in that series was that there are a handful of negative
economic signs and there are very few positive economic signs now we use a
scorecard like this in each of the videos this is the one from the last
video so between our most recent video on the Fed entering the repo market to
try to help the banking sector and our monthly series it seems to be that most
information is pointing towards a stock market crash happening sooner rather
than later yet here we are with the stock market up near all-time highs so
if what if we were to switch our question around a bit instead of trying
to identify the different pieces and looking at what could make the stock
market crash what if we would instead switch it to what is keeping the economy
up what is keeping the stock market up this high my first thought is the
government seems to assisting a few things we saw that when they stepped
into the repo market plus they've been interest rates so clearly the government
isn't hurting things too badly at this point not just yet but I don't think
that that's what's been keeping things rolling along at least it's not the
reason that the stock market hasn't crashed yet not so long ago the Fed was
raising interest rates and selling assets on their balance sheet so from
the data I could find and where economists seem to agree is that it
seems that the average consumer consumer spending is keeping the economy growing
nicely and this actually makes a lot of sense if we think about it
Manufacturing has been down recently housing has seen a few hiccups in the
past year or two clearly the bank needs some help and
that's obvious with the Fed stepping in to help the repo market so our question
is do we think that it's the consumer keeping things up from an economic
standpoint and what if they stopped does that send the stock market into a
tailspin I think it could and there were a few things happening right now that
could be the early signs of the consumer weakening now of course if manufacturing
were to start picking up or housing began to do much much better perhaps
that could offset a dip in strength from the consumer and we'll dive into that in
the monthly Economic Analysis series that we do like in the description below
but for now let's just focus on the consumer for the moment to see if we
think that the early signs of turn lower is actually peaking its head up so this
is a chart of consumer confidence and although the early numbers for September
are and they look a little bit stronger than last month clearly things have
pulled back slightly from the top now this is a volatile indicator so we want
to take that with a grain of salt but what I'm curious to see how this shakes
out over the next few months and what impact if it continues to fall that
could have in the economy but the economy in the US or even the US stock
market is affected by much more than just the US consumer so if we were to
take a quick trip around the globe at some of the larger economies out there
well here's Japan's consumer confidence and as we could see it's been a rough
year for the consumer in Japan when we jump over Germany we see a very similar
story there's a year-over-year numbers and clearly they've been dropping rather
quickly now again we shift over the United Kingdom
this one we probably could have guessed given the whole brexit situation well
clearly the consumer isn't all that confident over in the United Kingdom
right now now I'll admit out of these four countries it seems that the US
consumer is doing the best and when we isolate just the US consumer chart once
again well we can see that the US consumer has been it seems to have been
fairly confident over the past couple years relative to the other countries so
they seem to be ok with the the economy and their personal economic situation in
general now this is where it gets interesting or at least it could get
interest and perhaps this may have been where I was wrong in the last video and
we talked about the Fed injecting the liquidity into the repo market I said
that that I didn't think that would hurt things I didn't think that would tip
things over maybe I was wrong although not for the reasons I was originally
thinking more about how I was thinking about what if the Fed injecting capital
is just another proverbial straw on the camel's back after a series of straws
being piled on to the consumer and their ability to continue to buy off the top
of my head I'm thinking of things like the trade tensions or general political
instability not just in the US but in many cases around the world brags it is
a good illustration of that so my mind a lot of this comes back to the primary
thing that seems to be keeping the economy floating and that's the US
consumers ability to buy and sell goods and services goods and services in the
United States account for about two-thirds of GDP this is a chart of
consumer spending on goods and services from a month to month basis how much
they change from the previous month and just a few days ago the August numbers
came in and they came in at 0.1% I'll make that a little bit wider so we can
see it but this is worse than what economists were expecting economists
were expecting it points three percent increase now I'm not a big fan of
overreacting to any one number or any one piece of data and I think that the
economy in general is complex enough to make any decision off of any one piece
of information so this item alone we'll call it a speculative piece of data at
best but I bring this out because what if between the trade tensions and the
political unrest and the Fed needing to step in to assist the banks in the
repo market well what if all these star straws being stacked up are simply
enough for the consumer to say alright I'm not too sure what's going on now
consumer confidence continues to slide if the US consumer simply decides to
spend less or maybe save more or maybe pay off some of the credit cards or
maybe they don't do anything and they just don't put anything new in their
credit cards well if the consumer is what's keeping the economy propped up
and don't forget the US consumer spending on goods and services accounts
for two-thirds of GDP well if they get spooked if they get spooked enough to
stop buying things that try to protect themselves and save a little bit of
money well if that happens maybe that's what sends the economy over the edge
much of the world especially in the US has seen a very long bull mark and if
enough people believe that that's this the end is near and the end is coming
and they start showing that belief by spending less and saving more well what
happens next now I've recognized that I may be
stretching a little bit here I just don't want to be the blind to the fact
that if we analyze each brick independently that may be a mistake
because each brick could be fundamentally Sam the Fed injecting
capital into the repo market by itself is not bad but when you stack those
bricks 100 bricks high it could end up being a bad thing and frankly it's a big
one at the bottom holding the whole thing up the US consumer so what's that
word of fall well things could go very wrong very quickly now very few people
really want the stock market to crash except maybe the die hard value
investors so I expect for the Fed to stay in there they're going to keep
lowering interest rates and they're gonna try to kick the can kick the can
down the road and keep the bull market going will it work
it's tough to tell and frankly I'm not sure there's an easy answer to this I
think it may make sense for us to stay defensive with our portfolios and look
for opportunities to pick up great value opportunities if we do see a pullback I
don't think a pullback in the stock market is to be feared but what do you
think are we at the beginning of a real crash in the stock market and the US
economy in general and I think if that happens it's likely to spread around the
world just like too huh please let me know what you think in
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see you in the next video