Why oil is crashing and the black swan event of 2014: The price of oil is down by 40 percent in six months and hardly anyone saw this coming.
Black swan events are bound to happen in financial markets. It appeared that 2014 would be a year where stock markets gained footing in the world of supposedly low volatility until oil prices came crashing down. The crash in oil is enormous. It has sent many countries into panic mode including Russia where interest rates were hiked up to 17 percent. This produced little result since the change in oil prices has come so abruptly. Oil is down over 40 percent in the last six months. The current price of a barrel of oil is $55.40. What so many analysts got wrong is the assumption that high cost oil was here indefinitely and that somehow the global economy would be on perma-debt growth. Obviously things can change dramatically over night. As we saw with the recent spending bill, sneaky provisions for derivatives were popped in for the next financial bailout. But with oil, this is a global commodity with massive market implications. This is the financial story of the year and it will setup 2015 for an interesting period.
Cronyism and ensuring American taxpayers bailout the finance industry during the next crash: Nostradamus like spending bill will ensure big banks never fail with your money.
Do you smell what is in the air? Pine trees? No. Something with a more pungent smell. There is a wonderful whiff of cronyism floating around Washington D.C. In the latest government kabuki theater there was some interesting items being passed. There were major protections given to banks should trillions of dollars in derivatives blow up during the next market correction. While the public is enjoying a few dollars off in gasoline prices so they can spend more money they don’t have during this holiday season, the latest government/banking spending bill was passed by slim margins but puts the taxpayer on the hook for trillions of dollars of risky derivative bets. Great timing given the energy markets are imploding so we know some hedge funds are taking it in the shorts and will likely come to D.C. hat in hand to cash in on those generous campaign donations. Central banks have done very little to help US households because incomes simply are not keeping up in the face of inflation. The latest bill is something to behold.
The American Dream deferred for young Americans: Living in rentals, inflated college tuition, and low wages await millions of young Americans.
The Americans Dream was largely built on a few simple ideals. One was the ability to purchase your own home without needing artificially low rates and dangerously low down payments. Another key aspect of the dream was allowing young Americans to receive a college education to pursue their future. While more Americans are going to college, many are taking on dangerously high levels of debt to embark on this journey. Another key component of the American Dream was having the ability to have a job that paid well enough to have a good standard of living. That standard of living is eroding as inflation is eating away purchasing power. It is hard to come to terms but the upcoming generation may not have it as good as that of the baby boomers. There is no fast and hard rule saying that each generation should be better. That is why the middle class rising in the US was a historical anomaly. Something worth aspiring and investing in. Yet if we look at history, you largely have one of a small wealthy elite and the rest. The fact that we are looking more like the Gilded Age is not a positive sign. For many, dreams are being deferred.
Social Security helps keep half of elderly Americans from poverty: Social Security has become the de facto retirement plan for millions of Americans.
Social Security was never designed as a long-term retirement plan for millions of Americans. Yet Social Security has become the default retirement plan for many elderly Americans. In fact, if it were not for Social Security roughly 44 percent of elderly Americans would be in poverty. This is calculated by how many Americans receive Social Security and the standard poverty income cutoff created by Census figures. The middle class continues to struggle and falls further behind the curve. Since Social Security is adjusted via the CPI, it is problematic when the CPI fails to account for bigger changes in prices. As we’ve highlighted before, inflation is here in big ways. For older Americans healthcare costs are soaring and this eats deep into their monthly budgets. Social Security in various forms is now being received by 64million Americans. This is a big deal especially with so many Americans hitting retirement age in the years to come.