The legend says that “Nero played the violin while Rome burned”. This legend is not true.
First of all, the violin had not yet been invented. And even if this legend is taken metaphorically, most accounts put Nero in Rome trying to help during the fire.
It was in the year 64 of our era. The fire lasted six days. He razed nearly three quarters of the city.
When surveying the damage, Nero decided to build a large palace on the ruins of part of the city. This is one of the reasons why the legend of the violin has become part of history.
It’s easy to assign the wrong motive to the fire when we think about the decision to build a palace. The truth is more complex.
According to some accounts, Nero cared about the citizens of Rome. He developed roads to ensure access to food. He built a covered market to help ease the discomfort of the weather. He imposed stricter building standards after the fire.
These and other good deeds are less memorable than the image of a violin-playing tyrant as he watched the flames consume Rome. And the phrase “Nero fiddled while Rome burned” has become a metaphor for inaction in times of crisis.
I mention this story because it helps illustrate how the Federal Reserve is handling the current state of the economy…
The Fed is certainly not idle. But there are also plenty of fires to put out. And spraying the hose in one direction lets the fire in another spiral out of control…
There is a way to boost your portfolio’s performance during this economic fiasco that many of you haven’t considered and still won’t after reading this. But the few of you who do will likely see rewards.
The US economy is on fire and the Fed is watching
Fed Chairman Jerome Powell could be compared to Emperor Nero. He did a lot of things well. But the Fed’s decision to wait for additional data before raising rates is concerning. Because it also risks sparking a fire in the economy.
If prices rise much more, many families will be left behind.
No one wants to hear about the lagging effect of Fed policies when they go grocery shopping. They want to see lower prices.
It’s not just the grocery store that’s burning. Home prices have been rising sharply since the pandemic. And it’s not just a problem in the United States The International Monetary Fund believes there is a high risk of a housing crisis in 15 of the 38 developed economies they track.
The Fed should try to help families fight inflation. But this requires high interest rates. And other powerful people don’t want high tariffs.
Low interest rates allowed Congress to pass budgets with trillion dollar deficits. If interest rates rise, the debt costs more. Even a 1% increase in financing costs could cost the government more than $300 billion.
That’s a lot of money, even when revenues are nearly $5 trillion a year.
But this is not just a national issue. Outside of the United States, economies are struggling to maintain growth. We know that a recession threatens the economic expansion of the United States
Germany (Europe’s largest economy) and the UK are no longer at risk of recession – they are already in them. European emerging markets are expected to enter recession this year. And Chinese growth is slowing.
The Fed should try to help stimulate global growth. But this requires lower interest rates. Low rates help increase business investment and that creates jobs. It’s a formula for growth that central bankers have relied on for hundreds of years.
Of course, lower rates would make inflation worse. That sums up the Fed’s problem.
No matter what Powell does, he faces problems. The best thing to do might be to just pull out your violin and watch the flames from afar.
As for us, individual investors, this is not the time to be unemployed. Times of crisis – or, as Nero might have put it, when everything is on fire – present many profits to be made.
The best thing for us as investors is to target short-term trading opportunities that arise during volatile times. This is exactly what we do every morning in the Trade room at market opening, five days a week.
One of our most popular strategies has beaten the market 33 times in the past two months (April and May). And there are new ones that I also design and test with the Trade Room community.
Learn about the types of advanced techniques we currently use to find new jobs in click here.
Cheers,Michael CarrEditor, Precision Benefits
On Tuesday, I’ve noticed that American consumers have once again let their credit card spending slip away. Total credit card debt is close to hitting $1 trillion for the first time.
Let’s dig a little deeper into these numbers.
Credit card delinquencies (30 days or more overdue) followed the same basic pattern of credit card balances.
These delinquencies have dropped to record lows in 2020 due to higher income due to stimulus, fewer credit obligations due to student loan freezes, and even rent in some situations. There was also a general shortage of things to spend money on during the pandemic.
And all of this has helped to reduce delinquencies. As credit card balances have increased, late payments have also increased. Today, the delinquency rate is roughly in line with the average of the years preceding the pandemic.
Why this happens
We hit the cards more because, following the pandemic, we make up for lost time on costly experiences, such as vacations. I’m taking my kids to Europe for the first time in July and I’m already getting heartburn watching the expenses pile up.
But there are also wilder contributing factors, like high inflation. This forces us to spend more on regular basic necessities and to gradually reduce government stimulus payments.
But here’s the thing.
Even though a recession isn’t imminent, we’re about to see the delinquency rate skyrocket a lot upper.
The pause on student loan repayments — which has helped nearly 40 million Americans avoid costly monthly payments over the past three years — is set to be lifted in two months. Millions of Americans are going to have to prioritize their student loan repayments over other debts…like their credit cards.
For weeks I have been saying that I expect a recession in three to six months. Is the resumption of student loan repayments the straw that broke the camel’s back?
I think it could very well be.
Mike Carr thinks the best way to navigate the unknown in this market is to be nimble – with short-term trades. Enter and exit with your winnings to avoid dips and capitalize on peaks.
Want to learn more about Mike’s most popular (and successful) trading techniques? Go here to discover his trading room.
Charles SizemoreChief Editor, The edge of the banyan