Sunday, May 01, 2016

America is in the Midst of a Retirement Savings Crisis

One topic I’ve covered repeatedly over the past decade is the lack of retirement readiness for most Americans. This is really a societal issue. What will become of all the seniors who have no means to cover even basic needs in retirement?

How many years will millions of seniors be able to work beyond the customary retirement age, and what types of jobs are suitable for people in their 70s?

The retirement savings of the typical American is neither healthy or adequate. In fact, the issue has reached crisis levels.

According to the Employee Benefit Research Institute, nearly half of Baby Boomers born between 1948 and 1954 are at risk of not having enough money to pay for basic expenditures in retirement.

When it was conceived, Social Security was intended to be just one leg of a three-legged retirement-support system, also consisting of savings and a pension.

Yet, among elderly Social Security beneficiaries, 53 percent of married couples and 74 percent of unmarried persons receive 50 percent or more of their income from Social Security.

Moreover, 21 percent of married couples and 46 percent of single people receive 90 percent or more of their income from Social Security.

This provides a picture of just how reliant most Americans are on Social Security.

However, the average monthly benefit for the 40.5 million Social Security retirement beneficiaries is just $1,345 at present.

That amounts to just $16,140 annually, which obviously doesn’t go far. Add in near-zero interest rates, and you can see the problem for so many retirees.

For decades, seniors were able to live off interest payments from certificates of deposit (CDs), plus money market and savings accounts. That is no longer the case.

Pension plans have become quite rare in the U.S. Most companies have stopped offering defined-benefit programs altogether.

Today, just 18 percent of private-sector workers are covered by a defined-benefit pension, down from 35 percent in the early 1990s.

The shift from defined benefit pension plans to 401(k)s is largely to blame for the retirement crisis.

The Center for Retirement Research at Boston College (CRR) estimates that more than half of all American households will not have enough retirement income to maintain the living standards they were accustomed to before retirement, even if the members of the household work until age 65.

Just how big is the problem?

Alicia Munnell, director of the CRR, testified before the US Senate that the nation’s Retirement Income Deficit (RID) is now a whopping $7.7 trillion, and that it had risen $1.1 trillion in just the previous five years.

The Retirement Income Deficit is the gap between what American households have actually saved today and what they should have saved today to maintain their living standards in retirement.

Trillions are really big numbers, and its hard for most people to get the heads around the scope and magnitude of the retirement crisis. But the following number helps to crystallize the issue:

Today in America, over half of households 55 and older have nothing saved for retirement, according to the Government Accountability Office (GAO).

Think about that for a moment. It’s stunning.

More than half of American households are roughly a decade from a normal retirement age, yet it is inconceivable that they will experience anything remotely resembling a normal retirement.

All of this sounds the alarm that tens of millions of Americans will be unable to adequately fund their upcoming retirement years.

We are already seeing many seniors moving in with their adult children because they can’t make ends meet. This is a necessity, rather than a choice.

Another growing trend is seniors living like 20-somethings, with roommates.

PBS described the movement this way:

"According to an AARP analysis of census data, approximately 490,000 people — 132,000 households — live in a Golden Girls situation. And the number is expected to grow, especially given that one in three Baby Boomers is single and a disproportionate number of them are women.”

While it may be too late for the huge number of people age 55 and older who have no retirement savings, younger workers can plan ahead and start preparing for their senior years now.

Many financial planners recommend that you save 10 percent to 15 percent of your income for retirement, starting in your 20s.

But even if you're in your 30s or 40s, it's not too late to start planning for retirement.

As a general rule, you'll need at least $15 to $20 in savings to cover each dollar of the annual shortfall between your income and your expenses.

The key is to have a plan, and to start executing it now.

If you fail to plan for retirement, you might be planning to fail in retirement.

Tuesday, April 19, 2016

Lots of Americans Don't Pay Federal Income Taxes, but That's not the Real Outrage

Each April 15th, the media inevitably reports that a significant portion of Americans don’t pay any federal incomes taxes. These yearly news stories lead many taxpayers to feel infuriated and outraged.

Most Americans hate paying taxes. This nation was founded on a tax revolt, after all.

Paying taxes is seen as a necessary evil to have a functioning government (albeit a bloated one on many levels), and most people pay their taxes dutifully, though begrudgingly.

Consequently, no taxpayer wants to hear about freeloaders avoiding their patriotic or civic duty to pay their taxes. It’s a reflexive and justifiable anger.

Here’s a perfect example of such a story this week, from MarketWatch:

An estimated 45.3% of American households — roughly 77.5 million — will pay no federal individual income tax, according to data for the 2015 tax year from the Tax Policy Center, a nonpartisan Washington-based research group.

Roughly half pay no federal income tax because they have no taxable income, and the other roughly half get enough tax breaks to erase their tax liability, explains Roberton Williams, a senior fellow at the Tax Policy Center.

It should be noted that the 45.3 percent figure refers to households, not individuals, and there is a big difference. Additionally, the figure includes retirees, who collect Social Security.

Naturally, retirees (and there are tens of millions of them) no longer pay federal income taxes, so this makes the aforementioned figure quite misleading. In fact, retirees are the majority of those not paying federal income taxes.

Additionally, just because some workers don’t pay federal income taxes doesn’t mean they don’t pay any taxes.

Most workers pay state income taxes, and all workers pay payroll taxes (Social Security and Medicare), property taxes (even renters), and sales taxes — which are levied on almost all goods and services, including utilities.

You’ve surely noticed that your water, electric, gas, cable and phone bills, for example, all include hefty taxes. There’s no getting around them.

Unlike federal income taxes, which are progressive — meaning, the more someone makes the higher their tax bracket — payroll taxes are applied at the same rate to all workers, regardless of income. This means they disproportionately impact lower income earners.

And, let’s face it — payroll taxes are indeed taxes on income paid to the federal government.

The combined tax rate for Social Security and Medicare is 15.3 percent, which is split evenly between employer and employee. However, self-employed workers pay the whole 15.3 percent tax.

Yet, the maximum taxable income is $118,500, meaning that any income above that level is not subject to the payroll tax. That favors high earners and the rich (yes, there is a difference).

The fact that 45 percent of households don’t pay federal income taxes speaks to the fact that they earn so little income, which is the really troubling matter.

A recent report by the Social Security Administration has some rather stunning findings:

In 2014:

- 38% of all American workers made less than $20,000
- 51% made less than $30,000
- 63% made less than $40,000
- 72% made less than $50,000

Pause to reflect on that for a moment.

Given that more than half of all workers make less than $30,000 annually, it’s not all that surprising that they don’t pay federal income taxes. They simply don’t earn enough money.

Even a mere 10 percent federal income tax — which would amount to $3,000 — would be punitive to a worker who earns so little.

For perspective, we should consider the federal poverty guidelines for this year.

The poverty threshold for a family of three is $20,160.

The poverty threshold for a family of four is $24,300.

It’s not hard to imagine one parent working, while the other stays home with an infant or toddler(s).

The real outrage is not that so many American workers aren’t paying federal income taxes; it’s that they earn so little.

That means they aren’t helping to create adequate demand and consumption to spur the economy, and move it substantially forward.

Even worse, many of these people are full-time workers who earn so little that they qualify for federal subsidies for things like food, housing and medical. That’s the real scandal and injustice.

There are plenty of large employers (such as Walmart) who pay their workers so little that the rest of us need to subsidize them with our federal income taxes.

That’s the true outrage in this story.

Sunday, April 10, 2016

Our Crumbling Infrastructure vs. Our National Debt

In case you hadn't noticed, the U.S. national debt has now eclipsed $19 trillion.

Despite the federal deficit being well within the limits that international economists recommend (3 percent, or less), the size of the underlying debt makes what were customarily viewed as reasonable deficits quite cumbersome.

For example, a 3 percent deficit would result in $570 billion being added to the existing $19 trillion debt. When the underlying debt is so large, even relatively small percentages of it add up to enormous sums. The bigger the debt becomes, the bigger the deficits become.

It’s called exponential growth.

The heart of the issue is that Congress has never reconciled spending with revenues. It either needs to collect more, spend less, or both. But that never happens.

Debt can be productive if it is used for investments that result in positive returns. Unfortunately, the U.S. (like many other countries) is malinvesting, while facing ever increasing debt-to-GDP ratios.

The worst form of debt, which undermines an economy and can be crippling, is that which is used to finance existing debt.

The Congressional Budget Office projects a $534 billion deficit in fiscal year 2016, about $100 billion more than in 2015.

In essence, the federal government must borrow in excess of half-a-trillion dollars this year to keep paying those whom it already owes enormous sums of money. We owe our creditors continually more, year after year, decade after decade.

This money cannot be used to build, or rebuild, our infrastructure — things such as aging roads, bridges, railways, power stations, electrical grids, water lines, sewer systems, etc. These are the things that make the country run smoothly, allowing us to transport people, goods, water, electricity, and more.

Infrastructure is the stuff that ultimately pays for itself, and helps the economy grow.

I’ve long advocated that the US should rebuild its infrastructure for the 21st Century. It would create jobs and make the economy more productive, which would ultimately create more tax revenue.

The specific infrastructure categories that need the most immediate attention and investment are debatable.

Some might argue that more roads are the wrong investment, noting that unless we all shift to all electric cars our fossil fuel addiction will be our demise. More light rail in and around urban centers and their suburbs might be a wiser choice.

Regardless, our roads are crumbling and bridges are collapsing. This is a matter of national safety. Lives are quite literally at risk.

But that’s not the only public safety hazard resulting from our antiquated infrastructure.

“Excessive lead levels have been found in almost 2,000 water systems across all 50 states, affecting 6 million Americans” reports USA Today. “At least 180 of the water systems failed to notify consumers.”

This is why infrastructure matters. America’s is antiquated, crumbling and unfit for the 21st Century.

However, with our existing $19 trillion debt, any further massive deficit burdens would be politically and fiscally risky. But with interest rates historically low, if we’re ever going to make these much-needed investments, the time is now.

It’s just hard stomach our debt having now risen to such extraordinary levels. By next year, it will reach $20 trillion. This massive debt is already hindering economic growth, which leads me to wonder, how much more will growth be constricted by our debt in the coming years?

However, it should be noted that as our debt has grown continually larger through the years, so has the economy. The IMF estimates the U.S. economy will reach $19 trillion this year.

Rebuilding our infrastructure, much of which dates back to the early and mid-20th Century, will put a lot of people to work in well-paying jobs. But those jobs will be temporary, not permanent.

China executed its own massive infrastructure build out in recent years, and now that it’s completed they have millions of idle workers. Such work doesn’t last forever.

But while the employment and economic stimulus will be temporary, the infrastructure could last more than a half century. And ours is in desperate need of repair, upgrade and modernization.

These are really big, thorny, difficult issues, and Congress doesn’t even address them honestly. Instead, it’s all typical, bullshit politics. Yet, the problems cannot be ignored.

The American Society of Civil Engineers issues a report every four years on the state of our national infrastructure. The most recent was conducted three years ago.

In its 2013 Report Card, the ASCE gave America’s Infrastructure an overall grade of D+ across 16 categories, up just slightly from the D given in ASCE’s 2009 Report Card. The ASCE gave the U.S. infrastructure a cumulative grade of D in its 2005 report card.

As you can plainly see, our failing, antiquated infrastructure is an ongoing problem that is not being given the attention, or funding, it desperately needs.

Yet, whenever there is a war that Congress deems important enough, they always find (aka, borrow) the money to fight it.

If protecting the American people is the government’s highest duty or objective, then our infrastructure is a top priority.

But that won’t leave me any less worried about our massive, and continually growing, national debt.

The only consolation is that infrastructure will almost always pay for itself in the end.

Wednesday, March 02, 2016

Americans Have Big Debts and Little or No Savings

“Financially, I’m set for life… if I’m shot tomorrow." — Mitch Helberg

Though the Great Recession officially ended in 2009, a rather large segment of Americans continues to struggle. Seven years later, large debt loads and absent savings haunt tens of millions of Americans.

According to a recent survey of more than 1,000 adults by, nearly one in four Americans have credit card debt that exceeds their emergency fund or savings. That’s due, in part, to the fact that many people do not have any emergency savings.

Another Bankrate survey released last year found that 29% of Americans have no emergency savings at all.

Consequently, many Americans are “teetering on the edge of financial disaster,” says Greg McBride,’s chief financial analyst. “Not only do most of them not have enough savings, they’ve all used up some portion of their available credit — they are running out of options.”

Financial experts recommend that you have no credit card debt and at least six months of savings in an emergency fund, or more if you have dependents.

Yet, just 52% of Americans have more emergency savings than credit card debt, the Bankrate survey revealed.

That’s because debt is so costly. The average household is paying a total of $6,658 in interest per year, according to

Credit card debt is particularly costly, carrying higher interest rates than secured forms of debt, such as homes or cars. The average U.S. household with debt carried $15,355 in credit card debt last year.

The problem isn’t due to a lack of responsibility, or to reckless spending.

Household income has grown by 26 percent in the past 12 years, but the cost of living has gone up 29 percent in that time period.

Not only has this driven up household debt levels over time, it has also kept millions of Americans from saving, even though they might like to.

U.S. household borrowing reached its highest level since 2010 in the third quarter of last year. Household debt climbed by $212 billion, reaching $12.07 trillion.

Though that’s down from the all-time high of $13.8 trillion in 2008 when the bubble burst, household debt is once again on the rise.

People are still struggling. Everyone knows the dangers of debt in the aftermath of the financial crisis and subsequent Great Recession. Yet, people must survive, and they are going further into debt to do so.

The end result is that one in four Americans is living on the edge, facing financial disaster.

Chances are, you might be one of them, or perhaps it’s one of your friends or family members.

Sadly, many people are likely suffering in silence, too ashamed to tell anyone of their struggle. That means, you may never know who is on the verge of financial disaster.

If you’re puzzled by this year’s primary season, and by the rise of an ideologue like Donald Trump, or the self-described democratic socialist Bernie Sanders, this awful state of affairs should help to explain it.

Sunday, February 21, 2016

Is the New Housing Bubble About to Burst?

The most critical aspect of any housing market is affordability. Even in the wealthiest enclaves, buyers must still be able to afford their properties.

Even in the case of all-cash sales, in which buyers need not seek a mortgage from a bank, the buyer must be able to afford the all-in, up-front cost of the home purchase (all-cash sales were 24 percent of transactions in December, down from 27 percent in November).

The law of supply and demand is always at work. A limited supply of homes will drive up prices if it cannot meet existing demand.

Total housing inventory at the end of December dropped 12.3 percent to 1.79 million existing homes available for sale, and is now 3.8 percent lower than a year ago (1.86 million), reports the National Association of Realtors.

That brings us to the vital issue of cost.

The median sales price of a new home in the US was $288,900 in December 2015, which was down slightly from the all-time high sales price of $307,600 set in September, according to government data.

The average price of a new home in December was even higher: $346,400.

All things being equal, existing homes tend to have a lower cost than new homes, which brings down both median and average prices.

The median home price for all housing types (both new and existing) in December was $224,100, up 7.6 percent from December 2014 ($208,200). That price increase marked the 46th consecutive month of year-over-year gains, according to the National Association of Realtors.

That sort of upward trend seems quite unsustainable, and it’s reasonable to wonder if we’re in the midst of a new housing bubble.

Historically, home prices have appreciated nationally at an average annual rate between 3 and 5 percent, according to Zillow, though different metro areas can appreciate at markedly different rates than the national average.

The San Francisco Bay area, for example, has far exceeded that average, while prices in other regions have been below the average.

This historical average is important to consider as we look for signs of another housing bubble.

What's most worrisome is that the current increase in home prices far exceeds the general rate of inflation, which was just 0.7 percent through the 12 months ended in December 2015, the most recent figure published by the government.

Again, home prices surged 7.6 percent in that same period.

More important than home prices is affordability. Can people pay their mortgages with their current incomes?

In order to consider affordability, we must take into account median household income.

The Census Bureau estimated that real median household income was $53,657 in 2014 (the latest available figure), which was down from $54,462 in 2013, and well below the peak of around $57,000 in 1999.

Consider for a moment that the median price of a new home in December 1999 was $222,600, while median household income was around $57,000.

Fast forward to December 2015, and the median price of a new home had leapt all the way to $288,900, while median household income had slid backward to $53,657.

In short, home prices have surged higher even though incomes have gone in reverse.

New home prices are now 5.4 times household income. Yet, home prices have a long term average of 3.3 times household income, according to the Economist.

If we take all homes into consideration, both new and existing, the median sales price in December was, again, $224,100, which is 4.2 times median household income. That is still well above the long term average.

If this doesn’t make sense to you, it’s because it simply doesn’t make any sense at all.

When you dig deeper into the income numbers, it makes you wonder how most Americans afford houses at all.

A new report by the Social Security Administration has some rather stunning findings.

In 2014, 38% of all American workers made less than $20,000; 51% made less than $30,000; 63% made less than $40,000; and 72% made less than $50,000.

This is likely why there are fewer homeowners now than at any time in the last two decades.

The US homeownership rate fell to 63.8 percent in the fourth quarter of 2015, the lowest level since early 1995. First-time buyers have been kept out of the market by strict lending standards and low wages.

A National Association of Realtors survey released in late 2015 revealed that the annual share of first-time buyers was at its lowest level in nearly three decades, falling to just 32 percent. The long–term historical average is nearly 40 percent.

The trouble is that the US population has grown significantly over the last two decades, rising from 266.3 million people in 1995 to more than 320 million in 2015.

The addition of 54 million new residents should have resulted in a massive increase in the homeownership rate. Yet, the opposite is true. There are just more renters now. Houses are simply unaffordable for millions upon millions of Americans.

All of this leads me to believe that we are indeed in the midst of yet another real estate bubble, and the one truism of bubbles is that all of them eventually burst — every single one of them.

Remember, home prices are much higher now than they were when the last real estate bubble began collapsing in 2007. Yes, the problem is even worse today!

The median home price reached an all-time high of $236,300 last June, and then began falling. It may be the first sign that the next housing collapse has already begun.

This is what the Fed’s zero interest rate policy (ZIRP) has given us. The central bankers wanted to re-inflate the housing bubble, and it worked. But a housing bubble is what caused all of our economic and financial troubles the last time.

The numbers are clear — they don’t lie. Homes are currently overpriced and clearly unaffordable for huge numbers of Americans. It’s a simple matter of prices exceeding incomes once again, and we saw how that story played out less than a decade ago.

My fear is that we are facing the same scenario all over again.

Sunday, February 14, 2016

Treasury Yields Keep Falling Despite Fed Rate Hike

The Federal Reserve raised its benchmark interest rate by 0.25 percentage points on December 16. It was a momentous occasion because it was the first rate hike by the US central bank since June 2006 — a 9 1/2-year span.

The US had never before experienced a period anywhere near that long without an interest rate hike.

As of February 11, the Federal Funds Rate, essentially the overnight lending rate between banks, stood at just 0.38 percent. That is still remarkably low by historical standards.

For perspective, the Fed's benchmark rate has averaged 6 percent since 1971, and soared as high as 20 percent in 1980.

Meanwhile, other central banks around the world have been cutting interest rates into negative territory. The Swedish, Swiss, Danish, European and most recently Japanese central banks have all set interest rates below zero.

Since no one wants to pay to keep their money at a bank, these actions have made US Treasuries all the more appealing than usual (Treasuries have long been considered the safest investment in the world).

Yet, with investors flocking in droves to Treasuries, this demand is driving down yields. Think supply and demand. If everyone wants in, you don’t need to entice them with higher rates. Investors are already motivated to invest.

Ten-year yields dropped almost 40 basis points during the past three weeks to 1.66 percent. The record low of 1.38 percent was set in July 2012. That record may be tested in the next couple of months.

Remember, this drop has nothing to do with the actions of the Fed. It’s due to other central banks dropping rates below zero, as well as tumbling stock markets around the world, which haven't benefitted from negative rates. Investors are seeking safety amid all the volatility.

In a normal world, the Fed’s December rate hike would be having the opposite affect — raising Treasury yields. But we no longer like in a normal world.

Last August, I wondered if the Fed might “feel empowered to raise the funds rate since the downward pressure on yields would give them some cover, and room to maneuver?”

Ultimately, the Fed did indeed feel it had the cover just a few months later to raise the funds rate.

Though the Fed would surely like to continue raising its key rate to return to some state of normalcy, the realities of the slumping global economy — and the actions of other central banks — are now dictating both actions and outcomes.

By plunging interest rates below zero, central banks around the world are trying to provoke commercial banks to lend to businesses and consumers, thereby stimulating their economies.

The Fed’s caution about further rate hikes is being driven by the actions of other central banks. Cutting interest rates below zero has created a race to the bottom in global currencies. Negative rates devalue those currencies (with the hope of boosting exports), which in turn makes the dollar stronger and more appealing to global investors.

The strong dollar has already been hurting US exporters and US companies that do business overseas, which have to convert foreign sales back into dollars.

That is making sales much weaker, and revenues are falling across the board. In fact, US companies have suffered two consecutive quarters of falling revenues, which is referred to as an “earnings recession.” It’s the first time that’s happened since the Great Recession.

In short, the Fed doesn’t want to see the dollar continue strengthening. Another rate hike would assure this.

Yet, the Fed seems helpless to control the outcome of events right now, which must be quite frustrating for these Masters of the Universe.

Treasury benchmark yields are on course to set a new all-time low in March if they keep rallying at the current pace, Bloomberg reported this week.

This clearly wasn’t the outcome the Fed had in mind when it raised the funds rate in December.

Higher interest rates have a cooling affect on an economy that is (or may be) overheating, and they consequently slow inflation. However, the US economy shows no signs of overheating, and inflation is virtually non-existent.

The inflation rate was just 0.7% through the 12 months ended in December 2015, the most recent figure published by the government.

This weak inflation has to be freaking out Fed board members. This is not how the textbooks, or history, say things should be. Extraordinarily loose monetary policy (ultra-low rates) should have long ago resulted in significant (if not rampant) inflation.

It’s a sign of how sick the global economy is, and how powerful the forces of global deflation are.

The Fed is desperate to continue raising rates so that when the next crisis inevitably arrives it will then be able to cut rates once again in response, as it always has. It’s the classic tool of central banks, but one that appears to have now been removed from the Fed’s toolkit.

That will be quite problematic when the Fed eventually comes face to face with that crisis, or recession.

Given current global conditions, that moment may not be too far off into the future.

Monday, January 18, 2016

Energy Sector Failures Presage Looming Bank Failures

Free falling oil prices are wreaking havoc in the “oil patch.” Oil simply costs too much to recover at current prices, making drilling (much less exploration) a losing battle.

In North Dakota, the active rig count has fallen from 200 to 49 over the past four years. In Texas, the oil rig count is 271, down from 697 at the same point last year.

Layoffs in the energy sector are mounting, which will lead to home foreclosures and personal bankruptcies.

Employers in the oil and gas extraction sector have cut 17,000 jobs since the October 2014 peak, according to the U.S. Bureau of Labor Statistics.

Many energy companies are already failing, and the number will surely increase throughout the course of 2016 and beyond. The fallout will be widespread.

We can expect significant bank failures to accompany the failing energy companies they loaned to when oil was over $100 per barrel.

With oil now at roughly $30 per barrel, there will be carnage in both the energy and banking sectors. Bank failures will soon be on the rise, which will remind Americans of the fallout from the housing crisis in 2009 and 2010.

Here’s a look at this history of bank failures, going back to the year 2000:

Year - Number of Failures
2000 - 2
2001 - 4
2002 - 11
2003 - 3
2004 - 4
2005 - 0
2006 - 0
2007 - 3
2008 - 25
2009 - 140
2010 - 157
2011 - 92
2012 - 51
2013 - 24
2014 - 18
2015 - 8

(source: FDIC)

As you can see, from 2000-2007, just 32 US banks failed. Then, starting in 2009, there was an explosion of bank failures due to the housing crisis.

From the FDIC’s creation in 1933 through 2008, there were just 10 years in which 100 banks failed in a single year. But that regrettable milestone was reached in consecutive years — 2009 and 2010.

My sense is that we are once again on the precipice of significant bank failures. Lending institutions in oil producing states, and beyond, are on the hook for the huge losses now being experienced by frackers and other high-cost energy producers.

Shale oil is expensive to extract by historical standards, and is only viable at much higher prices. Shale oil costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa.

At the current price of roughly $30 per barrel, many producers will not be able to survive. The cost to extract shale oil simply exceeds the returns.

This year, we will witness an avalanche of bankruptcies in the oil patch, running from North Dakota to Texas, and on to Pennsylvania. There will be continued job losses, home foreclosures and lots more failing banks.

More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection due to collapsing oil prices.

One-third of U.S. oil companies could face bankruptcy by mid-2017, according to Wolfe Research.

The current downturn in oil is now deeper and longer than each of the five oil price crashes since 1970, according to Morgan Stanley. Yet, Morgan -- as well as Goldman Sachs and Citigroup -- expects the price of oil to plunge into $20 territory.

Wall St. is bracing for a wave of defaults in the oil sector. Standard & Poor's Ratings Service recently warned that a whopping 50% of energy junk bonds are "distressed," meaning they are at risk of default.

Corporate defaults topped 100 last year, the first time that's happened since 2009. Almost one-third of the defaults in 2015 were by oil, gas or energy companies.

The world currently produces a surplus of 2-3 million barrels per day. That surplus isn’t going away anytime soon. And as the global economy flirts with recession, demand will not rebound anytime soon either. This means low oil prices are here to stay for the foreseeable future, and the collapse of energy companies will continue.

Unfortunately, yet quite predictably, a significant number of banks are doomed to collapse right along with those energy companies.

This is a story to follow closely throughout 2016.