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  • Consumer Confidence Plunging – Recession Ahead?

    The stalemate in Washington continues, the government remains in partial shutdown and the debt ceiling looms on Thursday. A bipartisan deal to fund the government until January 15 and raise the debt limit until early February is working its way through the Senate and could be voted on later today or tomorrow. It is unlikely that the Senate bill would pass in the House, which is reportedly working on yet another bill (see link below) that is unlikely to pass in the Senate.

    The mindless gridlock continues and the Treasury Department warns that it will run out of “extraordinary measures” by the end of this week and the statutory debt ceiling will be eclipsed on Thursday or Friday. While this will technically be a “default,” the Treasury will continue to collect enough revenue each day to pay the interest on all of our outstanding debt. Still, things are likely to get increasingly crazy in the next few days.

    As a result of all the hype and anguish over the shutdown and the debt ceiling, consumer confidence has plunged since the beginning of this month. The confidence index, as measured by Gallup, has declined by the most since September 2008 when Lehman Brothers went bankrupt at the height of the financial crisis. And it continues to fall. This raises fears that consumer spending will drop significantly and a recession could unfold just ahead.

    Following that discussion, we’ll look at some interesting facts surrounding our national debt which now stands at a mind-boggling $16.965 trillion. Since our national debt is Issue #1 on the minds of most Americans, the discussion below should be very timely.

    Finally, today’s E-Letter will print longer than usual because we have lots of charts and graphs.

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  • Are We Headed Over the "Fiscal Cliff"? Maybe So

    We begin today with some obligatory comments about the election and how we got it wrong. Obviously, I am very discouraged with the outcome of the election. The main mistake Spencer and I made (and others including Gallup, Rasmussen, Pew, Rove, Morris, etc., etc.) in our pre-election analysis was to significantly underestimate the turnout rates among Democrats. The widely-held view that Democrats were unenthused and wouldn’t turn out to vote, as suggested by numerous pollsters, was simply wrong.

    We also we mistakenly believed that the 2008 surge in black, Latino, and young voter turnout would recede in 2012 to “normal” levels, as did most of the major pollsters noted in the previous paragraph. That didn't happen. These high levels of minority and young voter participation are apparently here to stay. Unfortunately, Obama won both the popular vote and the Electoral College comfortably. Following those opening comments, we turn our attention to the so-called "fiscal cliff" that is upon us.

    I'm sure you have heard about the fiscal cliff, but today I will present you with the details, including how much it will affect the economy and how much it will cost you (based on your income level). I will also explain why I think the odds are greater that we will fall off the fiscal cliff this time. Given his election victory, I don't see President Obama willing to compromise much if at all.

    If we do fall off the cliff, a new recession is very likely to happen next year, and that will almost certainly be bearish for stocks. Thus, the stakes are very high in this soon to be knock-down, drag-out!

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  • CBO Warns of Recession in 2013

    The non-partisan Congressional Budget Office (CBO) has calculated the expected negative effects on the US economy if the Bush tax cuts expire at the end of this year. Their numbers just released last week are eye-opening! To give us some perspective, US Gross Domestic Product rose by 2.2% (annual rate) in the 1Q of this year.

    The CBO now forecasts that if the Bush tax cuts expire at the end of this year, GDP in the first half of 2013 will plunge to-1.3%. Think about that. We don't know what the economy will do for the rest of this year, but the consensus expectation is that GDP will probably average around 2.5% for 2012, barring any negative surprises. So a drop from around 2.5% this year to negative 1.3% in the first half of next year – if the Bush tax cuts go away - is HUGE!

    For all of 2013, the CBO forecasts GDP growth of only 05.% – if the Bush tax cuts go away, and even that may be too optimistic. I wrote at length on this news from the CBO in my blog last Friday. I will give you a link to that blog posting at the end of today’s E-Letter so you can read it.

    What we want to focus on today is why this economic recovery is so weak. We will look at the latest economic reports and ponder why they aren’t stronger. We’ll look at the latest news on the housing market and find that there are some signs of improvement. I will also bring you an independent analysis of why the recovery is so weak (and what caused it) that I think you’ll find very interesting. It’s a lot to cover in one letter, so let’s get started.

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  • CBO’s New Forecasts & The Unemployment Report

    Today we begin by focusing on the Congressional Budget Office's (CBO) latest long-term economic forecasts. Actually, we will focus most of our attention on the CBO's 2012 and 2013 forecasts, since going beyond the next year or two is really just speculation in these uncertain times. There is a lot to consider in the CBO's latest forecasts.

    From there we move on to some scintillating news that many federal workers, including at least 36 members of Obama's own White House staff, are far behind in their income taxes owed to the IRS. How far behind? Can you say $3.4 billion? Yes, $3.4 billion and counting. President Obama says we all need to pay our "fair share" (ie - higher taxes on the rich), but I would suggest that he focus on those in his Administration and Congress that are behind on their tax payments.

    Finally, I will examine last Friday's unemployment report which surprised just about everyone. There is a reason the unemployment rate is going down, but you may be surprised to learn why. I'll give you the straight story, plus I will review the latest economic reports at the end. Let's get started.

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  • On the Fed, Stocks, the Election & More on the 1%

    Today we visit several interesting topics. We begin with a look at the Fed’s latest Beige Book report that came out last week, which showed that the economy improved at least modestly in all 12 Fed Districts late last year. We also ponder the question of whether the Fed is ramping up to do another round of quantitative easing (QE3).

    Next, with everyone wondering if we’re facing another roller coaster ride in the stock market this year, I will bring you some interesting facts about what stocks have historically done in presidential election years.

    Finally, we received a great deal of response to last week’s E-Letter that focused on members of Congress and how they fare so much better than the rest of us financially speaking. Given the level of interest in this topic, I dug a little deeper over the last week to find some fascinating information on the so-called “Top 1%” of wealthiest Americans. You’re going to love this!

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  • Our Millionaire Congress & the Top 1%

    Do you think that you could keep your job if your employer ranked your job performance at only 11%? Probably not, but it seems that Congress is doing just that. A recent Gallup poll found that only 11% of Americans approve of the job Congress is doing, and a whopping 86% disapprove.

    Since our legislators supposedly work for us, it looks like they are not making the cut. Adding insult to injury was a report saying that members of Congress actually got richer from 2004 to 2010, while the rest of the nation's wealth stayed flat or actually fell. So, while Congressional job performance got worse, their personal wealth grew.

    One reason that members of Congress experienced asset growth while everyone else languished may be the fact that they can trade on inside information that they get as a member of Congress - and it's perfectly legal. Knowing the status of pending legislation, regulatory actions, committee hearings, etc. means that they have a leg up on the rest of us who are prohibited from trading on inside information. If more Americans knew about this, I suspect the 11% approval rate would drop quickly.

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  • On the Economy & the Lame Duck Congress

    IN THIS ISSUE:

    1.  Economic News of Late Improving, Sort Of

    2.  Economic Conclusions & Sober Realities

    3.  Outcome of Lame Duck Congress Still Uncertain

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  • Congress Drops the "F-Word" (Fiduciary)

    No, you're not going to have to hide this week's E-Letter from the kids. The F-word discussed in today's issue is 'fiduciary.' As you probably know, financial regulatory reform has been getting a lot of attention in the financial press lately. Unfortunately, many investors do not know that a provision to require brokers to act in your best interests rather than their own (a concept known as the 'fiduciary standard') was an early casualty of the financial reform effort, thanks largely to Wall Street's lobbying efforts.

    There are some investment professionals who are bound to exercise fiduciary duty in relation to your investments, while others are held only to the less-stringent 'suitability standard.' However, many investors do not know what a fiduciary standard is, or how the absence of this duty can affect their investments. In this week's E-Letter, I'll compare the two standards as well as fill you in on why the large Wall Street brokerage firms are so opposed to brokers having a fiduciary duty to clients.

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  • Cap-and-Trade: Bad For The Economy & Us

    On June 26, the Democrat-controlled House narrowly passed sweeping legislation that calls for the government's first limits and taxes on carbon emissions, the so-called "Cap-and-Trade" bill that President Obama has insisted on. Experts on both sides of the issue, including President Obama, agree that Cap-and-Trade will result in higher energy prices, and that means higher prices for fuel, home heating and cooling and many other things we buy from food to cars to movie tickets, etc., etc. Cap-and-Trade will be a disaster for the economy. Hopefully, the Senate will not pass this bill, especially in light of news that the EPA has suppressed a major new study which argues that global warming in NOT happening, and recommends against Cap-and-Trade. This may be one of the most interesting and important E-Letters I have ever written... But it will likely make you angry!...
  • Throwing Trillions Around Like Crazy

    President Obama will sign into law the largest single spending bill un US history, $787 billion, today in Denver. No one knows if it will work. Last Tuesday, Treasury Secretary Tim Geithner announced a massive bank bailout plan that will spend $1.5-$2 trillion or more, but he failed to provide many details on how this rescue package will work. The stock markets have been in a tailspin ever since. There is growing talk of nationalizing many of our large banks. While I'm against nationalization, I have included a very interesting article by Dr. Nouriel Roubini, a well-known economist. I think you should read it, if for no other reason than to be informed on the subject....
  • Obama's Judges vs. Republican Opposition

    Since I began writing this E-Letter in 2002, I have always maintained that politics and investments are joined at the hip. The political "solutions" coming out of Washington to address the subprime debt crisis and resulting credit crunch should be more than enough to prove this thesis. This week, I'm going to discuss a political issue where the tie to investments may not be as evident, but it's there. The issue is the potential for liberal judicial appointments during the Obama presidency, and how these may change the legal landscape. President-elect Obama is already on record as supporting the "living document" interpretation of the Constitution, and so will likely favor jurists who share this viewpoint. This could mean more "legislating from the bench" and other forms of liberal judicial activism. If so, all I can say is hold onto your pocket books!...
  • Mortgage Bailout Passes, Finally - Now What?

    This week we take an inside look at the massive government bailout bill that was hastily signed into law by President Bush late last Friday. As taxpayers who are ultimately on the hook for the now $850 billion bailout package, we need to understand how this program is expected to work (or not work). So I will give you the latest details as we understand them. I also ponder whether the bailout is, or is not, the right thing to do. Following that, we will take a look at the latest Electoral Map which has shifted significantly in Barack Obama's favor, unfortunately. Finally, we will revisit Scotia Partners and update you on their performance in the latest stock market meltdown....
  • Republicans Can't Lead -- Power Shifts To The Center

    Introduction On Monday of last week, the Republicans flinched and the so-called "nuclear option" to end the filibuster of President Bush's judicial nominees was avoided. In seclusion, the so-called "Gang of 14" (seven Republican...