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  • Upcoming Debt Ceiling Fight Could Get Really Ugly

    Today we will focus initially on the upcoming battle over whether to increase the US debt ceiling. The government reached the current statutory debt limit of $18.1 trillion back in March. Since then, the Treasury has been paying the nation's bills by using so-called "extraordinary measures." But the Treasury warned recently that such funding will be exhausted by November 5, and that means another debt ceiling battle will play out between now and then.

    While we've seen this movie before and know how it will ultimately end, the political battle in the coming weeks could get really ugly, especially now that House Speaker John Boehner has announced that he is stepping down soon. With a lack of leadership in the House, this year's debt limit circus could be especially unsettling for the stock and bond markets.

    Next, we turn to the question of whether a recession is likely just ahead. While the economy grew by a better than expected 3.9% in the 2Q, more and more forecasters are downgrading their outlook for the second half of this year. The number expecting a recession in the months ahead rose sharply in a survey by Bloomberg at the beginning of this month. The good news is that about 85% of economists surveyed do not expect a recession to begin this year.

    As usual these days, there's a lot to think about - so let's get started.

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  • Government Spent $29,000 Per US Household in 2014

    A new study from The Heritage Foundation found that out-of-control spending in Washington amounted to more than $29,000 per household in fiscal year 2014. Today, I will reprint the highlights of that excellent report. As you will see below, government spending has topped $3.5 trillion in each of the six years that President Obama has been in office.

    The budget deficit for FY2009 more than tripled to over $1.5 trillion, thanks in large part to Obama’s $800+ billion “stimulus program” which did little to create new jobs or spark the economy. Budget deficits remained above $1 trillion for 2010, 2011 and 2012. While deficits have come down significantly in the last two years, our debt trajectory remains on a collision course as the latest Heritage Foundation study illustrates.

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  • Dependence On Government Has Become Epidemic

    Did you know that the number of Americans getting benefits from the federal government each month greatly exceeds the number of full-time workers in the economy by a longshot? Sadly, it’s true. Based on the latest Census Bureau data  there were apprx. 148 million non-veteran Americans who are on some kind of monthly means-tested government benefits programs, by far the highest number ever, versus only 103 million full-time workers in 2012.

    Thus, the number of people that are taking money out of the system is far greater than the number of people working full-time who are putting money (taxes) into the system. Even worse, nearly 70% of all of the money that the federal government spends each year goes toward entitlement and welfare programs.

    America’s welfare empire encompasses more than 200 federal and state programs. We have become a nation that is hopelessly addicted to government benefits. This is why the only realistic way to balance our federal budget and reduce our massive national debt is to address and reform our entitlement and welfare programs.  That's what we'll talk about today.

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  • US Economy to Get a Hollywood Makeover

    You may have heard that the government is going to make some major changes in how our Gross Domestic Product is calculated later this year. Your first thought might be that this is no big deal. However, I will argue today that it is a very big deal, the biggest in a decade, and you need to know why. So I hope you read what follows with more than a passing interest.

    Last week, the Commerce Department’s Bureau of Economic Analysis (BEA) announced it will be making some significant revisions to the way it calculates Gross Domestic Product in late July. This change is somewhat controversial in that it is expected to add a whopping 3% to GDP in one fell swoop in the last week of July. That’s about $1,500 worth of extra goods and services for every person in the US!

    The reason for the changes is the fact that our economy increasingly depends on the production of intangible goods, and we need to recognize that the production of ideas is an important form of investment. So in the future, the BEA is going to count a company’s research and development as a form ofinvestment just like the purchase of a new office building. And the creation of a lasting work of art – a painting, a movie, a television series, etc. – that can be sold year after year will, likewise, be treated as a capital investment.

    Today, I will talk about these sweeping changes and what they will mean for all of us.

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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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  • Debt Ceiling Battle’s Predictable Outcome

    A political battle is looming over raising the federal debt ceiling limit which we will hit over the coming weeks. The media warns that we could face a massive government shutdown if an agreement is not reached to raise the debt ceiling. This is nothing new, and the truth is that the debt ceiling will be increased, as always, but probably not until the last minute.

    The Republicans are hoping to extract more federal spending cuts in order to agree to raising the debt ceiling, and I predict that they will get very little in the way of meaningful cuts. Some Democrats are calling for new tax increases before increasing the debt ceiling, but this is just a bargaining ploy. Truth is, it's all politics as usual on both sides and in the end, the debt ceiling will be increased - bank on it. I suggest not paying much attention as this plays out.

    The debt ceiling political fight that will play out over the coming weeks will once again miss the point. Our national debt is spiraling out of control, and raising the debt ceiling limit does nothing to correct this problem. It just kicks the can further down the road. Frankly, I wonder if it is possible to construct a viable plan to reverse our out-of-control spending at this point. Most of our leaders in Washington are drunk on increasing federal spending.

    At some point, unfortunately, the bond market will put a violent end to this. I have written about this before, but this week, I put this discussion into a more detailed perspective. The bond market may well send interest rates soaring once again when it become clear that our politicians refuse to cut the exploding size of government spending and deficits. Not a pleasant topic to consider, but we must keep focused on it.

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  • Financial Reform or Government Takeover Revisited

    The sweeping new financial regulatory bill was signed into law last Wednesday by President Obama. It will create a huge new government bureaucracy over the next year or so including 13 brand new federal agencies employing thousands of new government workers. The heads of these agencies will be appointed (not elected) by the president. These agencies will have the power to seize any companies that they deem to have 'systemic risk' and liquidate them if they so choose. One specific agency will have the right to demand any and all information from financial companies, including your personal account information, and it will have subpoena power over any firms that don't cooperate.

    The vast new reform law does not solve the 'too-big-to-fail' problem; in fact, it institutionalizes it. Likewise, the new law does not at all address Fannie Mae and Freddie Mac, both of which continue to lose billions every month. The reform law will create a new Bureau of Consumer Financial Protection, which will have the authority to write rules for consumer protections governing all financial institutions – banks and nonbanks – that offer consumer financial products or services. While some financial reforms are needed, this giant new bureaucracy will cost taxpayers and financial firms billions every year, and these costs will be passed down to their customers like you and me.

    There is probably nothing we can do to stop this new law and replace it with something smaller and more focused, but I wanted you to know the facts about this new bureaucracy. Suffice it to say, Big Brother just got a whole lot bigger!

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  • Keep Your Healthcare Plan? Probably Not!

    During the 2008 presidential campaign, candidate Barack Obama promised that, if elected, he would press for some form of nationalized healthcare. Time after time, he assured Americans: 'If you like your healthcare plan, you can keep it; if you like your doctor, you can keep your doctor.' Many in Congress promised the same thing as they crafted the sweeping healthcare legislation that ultimately passed in March.

    Yet on June 14 the Obama administration released an 83-page document which indicates that over half of all employer-provided health insurance plans will be effectively eliminated between now and 2014 because of the new healthcare law. For small businesses, it's even worse. The Obama administration's own estimates indicate that 66% or more of small businesses will abandon their healthcare insurance plans by the time ObamaCare kicks in on January 1, 2014.

    This week, we will look into the many new and onerous rules, regulations and restrictions in the latest 83-page report from the Obama administration. The bottom line: If you get your health insurance through your employer, or if you are (like me) the owner of a business that provides health insurance to its employees, you need to read what follows very carefully. We've all been lied to!

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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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  • The Largest Tax Increase in US History

    Back in 1948, President Harry Truman nicknamed the 80th Congress the 'do-nothing Congress.' Today, we sometimes find ourselves wishing that we could return to the days when Congress was accused of inaction. Unfortunately, the stage may now be set for that wish to be granted, but the consequences will be far from favorable. By allowing the Bush tax cuts to expire, Congress could levy one of the largest tax increases ever, all by just doing nothing.

    While President Obama and the Democratic leadership claim that they want to keep all of the Bush tax cuts in place for everyone making under $250,000 per year, they also know that they are going to build up huge budget deficits unless they find ways of generating some tax revenues. With cap-and-trade legislation and its expected tax revenues all but dead, the Dems are going to have to figure out some other way to pay for their march toward socialism.

    The expiration, or 'sunset', of the Bush tax cuts could provide the necessary tax revenues they seek and all without having to cast a vote in favor of a tax increase. This week, I'll discuss the possible effects of a huge tax increase during a fragile economic recovery as well as the possibility that Congress may just sit on their hands and do nothing in order to fill their insatiable need for tax revenues.

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  • Healthcare Reform Designed to Fail

    The Senate is set to vote on its version of health care reform, possibly as early as Christmas Eve. If they do, it will be the worst Christmas present ever for the American taxpayer. The last-minute negotiations to obtain enough votes to prevent a Republican filibuster have transformed the bill from an ill-conceived attempt to reform health care to a horribly complex piece of legislation laden with exemptions, special deals and downright payoffs for certain states.

    The current push to pass a health care reform bill - any bill - has exposed the seedy underbelly of American politics. However, this is nothing new. What bothers me most about these health care bills being jammed down our throats despite public opposition is that whatever is in the final bill, it is bound to fail. In fact, you might say it's been designed to fail.

    This week, I'm going to reprint two very good articles, one from Accuracy in Media (AIM) and one from Dick Morris that discuss the major problems with the current healthcare bill before the Senate. Note that these articles were written prior to the late-night negotiations (or, more accurately, bribes) that occurred this past weekend, but they still paint an accurate picture of the health care debate.

    Since this is the last E-Letter before Christmas, I also want to take this opportunity to thank all of my loyal readers and clients and wish you a very Merry Christmas or Happy Hanukkah.

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  • Stratfor: Odds of War with Iran Spiking

    In just the last few weeks, we have learned several disturbing new things about Iran's nuclear capabilities. First, we discovered that Iran has a large secret uranium enrichment facility inside a mountain south of Tehran that we didn't previously know about. Second, shortly thereafter, the International Atomic Energy Agency (IAEA), the U.N. nuclear oversight group, said that Iran is much more advanced in its nuclear program than the IAEA had thought previously. According to the report, Iran now has all the data needed to design a nuclear weapon.

    Third, was a revelation in the first days of October by the Times of London which reported that Israeli Prime Minister Benjamin Netanyahu traveled to Moscow on September 7 to charge that Russian scientists and engineers are working directly with Iran on its nuclear weapons program. This intelligence suggests that Iran may be much further along in developing nuclear weapons than the international community previously believed.

    To give us insights on these latest revelations about Iran and its nuclear ambitions, we turn to our good friends at Stratfor.com this week. Please read what follows very carefully.

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  • Support Wanes For Obama's Huge Stimulus Plan

    The Senate finally passed its version of President Obama's near $1 trillion economic "stimulus" package. But as Americans saw that this so-called stimulus package is loaded with pork-barrel spending and does not include nearly enough in tax cuts and direct incentives, public support for it plummeted. The Republicans' alternative plans that proposed more in tax cuts were ignored (of course). I have numerous problems with the giant stimulus program, especially regarding the "protectionism" elements as you will see. Finally, earlier today Treasury Secretary Geithner announced a new plan to spend $2-$3 trillion to bail out banks, buy troubled assets, unfreeze the credit markets, etc., etc. I will have more to say about this as the details become available....
  • Obama's Tax Policy: None Dare Call It Welfare

    We have recently learned the details of President-elect Obama's massive income tax overhaul, and the plan is much worse than we had anticipated. Obama's liberal tax plan would give annual tax rebates to millions of Americans who already pay NO income taxes whatsoever. Giving government tax rebate checks to those who already pay zero income taxes is nothing short of expanding the welfare state (or socialism as I prefer to call it). Worst of all, if Obama gets his massive tax plan approved, it will mean that a majority of Americans will pay little or no income taxes, while the so-called "wealthy" will foot the rest of the bill. If we reach such a point, there will be little to no chance of true tax reform for the foreseeable future. Read what follows very carefully....
  • Economic & Investment Outlook For 2009

    As we kick off the New Year, let's review the latest dismal economic and financial data and the consensus views of what lies ahead in 2009 for the economy, the credit crisis and the markets. As you might expect, most of my trusted sources believe that the recession will be with us for a while, but there is hope that the economy will begin to bottom out sometime late this year - aided by more huge government bailouts that President-elect Obama has in store for us....