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  • Fed to End QE, Obama’s Tax & Spend Budget

    Today I tackle several topics, each of which could take up an entire E-Letter. But these topics are very important, and I want to address them today. The first is the minutes from the March 19-20 Fed Open Market Committee meeting that were released last Wednesday. Those minutes definitively confirm that the Fed is ready to chart an end to quantitative easing.

    The second topic is President Obama’s proposed federal budget for fiscal 2014 that was also released last Wednesday. The Obama administration claims that the latest budget proposal will cut the federal deficit by almost $1.2 trillion over the next 10 years. It will not. Furthermore, his new budget proposal would raise taxes and fees by over $1.1 trillion over the next decade. And that’s just for starters.

    But before we go there, I want to touch on new data which confirms that US economic growth in the current recovery has been the weakest EVER, since 1930 when such data was first recorded – even worse than after the Great Depression. The recent Great Recession officially ended in the 2Q of 2009 – true enough. But growth since then has been the slowest on record.

    That’s a lot to cover in one letter, so let’s get started.

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  • Pew: Americans Have Little Will to Cut Spending

    The Pew Research Center released a new national poll on Friday and the results are quite surprising. As the March 1 deadline for a possible budget sequester approaches, the new Pew survey finds limited public support for reducing spending for a wide range of government programs, including defense, entitlements, education and health care.

    What the latest Pew poll shows is that while a majority of Americans say in various polls that they are in favor of smaller government, when it comes to specific spending cuts, they are opposed. The will to cut government spending is just not there. We’ll look at excerpts from the new Pew poll just below.

    We’re just three days away from the dreaded “sequester” that will cut federal programs across-the-board starting on Friday. The Republicans continue to refuse to bow to President Obama’s demands for more new taxes on the “wealthy” in return for a deal to avoid the sequester. But is the sequester really as bad as Obama says? The answer is NO. I’ll tell you why.

    The minutes of the Fed’s January 29-30 policy meeting were released last Wednesday and caused quite a stir in the stock markets. Basically the minutes revealed that some members of the Fed Open Market Committee are becoming concerned about the Fed’s continued record- large purchases of Treasury bonds and mortgage-backed securities. Some feel this program needs to be scaled back or ended altogether. This is very important so be sure to read it.

    Finally, I want to let you know about a new Special Report I have written entitled, “7 Secrets of Successful Investors.” This Report doesn’t dwell on generalizations or old sayings, but rather actual habits of successful investors I have known. To receive this Special Report CLICK HERE. There is also a link to this Special Report at the end of today’s letter.

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  • Obama Claims We Don’t Have A Spending Problem

    Most of the forecasters I subscribe to expect economic growth to average only 1-2% in the first half of 2013. Most believe that 4Q GDP fell sharply from the 3.1% rate in the 3Q of last year, largely due to fears about the fiscal cliff. They also expect growth to improve modestly in the second half of this year to 2% or slightly higher. That’s not too optimistic.

    One reason is that the end of the payroll tax holiday on December 31 means that workers’ pay went down by 2% on January 1, thus adding more headwinds to the economy this year. A person earning $50,000 a year before taxes, for example, will pay an additional $1,000 or more to the government this year.

    Add to that the fact that we are sure to have another nasty debt ceiling battle next month, which will once again be unsettling to consumers who drive the economy. We all remember the fiasco in the summer of 2011 when the Dow plunged over 2,000 points. For these reasons and others, at least the first half of 2013 could be very dicey.

    Actually there are three debt battles – the so called “trifecta” – that lie ahead. In addition to the debt ceiling battle, there is also the sequester/automatic spending cuts on March 1 and the “continuing resolution” to fund the government in the absence of a formal budget passed by Congress. That happens in late March. We will look at all three of these upcoming battles below.

    Today we’ll also touch on the pork-laden fiscal cliff bill that passed on New Year’s Day. And we will ponder the question of whether the US has a “spending problem” or a “taxing problem.” Let’s start with this last one first.

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  • European Debt Crisis - Is This Really The End?

    I have written a great deal about the European debt crisis over the last several months. Today I thought I would give you the latest analysis of the crisis from The Economist, the widely respected, London-based forecasting giant. I've been reading the Economist for almost 30 years, and I think you'll find their latest views on the European crisis interesting (if not scary).

    Following the analysis from The Economist, we take a look at how some of the world's largest banks are preparing for what could be the end of the euro. While most large European banks are in denial about the possible end of the euro, other large banks around the world are scrambling to reduce their exposure. I have also linked to a very good article on this very subject at the end of today's E-Letter.

    Next, now that the Super Committee has failed, the automatic spending cuts of $1.2 trillion over a decade are set to kick in starting in January 2013. The media is warning that such draconian cuts will devastate the Defense Department. Well guess what? $1.2 trillion over 10 years is only $120 billion a year. The federal budget is projected to increase by more than $120 billion a year over the next decade. In that case, there will be no net new spending cuts, just a slowing of the rate of increase. That's the dirty little secret the media is not telling us!

    Finally, if this extremely volatile stock market has rattled your nerves, I have a suggestion for you. I suggest that you consider investing with Metropolitan Capital Strategies, one of my favorite professional money managers. Metropolitan has the option of going 100% to cash (money market) in extremely volatile times such as we see today. We are hosting a free live WEBINAR with Metropolitan Capital Strategies this Thursday, December 1 at 2:00 EST.  I highly recommend that you join us!

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  • Debt Ceiling Battle: Tax Hikes or Spending Cuts?

    On Monday, May 16, the US government officially exceeded the national debt ceiling of $14.3 trillion. Nothing much happened, of course, because Treasury Secretary Geithner had already announced that the Treasury Department could implement various emergency measures to fund the government and avoid default until around August 2.

    Since most Americans have no idea what these emergency measures are, I thought it might be interesting to briefly discuss them. Basically these emergency measures include robbing cash from various government trust and pension funds to keep the US from defaulting on its debts and day-to-day obligations. You may be surprised at the many ways Treasury Secretary Geithner has to keep the government running until the debt ceiling is raised.

    On the subject of raising the debt ceiling, the battle lines have clearly been drawn among Republicans and Democrats, including President Obama. Republicans vow that there must be at least $2 trillion in spending cuts in order to raise the debt ceiling from $14.3 trillion to $16.5 trillion. Democrats, on the other hand, want to raise taxes on the “rich” and on the five largest oil companies.A huge fight lies ahead between now and August 2.

    Finally, both houses of Congress are quietly planning to vote on a straight-up bill to raise the debt ceiling without any spending cuts and without any tax increases. Both houses expect the "clean" debt ceiling vote to fail unanimously with no "yes" votes on either side. They all want to tell their constituents back home that they voted "no" on raising the debt ceiling. In their minds, this will pave the way politically for both sides to compromise. How dumb do they think we are?

    Before getting into the debt ceiling saga, let's first turn to the latest economic reports which continue to show that the recovery is slowing down.

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  • How This Economy Recovery Stacks Up

    IN THIS ISSUE:

    1.  Comparing This Recovery With Previous Rebounds

    2.  Putting Obama’s Record Spending in Perspective

    3.  My Two-Cents Worth on the Upcoming Elections

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