July 2010 - Forecasts & Trends

Forecasts & Trends is much more than just investment blog posts. You need to know the "big picture;" you need to have a "world view," especially in the post-911 world; and you need more information than ever before to be successful in meeting your financial goals. Gary intends to help you do just that.

Forecasts & Trends

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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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  • Is Your Local Bank in TARP Trouble?

    We can all remember the credit crisis back in late 2008 and President Bush's $700 billion Troubled Asset Relief Program (TARP). Most people assumed this huge bailout program was primarily for the big Wall Street banks, but hundreds of small community banks received TARP money as well. While almost all of the big banks have paid back their TARP loans, over 600 small banks have not been able to do so.

    A new congressional study this month reveals that these 641 mostly community banks don't have the capital to repay their TARP loans, and indicates that the government will not bail them out again. According to the new report, these banks that can't repay their TARP loans will have to be merged with larger banks or go out of business.

    This dilemma reminds us that small and regional banks are overloaded with commercial real estate loans, many of which are past due on their payments, and the properties that collateralize these loans have significantly declined in value during the recession. While I have written about the commercial real estate debacle earlier this year, it is time to revisit this topic in light of the problems facing many small banks around the country.

    Last but not least, I will announce our upcoming Internet webinar with Hg Capital on August 4 at 1:00 PM Eastern time (10:00 Pacific time). Hg's founders will discuss in detail their Long/Short Government Bond program that knocked the lights out in 2009. This is a great opportunity to learn how to take advantage of the bond market, what with interest rates at the lowest point in the last 50 years. Be sure to sign up for this Internet event that is free of charge and you can listen and watch on your computer wherever you are.

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  • Largest Tax Increase in US History

    I reported last week that the Consumer Confidence Index plunged unexpectedly in June, and forecasters are still trying to figure out why the mood of the country turned so sour last month. Part of the reason is the fact that the Bush tax cuts of 2001 and 2003 are set to automatically expire at the end of this year. President Obama has said that he wants to extend the Bush tax cuts for all Americans except those households making $250,000 or more per year. Yet the legislation to extend the Bush tax cuts for all but the 'rich' is stalled in Congress, and Americans are worried that we will see the largest tax increase in history in 2011.

    We will also examine in detail why raising income taxes on the 'wealthy' is bad news for small businesses and job creation, especially with our fragile economy and high unemployment. For example, do you know that two-thirds of small business profits are generated by households making over $250,000 per year? That's according to the IRS. With taxes on this group set to rise from 35% to 39.6% next year (actually to 40.8% with the phase-out of itemized deductions), it's no wonder that small business owners are reluctant to hire new workers. President Obama has yet to figure out that soaking the rich does NOT result in higher income tax revenues.

    And at the end of this week's E-Letter, I will give you the results from our recent FINANCIAL LITERACY QUIZ. Over 6,000 readers took the quiz and most scored very well. Congratulations! I think you'll find the results very interesting.

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  • Headed For a Double-Dip Recession?

    This week, we focus on the latest outlook for the US economy. As you are no doubt aware, the consensus view of the economic recovery has dimmed over the last month, especially with the latest disappointing 1Q GDP report on Friday, June 25. While consumer spending increased very modestly in May (latest data available), bank lending remains in the tank. Unless lending improves, the economic recovery will be disappointing at best, and a double-dip recession is clearly a possibility in 2011.

    Following that discussion, we will look into the new financial regulatory bill which is expected to be passed by Congress any day now. While I have been an outspoken advocate for financial regulatory reform (see my April 20 E-Letter), the huge new reform bill is lacking and even negative on several fronts. It will not eliminate 'too-big-to-fail' and it will not preclude an even more serious financial crisis in the years ahead. About all it does is to greatly increase the size of government. Surprise, surprise!

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