July 2012 - 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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  • GDP Report: "Good News" - You’ve Got to be Kidding!

    I must begin today by thanking you for the overwhelming reader response we received to last week’s E-Letter. It was the largest response we’ve had in several years. Obviously, I struck a nerve with many of my readers last week! I’ll fill you in as we go along.

    Following that discussion, we dissect last Friday’s controversial 2Q GDP report, which most found disappointing but some in the mainstream media found encouraging (ie – at least we’re not in a recession). From there, we’ll discuss the Fed’s latest monetary policy meeting that ends tomorrow.

    The stock markets rallied strongly last week, partly on perceived good news from Europe, and partly because of renewed expectations that the GDP report would be weak enough to move the Fed to enact QE3. We’ll know one way or the other tomorrow afternoon. If Bernanke fails to announce more QE, stocks could tumble again.

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  • Obama’s Decision: Millions More on the Dole

    In 1996, President Clinton and the Republican-controlled Congress passed sweeping new welfare reforms. In doing so, they included strict regulations that required welfare recipients to work (or actively look for work). And they made it clear that "work" did not include such things as bed rest, exercise or personal past-times. The welfare rolls plummeted in the years following 1996, and the program was hailed a great bipartisan accomplishment.

    But on July 12, President Obama’s Health and Human Services Department issued an administrative order to the states that reverses the work requirements contained in the welfare law. Many believe this action is illegal, and it will almost certainly be litigated in the courts. But in the meantime, this order guts the work requirement in the 1996 welfare reform law and will allow millions more Americans to qualify for welfare benefits.

    On another note, the number of Americans going onto Social Security Disability Insurance in the 2Q of this year greatly outpaced the number of new jobs created in the economy for the first time. By April of this year there were a total of 10.8 million on disability, the highest ever. Likewise, there are more Americans than ever before on food stamps - 46.4 million as of March. Ditto for the number of Americans living in poverty - an estimated 15.7% of the population.

    These are very depressing numbers. The media tells us that this is all because of the weak economic recovery and continued high unemployment. The weak economy is certainly a big part of the problem, but could there be other factors involved? Could it be that the current administration in Washington wants more Americans to be dependent on the government? I will address this question at the end of today's wide-ranging E-Letter.

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  • LIBOR: The Worst Financial Scandal Ever?

    What is looking to be the largest banking scandal in the history of the world is unfolding before our very eyes this month, and yet most Americans know little or nothing about it. The allegations are that some of the largest banks in the world (at least 22 so far) have been “price-fixing” the LIBOR to their advantage for years.

    LIBOR (London Interbank Offered Rate) is the average daily interest rate that leading banks in London would be charged to borrow from each other. Financial institutions, mortgage lenders, credit card agencies and many others around the world peg their interest rates, in large or small part, on the LIBOR. Some $400-$800 trillion in securities and derivatives are priced at least in part based on the LIBOR.

    Barclays PLC, London’s oldest and largest bank, has already admitted to wrongdoing and paid fines to British and US regulators of apprx. $450 million. But this is only the beginning. As the investigation unfolds, it is expected that dozens of the largest banks around the world – including several US banks – may have been involved.

    I have read dozens of articles on the LIBOR scandal over the past two weeks. The one that I think explains the scandal the best is from The Economist in London. I have reprinted most of that article below with a link to the remainder. Since this scandal is going to be enormous, I suggest you read the following article to get up to speed on it.

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  • Bond Investing - It’s the Short Side, Stupid

    As all of my readers know by now, I'm a political junkie. I love bringing parallels between politics and investments to your attention, since the two are very interrelated. Today, we're going to discuss how a cliche coined to help win an election can be useful to Treasury bond investors.

    There's no doubt that Treasury bonds are at historically high prices, making them quite risky for the future. However, there are ways to make money when bond prices go down, which is where I think bond investors need to be concentrating right now. In other words, when I ask myself where potential Treasury bond opportunity lies, the answer comes back: "It's the short side, stupid."

    Even so, bond-king Bill Gross found out that there was still some upside for Treasury bond prices when he exited the market in 2011 and missed out on some good gains. What's needed is an investment that can go both long or short, depending upon the market environment. Today, I'll introduce you to just such an investment - the Equity Alternative Program. Since its inception in 2007, Equity Alternative has produced an annualized gain of over 19%, net of fees. You'll definitely want to check this Advisor out in more detail.

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  • Roberts, Obamacare & Our "Stall-Speed" Economy

    I thought long and hard about whether I would write about the Supreme Court's historic and surprising decision to uphold Obamacare last Thursday in today's E-Letter. Initially, I decided to keep my mouth shut and pick another topic for today. But that was before some so-called "conservative columnists" morphed into apologists for the Supreme Court and Chief Justice John Roberts. That made my blood boil!

    So today, I will give you my thoughts on the Supreme Court's ruling on Obamacare. The Supreme Court apologists, including George Will (ABC News), would have us believe that the High Court ruling on Obamacare was a "victory" for conservatives. Say what? They argue that we should be happy that the Commerce Clause was shot down in this case, and because the Court ruled that the federal government can't deny Medicaid funds to states that elect to opt out of Obamacare. What I will point out today is that both of these rulings can be circumvented in the future.

    The other point I will make is that Obamacare should have been ruled unconstitutional on the basis of fraud. President Obama and congressional Democrats promised the American people that Obamacare was NOT a tax. They knew it would never pass if Americans believed it was a tax. The Supreme Court ruled that Obamacare is not a "mandate" and that it is indeed a "tax." The point is, the American people were intentionally misled. In my business and most others, we call that FRAUD!

    Following that discussion, we will review the latest economic reports, and I will tell you about our upcoming WEBINAR on July 12.

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