July 2013 - 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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  • New GDP Revisions to Boost US Economy by 3%

    Tomorrow morning at 8:30 EST, we get the government’s first look at 2Q GDP. The pre-report consensus is for a rise of 1.1% (annual rate) in the 2Q following 1.8% in the 1Q. Most forecasters agree that the economy slowed somewhat in the 2Q, so a reading of 1.1% shouldn’t come as a big surprise.

    At the end of April, the Commerce Department’s Bureau of Economic Analysis (BEA) announced it would be making some significant revisions to the way it calculates Gross Domestic Product on July 31. It will revise economic growth for all years going back to 1929. This change is somewhat controversial in that it is expected to add up to 3% to total GDP in one fell swoop tomorrow morning.

    The reason for the changes is the fact that our economy increasingly depends on the production of intangible goods, and the BEA believes 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 of investment, just like the purchase of a new office building or a new printer. And the creation of a lasting work of art – a painting, a movie, a television series, etc. – that can be sold or viewed year after year will likewise be treated as a capital investment.

    Since the US GDP is increasingly made up of intangible assets, some of these revisions probably make sense. Yet the caveat is that intangible things such as R&D and art are far more difficult to value precisely. So today we’ll discuss the GDP revisions coming out tomorrow and whether or not such changes are a good thing.

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  • Average Gas Price Could Hit $4 by Labor Day... Or Not

    With the recent jump in gasoline prices, several energy analysts are forecasting that prices at the pump will top $4 a gallon (national average) later this summer. On the other hand, some analysts feel that gas prices will only go up another 5-10 cents a gallon just ahead, and then move lower in the fall. Of course, no one knows for sure. Today, we’ll take a look at what’s driving gas prices higher.

    But before we get to that discussion, let’s take a quick look at the latest economic reports, most of which were disappointing. The only good news here – if you can call it that – is the economic data of late is not encouraging enough for the Fed to begin tapering its bond purchases anytime soon, as I discussed at length in last week’s E-Letter.

    The Fed reported recently that Americans’ cumulative net worth has finally hit a new record high of $70.3 trillion in the 1Q, up $3 trillion from the 4Q of 2012. While this is good news on the surface, much of the increase came as a result of Americans spending less and paying off their debts. Slower growth in consumer spending is not good for the economy.

    Last but certainly not least, I will reveal the results from our recent Financial Literacy Test. This quiz was wildly popular with my readers. And today, I’ll tell you how you did – which was really good. You may be surprised at the results, including the two questions that stumped about half of those taking the test. My thanks to all who participated!

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  • Fed’s Gobbledygook - What Do They Really Mean?

    Recent communications from the Fed and comments by Chairman Bernanke cast a great deal of uncertainty on the equity and bond markets in late June. Specifically, Bernanke's remarks in his press conference on June 19 - where he discussed ending its program of quantitative easing - prompted a huge global selloff in the stock and bond markets.

    In response, various Fed officials tried to "walk back" the idea that the Fed was ready to begin scaling back its $85 billion a month in bond and mortgage purchases as early as September and end the program by mid-2014. Based on those reassurances, stock prices recovered, but rumors of the Fed scaling back its stimulus later this year continued to circulate.

    Last Wednesday, the Fed released the actual minutes from the June 18-19 Fed Open Market Committee meeting. Those minutes revealed that the Committee did indeed discuss the possibility of scaling back its QE purchases, and even ending them at some point. However, in the end, all but one member of the Committee voted to continue the $85 billion a month in purchases indefinitely.

    With that news, the Dow Jones and the S&P 500 indexes surged to new record highs last Thursday. It is obvious that the equity markets are addicted to the Fed's stimulus. It remains to be seen, however, what this latest Fed decision will mean for the sagging bond market. So far, not much.

    Finally, there is something REALLY BIG brewing with regard to ObamaCare. President Obama's recent decision to postpone the "employer mandate" by one year to 2015 may have been unconstitutional.

    If you oppose ObamaCare, you absolutely must read the final section of this E-Letter. You won't hear about this in the mainstream media. If you don't read anything else, scroll down to: Delay of ObamaCare May Backfire on the President. You need to know about this.

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  • Are You Financially Literate? Take the Test!

    In late May, the Financial Industry Regulatory Authority (FINRA) released the results of its 2012 National Financial Capability Study, and the news wasn't good. While some areas of financial capability had improved since the last study in 2009, a large part of the American public is still virtually illiterate when it comes to even the most basic financial concepts and practices.

    The consequences of financial illiteracy are many, but they generally involve putting American families at a disadvantage when it comes to borrowing, saving and investing for retirement and other everyday financial matters.

    This week, I'm going to discuss the results of the updated FINRA study and also allow you to take our expanded financial literacy test for yourself. I'll also mention some ways to improve financial literacy, some of which may surprise you. I encourage you to not only take our financial literacy quiz yourself, but also share this E-Letter with friends, loved ones and even school administrators in your local area.

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  • Fed Sparks A Stampede Out Of Bonds

    No doubt you are aware that interest rates have spiked higher in the last two months. As a result, there is a stampede to get out of bond funds that have been clobbered recently. I have been warning about this repeatedly since late last year. Now it’s happening and it may well continue. We’ll discuss that more as we go along today.

    With the Fed’s latest decision to start winding down its unprecedented quantitative easing stimulus program later this year, the investment markets are not happy. Stocks, bonds and precious metals have been hit hard in recent days and weeks. While stocks and bonds have recovered modestly, the selling pressure may not be over. Investors are really nervous!

    On the political front, President Obama just can’t help himself. Despite the various scandals swirling around his administration, he has resurrected his formerly failed plan to institute a new tax on carbon emissions. Only this time he plans to circumvent Congress and enact this costly tax via the Environmental Protection Agency and new Executive Orders that are almost impossible to reverse. He apparently does not care that a new carbon tax will increase energy prices for everyone, including low income folks who will be hit the hardest.

    But before we get into those issues, let’s take a quick look at the latest economic reports, including last week’s very discouraging 1Q GDP report that showed the economy is still just limping along. From there, we’ll look at some other economic reports which offer at least a little encouragement.

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