September 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.

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  • Another Budget & Debt Ceiling Fiasco Starts Now

    With the Fed's surprising decision not to "taper" its monthly QE bond and mortgage purchases, at least for now, the markets' attention now will focus on the upcoming federal budget and debt ceiling battles. Either one could lead to a government shutdown, and even if a shutdown is avoided, it will be a nervous few weeks in the markets just ahead.

    Fiscal year 2013 ends next Monday, and FY2014 begins on Tuesday. Not surprisingly, we do not have a federal budget for FY2014, so last Friday the House of Representatives passed a temporary "continuing resolution" to fund the government through mid-December. However, that resolution contained a provision to cancel funding for Obamacare indefinitely.

    That provision will definitely not survive in the Senate, so it remains to be seen what happens between now and next Tuesday. Almost certainly, we'll see another political battle and the threat of a government shutdown. Then two weeks later, we will see another political circus over raising the debt ceiling, which could also trigger a government shutdown.

    President Obama has repeatedly warned recently that he will not negotiate with House Republicans on raising the debt ceiling, so another political fiasco is virtually assured around the middle of October when the Treasury will run out of money to pay the nation's bills. This fight will not be good for the stock markets. Here we go again.

    Finally, the Congressional Budget Office just released a new report which warns that our spiraling national debt is "unsustainable." Imagine that! We'll take a look at the report's latest findings as we go along.

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  • Stock Funds’ 5-Year Track Records Set to Double

    Many investors focus on the previous five years annualized return when analyzing which mutual funds to buy. We also pay a good deal of attention to the 5-year performance number when analyzing mutual fund and ETF returns at Halbert Wealth Management. And currently the 5-year average returns for most equity mutual funds are not all that attractive.

    But what if I told you that between now and the end of the year, most funds’ 5-year track record will double or more! And that will happen even if the funds don’t make another penny this year. How can this be, you ask. It just so happens that some of the worst losing months for stocks occurred during the latter part of 2008 when the Dow and the S&P 500 were on their way to 50+% drawdowns (losses). We all remember that gut-wrenching period!

    But guess what? Those terrible losing months in late 2008 will steadily be falling off of 5-year performance records between now and year-end. As a result, most 5-year performance records are about to skyrocket due to nothing other than the passage of time. You can bet the mutual fund companies are licking their chops in anticipation of new brochures showing the much higher 5-year returns! I will explain how this will happen in detail below.

    Finally, I would be remiss not to discuss the key Fed policy meeting that starts today and ends tomorrow. It is widely expected that the Fed will announce plans to “taper” its monthly QE purchases of Treasury bonds and mortgages. That decision could have significant market implications, which I will discuss as we go along today.

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  • Some Scary Bumps in the Road Just Ahead

    The major stock indexes moved lower after setting new record highs in early August, although prices have recovered somewhat in the last few days. So was the weakness in August just an overdue correction before moving even higher? Maybe, but there are a number of things coming up in the next month or so that could rattle the markets even more, including whether or not we go to war with Syria.

    Clearly, the stock and bond markets continue to be nervous about the Fed cutting back on its QE bond and mortgage purchases, perhaps as soon as the Fed’s next policy meeting that ends on September 18. There is also some anxiety about who will be the next Fed chairman (or woman).

    Yet there are other upcoming concerns that the markets seem to be worried about, as well they should. Certainly, the continued rise in interest rates is a serious issue for the markets and the economy. The yield on 10-year Treasury notes has soared from 1.6% back in May to near 3%. Long bond yields are nearing 4%. Investors don’t know what lies ahead.

    The markets are also starting to factor in the looming battle in Washington over the federal budget for FY2014, which begins on October 1. President Obama vows he won’t negotiate this time around. Also, there is another battle over the debt ceiling coming by mid-October and yet another threat of a government shutdown.

    We'll look into all of these issues today and how they may affect the markets.

    But before we get into those issues, let’s examine last Friday’s jobs report for August. The White House and the media hailed it as a success since the headline unemployment rate fell from 7.4% to 7.3%. What they failed to point out was the decline occurred because a lot more folks dropped out of the labor market. Truth is, the report was once again a disappointment.

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  • How Syria Could Spark New Middle East War

    What does the stand-off in Syria have to do with the investment markets? Potentially, a lot. As I have argued in recent weeks, if the Middle East devolves into another military quagmire, it could be quite bearish for the US stock and bond markets going forward. That’s why we will talk about the implications today.

    President Obama is hell-bent on attacking Syria for gassing over 1,400 innocent citizens on August 21. Normally, it would not be unusual for an American president to want to respond to such a humanitarian outrage. But it is still not clear why this liberal president – who’s mandate was to get us out of war – is now so intent that we need to attack Syria militarily.

    We begin our analysis today by briefly examining how the civil war in Syria began and why. From there, we examine whether the US has any justified reasons to get involved or to punish Syria’s president Bashar al-Assad for the recent chemical attacks on his own people. For whatever reasons, President Obama initially felt that he alone had the authority to take the US to war with Syria, and made plans to do so last week.

    However, an NBC poll released last Friday revealed that almost 80% of Americans believe that the president must get congressional approval before taking the nation to war. Other polls showed that a majority of Americans don’t want the US to attack Syria, period. So on Saturday, Obama backed down and said he would wait for Congress to have its say next week.

    But before we get to that discussion, let’s take a quick look at the latest economic reports, including last Thursday’s 2Q GDP estimate, which was revised up from 1.7% to a more healthy 2.5%, and a few other recent reports. Let’s get started.

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