December 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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  • 2013 - Good Year Or Good Riddance?

    It’s New Year’s Eve, so I thought it might be interesting to look at some recent polls to get a sense of how Americans feel about how things went in 2013 and what they considered to be the most important news stories of the year.

    We’ll start with the most recent Associated Press-Times Square polls which asked a wide range of questions about Americans’ views of how 2013 turned out, and a host of other interesting questions and findings.

    We’ll also look at some polling averages from RealClearPolitics, including the “Right Track, Wrong Track” poll on the direction the country is headed. In addition, we’ll look at President Obama’s latest approval/disapproval ratings, as well as those for Congress (think ugly).

    Next, we’ll browse through a bunch of new polls from Rasmussen which cover a wide range of consumer concerns that I think you’ll find interesting.

    Finally, we’ll look at some recent polls that suggest how most Americans feel about the economy in 2014. Surprisingly, almost half of those polled think 2014 will be better than 2013. That’s easy to say when responding to a poll, but as I have discussed in recent weeks, we must see a rebound in consumer confidence if this economy is to get back on the right track.

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  • Economy Surprises On The Upside, But Is It Real?

    In today’s abbreviated holiday E-Letter, we’ll look at last Friday’s surprising report on 3Q GDP. In its third estimate of 3Q GDP, the Commerce Department reported that the economy surged by more than anyone expected. Given the surprisingly strong numbers, more than a few are questioning the report’s accuracy and wondering if it will be revised lower in January.

    One reason for all the questions revolving around Friday’s strong GDP report is the fact that consumer confidence plunged in October and November and has yet to recover. Since consumer spending accounts for 70% of GDP, the recent drop in consumer confidence has to rebound if the economy is to accelerate.

    Even if last Friday’s super-strong GDP report proves to be accurate, today’s economy certainly doesn’t feel like one that is growing at an annual rate of over 4%. While some areas of the economy are improving, only 24% of Americans believe economic conditions are getting better, while nearly 40% say the nation’s economy is actually getting worse. Today we’ll talk about why consumer confidence has tanked even as the economy is seemingly improving.

    On a different front, the Fed moved last Wednesday to reduce its $85 billion in monthly bond and mortgage purchases to $75 billion starting in January. I discussed the details of the Fed’s latest policy announcement in my blog on Thursday. The burning question now is: How quickly will the Fed phase-out its QE purchases altogether? I’ll tell you what the latest thinking is in today's holiday letter.

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  • Fed May Have An Unexpected Surprise In Mind

    My readers know that the global financial world is waiting with bated breath for tomorrow’s Fed decision on whether to start to “taper” QE purchases now or wait until next year. The Fed’s Open Market Committee (FOMC) is holding its last policy meeting of the year today and tomorrow, and Chairman Bernanke will hold a press conference afterward.

    The latest surveys indicate that most Fed watchers believe the FOMC will wait until next year to taper, but that remains to be seen. What is actually more interesting is some language that was buried in the minutes from the October 29-30 FOMC meeting. The minutes were released on November 20.

    Within those minutes, we find that the FOMC is considering lowering or removing the interest paid to commercial banks on money they choose to leave on deposit with the Fed. The minutes reveal that at the late October policy meeting, the Committee members discussed the possibility that the FOMC might reduce or eliminate the 25 basis-points of interest the Fed pays to big banks that leave excess reserve deposits at the Fed. This is potentially very big!

    Why would the Fed do this? The minutes suggest that the FOMC believes that reducing or eliminating the interest paid to commercial banks would spur those banks to draw down those deposits and use that money to make more loans, thus stimulating the economy – and pave the way for the Fed to start its QE taper. This is extremely interesting. I’ll lay it out for you today.

    But before we get into that discussion, I’d like to analyze the latest two-year federal budget that was passed by the House last week, and may pass the Senate as early as tonight. The bipartisan budget deal was hailed as a major victory by lawmakers and the White House. But as I will explain below, the latest budget deal represents a sell-out by both political parties.

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  • Fed: No More Excuses Not To Taper - Just Do It!

    We had some terrific economic news late last week. The 3Q GDP report and the November unemployment report were so strong that some are wondering if the data are credible, and are likely to be revised lower next month. The government reported that 3Q Gross Domestic Product jumped from 2.8% as reported last month to a whopping 3.6% in its second estimate last Thursday, well above the consensus estimate of 3.1%.

    Then on Friday, we got another stunner. The US unemployment rate plunged from 7.3% in October to 7.0% last month. In addition, the report cited 203,000 net new jobs created in November. Both jobs numbers were significantly better than the pre-report consensus.

    Given that these two key economic reports were so much better than expected, it’s only natural to expect that the discussion would turn to the Fed and the possible implications for “tapering” its monthly QE bond and mortgage purchases. At its October policy meeting, the Fed said it was awaiting better economic news. Well now they’ve got it!

    So, the question now is, will the Fed move to taper at its next policy meeting on December 17-18? I was never a fan of QE in the first place, so in my view there is no question that the Fed should start to taper as soon as possible. That will be the thrust of our discussion today. But let’s start with some details on the latest surprising (but questionable) economic reports.

    I’ll round-out today’s letter with an invitation to attend our next online WEBINAR with one of my favorite money managers of all-time, Wellesley Investment Advisors. This company manages over $1.5 billion in assets and invests in “convertible bonds,” which most investors know very little about – but should. The webinar will be on December 12 at 2:00 PM Eastern Time (11:00 AM Pacific).

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  • Why Household Income Is Down Five Years Straight

    Between 1999 and 2012, the average US household lost over 9% in income. According to the Census Bureau, the median household income was $51,017 in 2012, compared to $55,080 at the peak in 1999. In short, most Americans are working harder but earning less. Today, we’ll look at the data and discuss why this trend continues even though the economy is in a slow recovery.

    In a similar pattern, growth in US worker productivity is also in decline. Productivity grew only 1.5% in 2012 versus 3.3% in 2010. So far this year, productivity is up only 1.9%. While that’s a modest improvement over last year, it’s still quite low. We’ll take a closer look at this problem as we go along today.

    The Bureau of Labor Statistics recently reported that there are over 27 million Americans who are “under-employed.” These Americans include those who are officially considered unemployed, plus involuntary part-time workers and “marginally-attached” workers – those who have not looked for work within the last four weeks. That is a new record high. And you’ll also be saddened to learn that almost half of college graduates work in jobs that do not require a college degree.

    But before we delve into the topics above, I want to alert you to two key economic reports that will be out this week. The second revision of 3Q GDP will be out on Thursday morning, and the November unemployment rate will be announced on Friday. I’ll tell you what to look for below.

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