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  • Fed: Almost Half of US Households Have Under $400 Saved

    We begin today by looking at the recently released Federal Reserve study on the economic conditions of 50,000 randomly-selected US households. This annual survey attempts to capture a snapshot of the financial and economic well-being (or not well-being) of US households. Let me warn you upfront that some of the findings are really bad.

    Following that discussion, I will reprint a recent study by FORBES which concludes that Americans who make over $100,000 pay almost 80% of all federal income taxes. That’s right. According to IRS data, Americans earning over $100,000 paid 79.5% of federal income taxes for 2014. This proves that top income earners pay more in income taxes than those who earn less.

    Finally, I have two great opinion pieces in SPECIAL ARTICLES at the end that everyone should read, regardless of who you will be voting for in November.

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  • Will The Fed Raise Rates Tomorrow? Probably Not

    The Federal Reserve’s policy setting body, the Fed Open Market Committee (FOMC), is meeting today and tomorrow, and there is widespread speculation over whether or not the Committee will vote to raise the Fed Funds rate a second time since lift-off in December.

    Late last year the Fed signaled that it intended to raise the Fed Funds rate four times in 2016, most likely at the March, June, September and December FOMC meetings. Yet the Fed could not have anticipated the global stock market debacle that ensued at the beginning of this year and into February.

    Given the large and unexpected global equity sell-off we saw in January and early February, most Fed-watchers recently concluded that the FOMC would abandon its plans to hike rates four times this year. Many even speculated that the Fed might reverse course and lower the Fed Funds rate back to near zero. Some even suggested the Fed should implement another round of quantitative easing (QE).

    I have been among those who have suggested the Fed should delay any further interest rate hikes until the economy shows more signs of improvement. However, a recent economic report will make it much harder for the Fed to delay another rate hike tomorrow. That will be our main topic today.

    Following that discussion, I’ll have more to say about negative interest rates, the War On Cash and a summary of Stratfor.com’s latest analysis regarding this very concerning global trend. Let’s get started.

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  • Fed Set To Pull Trigger Tomorrow - A Good Thing Or Bad?

    The Fed Open Market Committee (FOMC) which sets US monetary policy convened in Washington this morning for its last meeting of 2015. It is widely expected that the Committee will vote to hike the key Fed Funds rate for the first time in almost a decade before the meeting concludes tomorrow.

    The FOMC slashed the Fed Funds rate from 5.25% in late 2007 to near zero by late 2008 during the financial crisis and recession. It has kept the key lending rate at 0.00% to 0.25% ever since in an effort to stimulate the economy, in addition to buying an unprecedented $3.7 trillion in Treasuries and mortgage-backed securities in a process known as “quantitative easing" or QE.

    It is not entirely certain that the FOMC will hike the Fed Funds rate tomorrow, but that is the prevailing consensus. Based on the minutes from the last FOMC meeting in late October, which were released on November 18, it is clear that Fed Chair Janet Yellen has a majority of FOMC voting members ready to support a rate hike if she chooses to do so.

    It is also not entirely clear how much the Committee might raise the Fed Funds rate should it decide to enact “lift-off” tomorrow. The prevailing consensus is that the first rate hike would be only 25 basis points (0.25%), but the Fed has provided very limited guidance as to the size of the expected increase. Assuming the rate hike is only 25 bips, the other question is from where – the Fed Funds rate is currently just under 0.15%.

    There are strong arguments on both sides of the lift-off issue. Many believe the Fed has already waited way too long to start normalizing interest rates and are adamant that lift-off should begin tomorrow. Many others, however, believe that the economic recovery is still too weak and the Fed should delay lift-off until sometime next year at the earliest.

    It is these two arguments that we will discuss today, ahead of tomorrow’s key decision. But before we get to that discussion, let’s do a quick review of the makeup of the Fed Open Market Committee, the most powerful monetary policy body in the world.

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  • Upcoming Debt Ceiling Fight Could Get Really Ugly

    Today we will focus initially on the upcoming battle over whether to increase the US debt ceiling. The government reached the current statutory debt limit of $18.1 trillion back in March. Since then, the Treasury has been paying the nation's bills by using so-called "extraordinary measures." But the Treasury warned recently that such funding will be exhausted by November 5, and that means another debt ceiling battle will play out between now and then.

    While we've seen this movie before and know how it will ultimately end, the political battle in the coming weeks could get really ugly, especially now that House Speaker John Boehner has announced that he is stepping down soon. With a lack of leadership in the House, this year's debt limit circus could be especially unsettling for the stock and bond markets.

    Next, we turn to the question of whether a recession is likely just ahead. While the economy grew by a better than expected 3.9% in the 2Q, more and more forecasters are downgrading their outlook for the second half of this year. The number expecting a recession in the months ahead rose sharply in a survey by Bloomberg at the beginning of this month. The good news is that about 85% of economists surveyed do not expect a recession to begin this year.

    As usual these days, there's a lot to think about - so let's get started.

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  • The Economy Surges Higher, But Is It For Real?

    Today we look at last Friday’s better than expected final report on 2Q GDP, which was revised from 3.7% to 3.9%. Best of all, this increase was largely due to increased consumer spending which accounts for almost 70% of GDP. Following the paltry 0.6% increase in GDP in the 1Q, this means the economy grew by 2.25% in the first half of this year.

    While a 3.9% jump in economic growth in the 2Q was welcome news, there is a growing consensus that such reports from the government may not be remotely accurate. The problem is, many agree, that the government’s “seasonal adjustments” to the monthly and quarterly data have gotten out of control, and the numbers reported are no longer reliable. We’ll talk about this below.

    Next, we’ll look into what many are calling a “flip-flop” on the part of Fed Chair Janet Yellen in the last two weeks on the subject of when short-term interest rates are likely to be raised. At the Fed’s latest policy meeting on September 17, they decided to postpone the first rate hike in nearly a decade, seemingly indefinitely. But then last Thursday, Yellen said lift-off will happen before the end of this year, and this sparked the latest selloff in the equity markets. So, what gives?

    I will close today with a few thoughts about the SuperMoon, BloodMoon and lunar eclipse we saw on Sunday night. I hope you got to view it.

    And finally, our latest WEBINAR with ZEGA Financial is now available for viewing on our website. ZEGA’s strategy for using options is one of the most interesting I have ever seen.

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  • On The Fed, Deflation, Government Shutdown & The Moon

    Once again this week, we touch on a variety of topics that piqued my interest over the last week. We begin with some further analysis of the Fed’s controversial decision to hold interest rates near zero last Thursday. While this was the topic of my Blog last Thursday, I have more analysis today that I think you’ll find interesting.

    One thing I conclude from the Fed’s decision last week is that Fed Chair Janet Yellen and a growing number of her colleagues are worried about deflation spreading to the US. Since most Americans living today have never experienced a prolonged period of deflation, we should talk about it at least briefly to understand why falling prices are bad for the economy.

    Next, as much as I hate to bring it up, we could be facing yet another government shutdown at the end of this month. Fiscal Year 2015 ends one week from tomorrow, and Congress has not passed a budget for FY2016. As a result, the government could effectively shut down starting on October 1. Here we go again.

    From there, we look at a new report which finds that the $13 trillion in government “debt held by the public” equals a record $107,000 per US household. Yet if we include all of our national debt of $18.4 trillion, that number goes up to over $150,000 per household.

    Finally, a rare combination of celestial events will grace the night sky later this month. NASA says a SuperMoon, a BloodMoon and a lunar eclipse will take place on the night of September 27, this coming Sunday. This rare event has happened only five times since 1900, most recently in 1982, and there won't be another one until 2033. Read about it at the end of today’s E-Letter so that you won’t miss it this Sunday night.

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  • On The Economy, Inflation, China & Odds For Fed Liftoff

    The investment markets remain fixated on whether the Fed will hike interest rates for the first time in almost a decade on September 17. Stock market volatility spiked in late August and so far this month, with most global equity markets in “correction” territory. It remains to be seen if the latest stock market chaos will cause the Fed to delay lift-off until December or later.

    Other than global equity market weakness and below target inflation, other factors that would lead the Fed to tighten are in-line, although last Friday’s unemployment report for August could have been stronger. Today, we will examine the August jobs report, the strength of the US economy in general, inflation trends and the outlook for the US dollar. We’ll also take a look at the latest disappointing economic news out of China.

    We’ll end today with a look at the Fed Funds rate futures market to see what the probability is for a rate hike next week. At the end of last week, Fed Funds futures indicated an 81% chance of a rate hike on September 17, up from a 74% chance in August.

    It’s a lot to pack into one E-Letter, so let’s get started.

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  • Population Growth & Productivity Headed in Wrong Direction

    Today we’ll focus on some longer-term economic data which shows, unfortunately, that the US economy is in a multi-decade slide that will be very difficult to reverse. Population growth and worker productivity – the keys to sustained economic growth – are both in decline, trends that are not likely to change anytime soon.

    US Gross Domestic Product averaged 3.74% annual growth from 1950 to 1990, but has since  slowed dramatically to average only 2.21% from 2010 to 2014. Even worse, worker productivity that averaged 2.5% annual growth from 1948 to 2007 has been slashed by over 50% to only 1.2% annually from 2010 to 2014.

    Throughout its history, the US has been a productivity powerhouse. US worker productivity growth averaged around 3% annually during the period 1996-2004, but fell to 1.5% in 2005-2012, and more recently has slipped even further to just above 1%.

    What’s at stake is the very future of America. Without faster growth, the US can’t create enough jobs for those who want them, and Americans will have to get used to much smaller increases in their paychecks. The middle class will likely shrink even more, and the poor would be even worse off. Are we doomed to a dimmer future?

    The question is, what can be done to reverse these troubling trends? The answers are not simple, nor politically correct in most cases. Another question is, do any of the politicians running today have the knowledge and/or conviction to tackle these critical problems?

    That’s what we will talk about today. But before we get to that discussion, let’s look at the Fed’s latest prediction for the economy in the 3Q. The latest GDPNow forecast will surprise you.

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  • Stock Markets Have Stalled Since March - Now What?

    The major stock indexes (Dow, S&P 500, Nasdaq) have gone virtually sideways since March. Yes, there was the brief day or two in May when all three indexes recorded new record highs, but then promptly sold off sharply. This suggests that there is a lot of overhead resistance just above current levels. As a result, the natives are getting restless! And for good reason. Today I have reprinted a very good report from a seasoned stock market analyst who points to a number of key factors that are weighing on the stock market presently, factors that most investors pay little or no attention to. His point is that it may be very difficult for the stock markets to break out of the recent trading range to the upside. For that reason, we could be headed for a serious downward correction - the likes of which we haven't seen since September/October of last year or worse. I think you'll find his analysis very interesting. Following that discussion, I will give you my latest thoughts on when the Fed will raise interest rates - what with so much attention focused on that question. And there's a possible new twist as to how the Fed may go about announcing and then actually implementing the first rate hike that you'll find interesting (or maybe too cute). Finally, the World Bank released its mid-year economic projections last week and downgraded its 2015 forecast for the US. No surprise there, at least not for me and my readers. What was most interesting was that the World Bank joined the IMF in asking the Fed not to rai

    The major stock indexes (Dow, S&P 500, Nasdaq) have gone virtually sideways since March. Yes, there was the brief day or two in May when all three indexes recorded new record highs, but then promptly sold off sharply. This suggests that there is a lot of overhead resistance just above current levels. As a result, the natives are getting restless! And for good reason.

    Today I have reprinted a very good report from a seasoned stock market analyst who points to a number of key factors that are weighing on the stock market presently, factors that most investors pay little or no attention to. His point is that it may be very difficult for the stock markets to break out of the recent trading range to the upside. For that reason, we could be headed for a serious downward correction - the likes of which we haven't seen since September/October of last year or worse. I think you'll find his analysis very interesting.

    Following that discussion, I will give you my latest thoughts on when the Fed will raise interest rates - what with so much attention focused on that question. And there's a possible new twist as to how the Fed may go about announcing and then actually implementing the first rate hike that you'll find interesting (or maybe too cute).

    Finally, the World Bank released its mid-year economic projections last week and downgraded its 2015 forecast for the US. No surprise there, at least not for me and my readers. What was most interesting was that the World Bank joined the IMF in asking the Fed not to raise interest rates until sometime next year. That raises the question: Is Janet Yellen listening?

    se interest rates until sometime next year. That raises the question: Is Janet Yellen listening?

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  • IMF Urges Fed Not To Raise Interest Rates Until 2016

    On Thursday of last week, the International Monetary Fund downgraded its forecast for US economic growth this year from 3.1% earlier in the year to only 2.5% now. That is not surprising in light of the mainly disappointing economic reports we’ve seen recently, and other forecasters have been revising their estimates lower as well.

    Yet in addition to the downwardly revised growth forecast, the new IMF report openly called on the Federal Reserve to delay any interest rate hike until sometime next year. In all of my years of Fed-watching, I don’t remember the IMF ever trying to influence Fed monetary policy. This is an unusual development, and it will be very interesting to see how it plays out.

    The question is whether Fed Chair Janet Yellen and her fellow members of the policy setting Committee pay much, if any, attention to what the IMF has to say. We all know that the Fed really wants to raise short-term rates to give it some ammunition for the next recession.

    This apparent disagreement is between two of the most powerful women in the world – Christine Lagarde, head of the IMF, and Fed Chair Janet Yellen. This issue will be our main topic today.

    But as we often do, let’s first take a look at Friday’s stronger than expected unemployment report for May and the latest disappointing report on consumer spending.

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  • Why The US Unemployment Rate May Be Wrong

    Last Friday’s unemployment report for March was a stunner, no doubt about it. After 12 consecutive months of new job creation above 200,000 per month, the Labor Department reported that only a meager 126,000 new jobs were created in March.

    Theories abound as to the cause of the huge drop-off in new jobs last month, but the default reason cited, once again this year, is the severe winter weather. While bitter winter weather is a factor, questions arise as to whether this could be a sign of worse things to come in the US economy.

    We will focus today on the latest disappointing unemployment report and examine what the internals of the latest missive might mean for the economy, and for the Fed’s timing of its first interest rate hike.

    Following that discussion, I want to shift our sights to a new study which suggests that the government’s official unemployment rate, currently 5.5% is significantly lower than reality. This new study concludes that the real unemployment rate in America today is somewhere between 7% and 9% or even higher. I think you’ll find this discussion compelling.

    But before we get to today’s main topic on the latest unemployment report, I want to briefly share with you a new and disturbing economic forecast from none other than the Federal Reserve itself.

    At the end of March, the Federal Reserve Bank of Atlanta released a new forecast for US GDP growth of 0.0% for the 1Q. This surprising new forecast from the Fed itself has sparked a spirited new debate on the subject of where the US economy is headed this year.

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  • Americans Even More Pessimistic Ahead of Elections

    We cover a lot of ground in today's E-Letter. We begin with the latest Wall Street Journal/NBC News poll which found that the Republicans have risen to an 11-point lead among “likely voters.” That’s up from only a 5-point lead a week earlier. Some 52% of likely voters want a Republican-led Congress, while 41% favor Democratic control.

    Voters’ excitement about the campaign hasn’t increased as Election Day approaches, defying the trend in recent years. The share of voters who see the country on the “wrong track” has reached the highest level ever in a midterm election year, at 65%,versus only 25% who believe the country is moving in the "right direction." With so many disillusioned voters out there, we could be in for a surprise on Election Day.

    The same WSJ/NBC poll found support rising for the use of US ground forces to fight the Islamic State terrorists. Some 35% in the new survey said military action against the group should be limited to air strikes, with 41% saying it should include combat troops as well. A month earlier, some 40% called for airstrikes only, with only 34% saying the US should use combat troops as well as air strikes.

    Recently, President Obama has been making some flowery speeches about how the economy is doing just great. To rebut the president's argument, I offer over 20 reasons why the economy is nowhere near as healthy as he claims. The American people know this, and it could have a big effect on the elections next Tuesday.

    The Fed Open Market Committee meets today and tomorrow. There has been talk that in light of the recent stock market meltdown, the Fed might decide to continue its QE bond buying program a little longer. I don't buy it, especially now that the stock markets have mostly recovered. I expect the FOMC will vote to end QE tomorrow.

    On Thursday morning, we get the first look at 3Q Gross Domestic Product. The pre-report consensus for the advance GDP report is 3% (annual rate), following the 4.6% rise in the 2Q.

    In my blog on Thursday, I will analyze the Fed's latest decision on QE and share my thoughts on the GDP report. If you haven't subscribed to my free weekly blog, CLICK HERE.

    Finally, Debi and I went to New York City recently to visit the 911 Memorial and Museum. Let me just say that they were both incredible! I have more details at the end of today's letter.

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  • Fed Forecasts Sub-3% Economy for the Next Three Years

    The Fed’s policy committee announced last Wednesday that it will end its massive QE bond buying program at the end of next month, thus paving the way for the first Fed funds rate increase sometime next year. This was not a surprise. The Fed’s gargantuan balance sheet will peak near $4.5 trillion in Treasury and mortgage-backed bonds at the end of October.

    What was surprising in the Fed’s data release last Wednesday was the downward revisions to its economic forecasts for 2014, 2015 and 2016. Furthermore, in its first-ever forecast for 2017, the Fed expects GDP growth of only 2.3% to 2.5% that year. In the wake of the Fed’s forecast downgrades last week, private economists are revising their estimates lower as well.

    On the bright side, Americans’ combined wealth posted a new high in the 2Q, a development that might shift the economy into a higher gear. The net worth of US households and nonprofit organizations rose about $1.4 trillion between April and June to a record $81.5 trillion, according to a new report released by the Fed last Thursday.

    This Friday, we get the latest estimate of 2Q GDP. In late August, the government estimated that the economy grew by a stronger than expected 4.2% (annual rate) in the 2Q. The pre-report consensus for Friday’s report suggests another jump to 4.6% in the final estimate. Most forecasters attribute the strong 2Q reading to the severe winter weather in the 1Q that pushed many activities into the April-June quarter. In other words, the 2Q was a “catch-up” period, and most economists expect slower growth for the second half of this year.

    Finally, I offer three recommendations to kick-start the economy at the end of today’s E-letter. I trust that most clients and readers would heartily agree with me. Unfortunately, the current occupant of the White House does not.

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  • Out of Control Federal Regulations Stifle Economy

    Today we focus on the costs to consumers of out-of-control federal regulations. While government regulations have increased for decades, the issuance of such new laws has exploded in recent years under the Obama administration. This regulatory maze is taking a serious toll on the economy, as I will discuss below.

    Most Americans are unaware that the government issued over 3,600 new regulations in fiscal year 2013 alone! Likewise, most of us have no idea that this rising regulatory burden costs the economy up to $2 trillion each year. This is regulatory overkill, and it’s no wonder then that this economic recovery is so weak. That’s our main topic today.

    The Fed Open Market Committee is meeting today and tomorrow, and the focus is on whether the Fed will hint at when it might implement the first interest rate hike in almost eight years. The latest FOMC policy statement will be released tomorrow afternoon, and I will report on it in my blog on Thursday. If you have not subscribed to my free weekly blog, go here (http://garydhalbert.com).

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  • Fed’s Getting Anxious About Interest Rate "Liftoff"

    While I have been a Fed watcher for over 30 years, rarely have I seen as much media angst over the central bank’s next move as we are seeing today. We all know that the Fed is going to raise short-term interest rates at some point. We expect the Fed to “normalize” interest rates slowly in measured steps over the next few years. The main question is, when does this process begin?

    The other question is, what effect will the eventual interest rate increases have on the stock and bond markets and the economy? While the Fed has made it clear that it intends to end its “quantitative easing” (QE) policy by late October, and that it will start to raise rates sometime next year, stocks and bonds have been on an upward tear all year. Stocks are at record highs, and bond prices have risen when most forecasters expected them to go down.

    When Janet Yellen took over as Fed Chair earlier this year, she suggested that the Fed would not begin to raise short-term rates until at least six months after QE ends. Most analysts assumed that meant no interest rate hike until at least April or May of next year, or even later. However, the minutes from the July 29-30 Fed policy meeting released last week suggested that several FOMC members think a rate hike should occur sooner.

    This revelation (dare we call it that) set off quite the buzz among financial writers over the last week. The concern is that if the Fed raises interest rates too early, that could choke off the feeble economic recovery. Yet while some financial analysts sounded alarm bells over the possibility that the Fed’s interest rate hike might happen sooner than expected, the markets seemingly could care less. That’s part of what we’ll talk about today.

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