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  • More Americans on Government Dole Than Ever


    1. GDP Growth in the 1Q Was Disappointing

    2. The Fed's Decision & the Press Conference

    3. Editorial: A Tale of Two Recessions

    4. Reliance on Uncle Sam Hits a Record

    5. Unemployment Devastates Savings - and Benefits


    Our main topic this week is a new report from USA TODAY which found that Americans depended more on government assistance in 2010 than at any other time in the nation’s history, based on federal data. A record 18.3% of the nation's total personal income in 2010 was a payment from the government for Social Security, Medicare, food stamps, unemployment benefits and other programs.

    Yet before I get into our main topic, there has been some important news on the economy and the Fed since last week's letter. Last Thursday's initial report on 1Q GDP was considerably weaker than expected. The government reported that 1Q GDP rose at an anemic annualized rate of only 1.8%, as compared to 3.1% in the 4Q of 2010.

    The Fed's monetary policy committee met last week and decided that the latest round of quantitative easing (QE2) will end in June as scheduled, and that no new QE3 is in the works. They also announced that short-term interest rates will remain near zero for an extended period. And Fed Chairman Bernanke continued to maintain that he believes rising inflation is temporary. I'll have more details below.

  • Will Obama Tax the Middle Class? YES!

    Despite all of the rhetoric coming from Washington, the middle class should be gearing up for a major tax increase to fund Obama's vision of American entitlement. How do I know this? Because the "rich" that President Obama talks so much about simply don't have incomes large enough to fund all of the future deficits, even if you had marginal tax rates of 100%!

    That's why many liberal studies switch from talking about income to talking about wealth, since this results in a larger number. However, as we all know, income taxes are based on income, not wealth, so any evaluation of tax revenues in relation to wealth is at best misleading and at worst, a deliberate lie.

    This week, I'm going to review the latest available income tax information to see exactly who is paying income tax and who isn't. I'll then show you how that "soaking the rich" simply wouldn't result in enough money to materially affect our mounting deficits and national debt. I'll finish by talking about Standard & Poor's recent shocking announcement about the US debt rating, and the likelihood of anyone actually getting the message in Washington. It's not a pretty story, but it's one you definitely need to know about.

  • Forecasts for 2011 Continue to Improve, But...

    This week we look at two new economic forecasts for the US in 2011.  The Wall Street Journal recently released its annual survey of more than 50 leading economists and forecasters, and I will summarize the findings for you.  Also, we'll look at the latest findings from the Blue Chip Economic Indicators which surveys 50 well-known economists.  In both surveys, the majority of analysts believes the US economy will grow by more than 3% this year (3.3% per the WSJ and 3.1% per BCEI).

    Surprisingly, to me at least, both surveys suggest that inflation will remain below 2% for all of 2011.  Given the explosion in food and energy prices, that sounds low to me.  Also, the results of both surveys are based on the assumption that there will be no new negative surprises or "Black Swans" in 2011.  I certainly would not make that assumption, especially with home foreclosures hitting new highs and the unemployment rate expected to remain above 9% for most of the year.

    While the latest survey averages suggest GDP growth will be over 3% this year, there were plenty of forecasters cited that believe the economy will grow by less than that rate in 2011.  I will analyze the reasons why the economy may fall short of 3% growth this year.  And finally, we take a look at some possible Black Swan events that could arise this year.  It should all make for an interesting E-Letter.

  • Has the Liberal Economic Experiment Failed?


    Monday holidays always cut into our writing time, so this week we have elected to reprint one of the more interesting articles I have read recently.  I think you will like it unless you are a big Obama fan, in which case, you’ll probably find it disappointing.  In any event, I think this piece is spot-on as we close in on the mid-term elections.

    Following that article, I will update you on the performance of Hg Capital’s Long/Short Government Bond Program which has continued its winning ways in 2010 following its record year in 2009.

  • Federal Workers Make Twice That of Private Sector


    1. Federal Employee vs. Private Sector Compensation

    2. 2Q GDP Expected to be Revised Even Lower

    3. Results From Our Recent Client Survey

  • Treasury Bonds - The Next "Lost Decade?"

    Much has been written about the 'lost decade' in stocks, a 10-year period (2000-2009) in which the major stock indexes produced a negative return. This dismal performance may be one of the reasons that retail investors are flocking into bond mutual funds, according to data from the Investment Company Institute.

    However, there are some analysts who are predicting that the next 'lost decade' may be in bonds, and especially long-term Treasury bonds which are usually more susceptible to interest rate movements. With interest rates at all-time lows, it would seem that yields have nowhere to go but up - pushing bond prices down. The bottom line is that retail mutual fund investors may be setting themselves up for another extended period of low, or even negative annualized performance.

    This week, I'm going to discuss some of the reasons why bond investors may be setting themselves up for disappointing results. I'll also revisit a bond investment that has the ability to trade long-term Treasury bond mutual funds on both a long or short basis, providing the potential for gain no matter what long-term Treasury yields do in the future. You'll definitely want to read about his program, and even attend our upcoming webinar this Thursday featuring this innovative Treasury bond investment program.

  • Financial Reform or Government Takeover Revisited

    The sweeping new financial regulatory bill was signed into law last Wednesday by President Obama. It will create a huge new government bureaucracy over the next year or so including 13 brand new federal agencies employing thousands of new government workers. The heads of these agencies will be appointed (not elected) by the president. These agencies will have the power to seize any companies that they deem to have 'systemic risk' and liquidate them if they so choose. One specific agency will have the right to demand any and all information from financial companies, including your personal account information, and it will have subpoena power over any firms that don't cooperate.

    The vast new reform law does not solve the 'too-big-to-fail' problem; in fact, it institutionalizes it. Likewise, the new law does not at all address Fannie Mae and Freddie Mac, both of which continue to lose billions every month. The reform law will create a new Bureau of Consumer Financial Protection, which will have the authority to write rules for consumer protections governing all financial institutions – banks and nonbanks – that offer consumer financial products or services. While some financial reforms are needed, this giant new bureaucracy will cost taxpayers and financial firms billions every year, and these costs will be passed down to their customers like you and me.

    There is probably nothing we can do to stop this new law and replace it with something smaller and more focused, but I wanted you to know the facts about this new bureaucracy. Suffice it to say, Big Brother just got a whole lot bigger!

  • Is Your Local Bank in TARP Trouble?

    We can all remember the credit crisis back in late 2008 and President Bush's $700 billion Troubled Asset Relief Program (TARP). Most people assumed this huge bailout program was primarily for the big Wall Street banks, but hundreds of small community banks received TARP money as well. While almost all of the big banks have paid back their TARP loans, over 600 small banks have not been able to do so.

    A new congressional study this month reveals that these 641 mostly community banks don't have the capital to repay their TARP loans, and indicates that the government will not bail them out again. According to the new report, these banks that can't repay their TARP loans will have to be merged with larger banks or go out of business.

    This dilemma reminds us that small and regional banks are overloaded with commercial real estate loans, many of which are past due on their payments, and the properties that collateralize these loans have significantly declined in value during the recession. While I have written about the commercial real estate debacle earlier this year, it is time to revisit this topic in light of the problems facing many small banks around the country.

    Last but not least, I will announce our upcoming Internet webinar with Hg Capital on August 4 at 1:00 PM Eastern time (10:00 Pacific time). Hg's founders will discuss in detail their Long/Short Government Bond program that knocked the lights out in 2009. This is a great opportunity to learn how to take advantage of the bond market, what with interest rates at the lowest point in the last 50 years. Be sure to sign up for this Internet event that is free of charge and you can listen and watch on your computer wherever you are.

  • Largest Tax Increase in US History

    I reported last week that the Consumer Confidence Index plunged unexpectedly in June, and forecasters are still trying to figure out why the mood of the country turned so sour last month. Part of the reason is the fact that the Bush tax cuts of 2001 and 2003 are set to automatically expire at the end of this year. President Obama has said that he wants to extend the Bush tax cuts for all Americans except those households making $250,000 or more per year. Yet the legislation to extend the Bush tax cuts for all but the 'rich' is stalled in Congress, and Americans are worried that we will see the largest tax increase in history in 2011.

    We will also examine in detail why raising income taxes on the 'wealthy' is bad news for small businesses and job creation, especially with our fragile economy and high unemployment. For example, do you know that two-thirds of small business profits are generated by households making over $250,000 per year? That's according to the IRS. With taxes on this group set to rise from 35% to 39.6% next year (actually to 40.8% with the phase-out of itemized deductions), it's no wonder that small business owners are reluctant to hire new workers. President Obama has yet to figure out that soaking the rich does NOT result in higher income tax revenues.

    And at the end of this week's E-Letter, I will give you the results from our recent FINANCIAL LITERACY QUIZ. Over 6,000 readers took the quiz and most scored very well. Congratulations! I think you'll find the results very interesting.

  • Headed For a Double-Dip Recession?

    This week, we focus on the latest outlook for the US economy. As you are no doubt aware, the consensus view of the economic recovery has dimmed over the last month, especially with the latest disappointing 1Q GDP report on Friday, June 25. While consumer spending increased very modestly in May (latest data available), bank lending remains in the tank. Unless lending improves, the economic recovery will be disappointing at best, and a double-dip recession is clearly a possibility in 2011.

    Following that discussion, we will look into the new financial regulatory bill which is expected to be passed by Congress any day now. While I have been an outspoken advocate for financial regulatory reform (see my April 20 E-Letter), the huge new reform bill is lacking and even negative on several fronts. It will not eliminate 'too-big-to-fail' and it will not preclude an even more serious financial crisis in the years ahead. About all it does is to greatly increase the size of government. Surprise, surprise!

  • Keep Your Healthcare Plan? Probably Not!

    During the 2008 presidential campaign, candidate Barack Obama promised that, if elected, he would press for some form of nationalized healthcare. Time after time, he assured Americans: 'If you like your healthcare plan, you can keep it; if you like your doctor, you can keep your doctor.' Many in Congress promised the same thing as they crafted the sweeping healthcare legislation that ultimately passed in March.

    Yet on June 14 the Obama administration released an 83-page document which indicates that over half of all employer-provided health insurance plans will be effectively eliminated between now and 2014 because of the new healthcare law. For small businesses, it's even worse. The Obama administration's own estimates indicate that 66% or more of small businesses will abandon their healthcare insurance plans by the time ObamaCare kicks in on January 1, 2014.

    This week, we will look into the many new and onerous rules, regulations and restrictions in the latest 83-page report from the Obama administration. The bottom line: If you get your health insurance through your employer, or if you are (like me) the owner of a business that provides health insurance to its employees, you need to read what follows very carefully. We've all been lied to!

  • A Nation of Financial Illiterates

    Recent studies have concluded that a majority of Americans cannot answer even basic economic and investment questions correctly. One such study found that only 27% of people age 23 to 28 could correctly answer three very simply economic and investment questions. That means 73% of this demographic group are financially in the dark.

    The implications of this lack of financial literacy are far-reaching. From a personal financial standpoint, the studies document that those who lack basic economic and investment knowledge tend to make poorer financial decisions. Plus, how can we expect to elect fiscally responsible representatives when the majority of the electorate do not understand the economic consequences of deficit spending and spiraling national debt?

    Because financial knowledge is more important now than ever before, I have reprinted one of the financial literacy tests in this week's E-Letter. I encourage you to not only take the test yourself, but also forward this E-Letter on to your adult children and grandchildren to see how they fare. I'd also be interesting in getting feedback on how you and your loved ones did on the test.

  • Can the GOP Take Back Congress in November?

    A week ago today, we had several key House and Senate primary elections, and now we know most of the match-ups for the November 2 mid-term elections. We have analyzed the latest poll results since last week's primaries, and we are surprised to see just how many Democrats are likely to lose their seats this November, or are in the 'toss-up' category, and how few Republican seats are likely to be lost.

    The main reason for the Democrats' dilemma is the 'anti-incumbent' fervor that is sweeping the country. And with the Dems holding large majorities in the House and Senate, they are squarely in the crosshairs of American voters who are still mad about them ramming ObamaCare down our throats. Some Republicans incumbents are in trouble too, but as the minority party, and with zero votes for ObamaCare, their losses look to be much smaller.

    This week, we will summarize the latest poll results for the mid-term congressional elections using data from the independent to help you get a clear picture of the election trends as they stand now. This week's E-Letter should be insightful no matter which political party you support.

  • America's National Debt Tops $13 Trillion

    With relatively little fanfare in the media, the US national debt cruised above $13 trillion last month. The federal budget deficit for fiscal 2010 is projected to reach a record $1.5 trillion by September 30, and will be above $1 trillion in fiscal 2011 as well. President Obama's own budget projections show that our national debt will swell by almost $10 trillion more over the next 10 years.

    This out-of-control spending has caused both the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) to formally call for the Obama administration to curb its budget deficits. In response, President Obama has created a 'Debt Commission' to study ways to reduce the deficits. Don't be surprised if this commission concludes that the only way to fix the problem is a 'Value-Added Tax' (VAT).

  • Lucky or Smart? A Tale of Two Terrorist Attacks

    This week, I'm going to be discussing something that may be a bit controversial, but needs to be said. Over the span of just a few months, we have been lucky enough to escape two major terrorist attacks - one on a Northwest Airlines flight on Christmas Day, and the other in Times Square in New York on May 1. Had either of these attacks been successful, we could have seen the loss of hundreds, if not thousands of innocent American lives.

    And luck is the operative word. Neither of these attempted attacks was thwarted by law enforcement but, instead, failed because of the poor execution on the part of the would-be terrorists. While the Heritage Foundation has documented 31 terrorist attacks that have been thwarted in one way or another by law enforcement, that was not the case in these last two botched attacks.

    This week, I'm going to explore the uncomfortable idea of what if these attacks had been successful? How might our elected officials, the media and even the markets be different had one or both of these attacks succeeded? Then, I'll discuss the most uncomfortable question of all - what if we're not so lucky next time?

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