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  • Stratfor’s Annual Global Forecast for 2011

    Since January is the month for forecasts, today I present you with Stratfor’s global forecast for the New Year which was just released last week. Due to the length of the report, I could not reprint all of it below, but all of the main points are included. I trust you’ll find this forecast very interesting, and as always, I thank Stratfor for allowing me to reprint some of their work from time to time. I highly recommend that you subscribe at Stratfor.com to stay a step ahead of world events.

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  • 2011: More Questions Than Answers?

    IN THIS ISSUE:

    1.  More Questions Than Answers in the New Year

    2.  Long-Term Interest Rates: Correction or New Trend?

    3.  “A Fed-Induced Speculative Blowoff” by John Hussman

    4.  Will US Stocks Continue Higher in 2011?

    5.  Just Getting Back to Breakeven

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  • 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!

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  • 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.

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  • 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.

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  • 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!

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  • 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.

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  • 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 RealClearPolitics.com 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.

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  • 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).

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  • 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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  • Europe's Trillion-Dollar Bailout - Can It Work

    On April 12, the International Monetary Fund (IMF) increased the capacity of its emergency lending fund from $50 billion to $550 billion, a ten-fold increase. Less than a month later, the European Union announced a near $1 trillion bailout fund to aid Greece and any other countries in Europe that may get into trouble. At the same time, the EU announced that the IMF will be chipping in apprx. one-third ($321 billion) of the near $1 trillion bailout. Since the US is the IMF's largest contributor, this means that US taxpayers will be footing part of the bill to bailout Greece and possibly other European countries. Isn't that just dandy! And it gets even worse, so be sure to read on.

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  • The Economy & This Rocky Recovery

    For the most part, the economic reports over the last month or so have been positive, including last Friday's 1Q GDP increase of 3.2% (annual rate). Most economists agree that the recession hit bottom in the middle of last year, and we have now seen three consecutive quarters of positive GDP growth. Yet while it would seem safe to conclude that the Great Recession is over (for now), economic growth will be handicapped all year by the continued housing crisis. Home foreclosures continue to increase at a record pace, including an unprecedented 367,056 properties in March alone. Thus, it is quite possible that the 3.2% growth rate in the 1Q will be the best we see all year. We will take a look at most of the latest economic reports in this issue, as well as the rapidly growing problem in home foreclosures.

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  • Is a Roth Conversion Right for You?

    Since their introduction in 1997, Roth IRAs have become increasingly popular. Unlike traditional IRAs, contributions to a Roth IRA are not tax-deductible, but earnings grow on a tax-free basis if held for the required amount of time. The ability to have completely tax-free income at retirement is a big plus, especially for young people.

    The Roth IRA rules also allow for someone with a traditional IRA to convert it to a Roth IRA. Prior to 2010, only those with incomes under $100,000 could do a Roth conversion, but now anyone can convert their traditional IRA to a Roth. However, just because it is now permissible doesn't mean that it's a wise financial decision for everyone.

    In this week's E-Letter, I'm going to discuss the pros and cons of converting a traditional IRA to a Roth IRA and when such a conversion may be feasible. I'll also let you in on a key factor in the decision to convert and how politics may actually come into play. I think you'll find this discussion very interesting.

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  • The $100,000 Buy-and-Hold Challenge

    This week, I'm going to hand the reins over to Roger Schreiner, one of the early pioneers of active money management, and allow him to fill you in on a challenge he made last year to John Bogle of Vanguard Funds fame. Roger has studied and observed active and passive management strategies for decades and feels, as I do, that active strategies can provide superior risk management. Roger's conviction is so strong that he challenged Mr. Bogle to a contest that would prove which strategy would come out on top over a given period of time, with $100,000 going to the winner's charity of choice. Mr. Bogle didn't accept, so Roger later widened the challenge to any passive money manager. Still, no takers.

    While most active managers put their 'money where their mouth is' by investing in their own programs, Roger has gone one step further by issuing a direct challenge to one of the most prominent adherents of buy-and-hold strategies, and risking $100,000 of his own money in the process. I think you'll enjoy reading Roger's challenge as well as his arguments in favor of active management. After his discussion, I'll debunk a few of the more common rebuttals that Roger has received since issuing his challenge. If you are struggling with deciding how to get back into the market, I think you'll find this week's E-Letter to be very interesting.

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  • Consumer Confidence & Bank Lending Plunge

    Two economic/financial reports last week were shockers and support my view that we may be facing a double-dip recession. First, consumer confidence unexpectedly plunged in January - no analysts that I read saw this large a drop coming. Second, the Federal Deposit Insurance Corporation (FDIC) released its quarterly report which showed that lending by US banks plunged last year in the sharpest decline since 1942. We also saw new unemployment claims spike higher for the week ending February 20.

    What does this all mean? For one, the economy is not improving and more and more Americans are coming to know this. And banks are still not lending - what else is new? Are we indeed headed for a double-dip recession? Maybe, maybe not, but the odds are increasing. This week, we go over the latest reports, and try to come to some conclusions. And we end on a personal note from me. Let's get started.

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