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  • The Fed Blinks, Now What?

    Last Thursday, after the stock market close, the Federal Reserve took what some are saying is the first step in the process of tightening up on the money supply by raising the discount rate by 0.25%. Fed Chairman Bernanke was quick to dispel any rumors of interest rate increases in the near future, as we would expect him to do.

    The markets, perhaps the better indicator of investor sentiment, have been mixed after the Fed's action. After stock futures took a hit on late Thursday after the late-day announcement, the Dow actually closed at a gain on Friday. Since then, the Dow has been generally down, but the markets are definitely not in a panic. If the discount rate increase was a trial balloon for future interest rate increases, as I think it was, then the Fed has, so far, received an answer that the economy and stock market may be ready to at least entertain the idea.

    So what does this mean to you as an investor? For those wanting to capitalize on the price movement of the long-term Treasury bond, it could mean an opportunity is at hand. However, there are still many uncertainties in the world that could drive Treasury bond prices up or down. Fortunately, there is a way to invest so that you can have a long or inverse (short) exposure to price movements of long-term Treasuries. This week, I'll again discuss the Hg Capital Long/Short Government Bond Program and why this strategy may be tailor made for the bond markets ahead.

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  • Is The Recession Over? Don't Bet On It

    Over the last month, we have seen several encouraging economic reports: 2Q GDP was down considerably less than expected (-1.0%); the unemployment rate officially fell slightly in July to 9.4%; and the ISM manufacturing index posted a nice improvement last month. As a result, many forecasters have declared that the recession is over. This week, we will look at the latest economic reports which suggest that we've seen the worst of the recession, but do NOT mean the recession is over. I will also reprint excerpts from a recent economic and market analysis from Dr. John P. Hussman, of the Hussman fund family, which I think you will find interesting.

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  • Have We Turned The Corner On The Recession?

    While the global recession and credit crisis are still in full swing, at least we have finally seen a few positive economic reports of late. Specifically, we have seen some good news in the housing sector where new and existing home sales actually increased nicely in February, following months and months of decline. We also saw an unexpected jump in durable goods orders for last month. These reports, along with the nice jump in the stock markets, have led several noted forecasters to suggest that we've seen the bottom in the recession and the worst of the credit crisis. I am not so convinced.

    We will also take a close look at Treasury Secretary Geithner's latest bank bailout plan that would partner government and private investors in a scheme to take toxic assets off of the banks' books, but there is no guarantee that this new plan will work. We'll also examine the Fed's latest plans to buy Treasury debt and more toxic assets from banks. Next, we'll examine the latest report from the Congressional Budget Office regarding President Obama's record large budget for 2010, which the CBO says will result in a massive $2.3 trillion deficit. Can I say, I told you so?

    It's a lot to cover in one letter, but I trust you will find it interesting....
  • Who Will Buy America’s Trillions In New Debt?

    Since taking office on January 20, President Barack Obama has proposed new government spending of almost $3 trillion dollars. Yes, $3 trillion consisting of his $787 billion "stimulus" package, up to $2 trillion in bank bailouts proposed by Treasury Secretary Geithner earlier this month, and another $275 billion for homeowners and mortgage companies that Obama announced last week. The question is, who is going to buy this gargantuan amount of US Treasury debt over the next few years? With the global recession, the largest foreign buyers of Treasuries, like China, Japan and Europe, may not be in a position to keep buying our debt. It now appears the US Federal Reserve will be called upon as the "lender of last resort," but the Fed will be forced to print these trillions in new money. That could trigger another round of big inflation (hyperinflation, some predict) in the coming years. This week, I will explore the implications of this record spending and borrowing. Be warned that what follows is not pretty, but it is what it is. The latest plunge in the stock markets is indicative of just how precarious the situation is. As investors, we need to understand what is happening and how to react to it. Let's get started....
  • Throwing Trillions Around Like Crazy

    President Obama will sign into law the largest single spending bill un US history, $787 billion, today in Denver. No one knows if it will work. Last Tuesday, Treasury Secretary Tim Geithner announced a massive bank bailout plan that will spend $1.5-$2 trillion or more, but he failed to provide many details on how this rescue package will work. The stock markets have been in a tailspin ever since. There is growing talk of nationalizing many of our large banks. While I'm against nationalization, I have included a very interesting article by Dr. Nouriel Roubini, a well-known economist. I think you should read it, if for no other reason than to be informed on the subject....
  • Obama Seeks Multi-Trillion Dollar Bailouts

    This week we start with a review of the latest economic data which indicate that the recession is still deepening. Following that, we will examine the $800+ billion stimulus plan that President Obama requested and the House passed last week. Unfortunately, apprx. two-thirds of that massive plan is pork-barrel spending that will not help the economy anytime soon or at all. Next, we will look at Obama's request for $1-$2 trillion to help the banking system. And finally, we will address the fact that the Fed is gearing up to directly purchase hundreds of billions of long-term Treasury bonds in case the massive bailouts don't work. It should be a lively letter!...
  • The Recession & More Government Bailouts

    Well, the 'R' Word (recession) can now be officially used to describe the US economy since the National Bureau of Economic Research (NBER) declared that we have been in a recession since December of 2007. Considering the back-dated nature of NBER's announcement, we find ourselves in the midst of the third longest recession since the Great Depression, with no end yet in sight. No wonder the Treasury and Fed are pulling out all of the stops to bail out the economy. This week, I'm going to discuss the current bleak economic picture, the Fed's latest bailout and the possible long-term consequences of the Fed's printing money....
  • Might Uncle Sam Make Money On The Bailout?

    The entire country is in a tizzy over the massive government bailout plan. The credit markets have seized up even further, risking a real credit crisis or worse. Banks are dropping like flies. Yet the $700+ billion bailout was voted down yesterday in the House of Representatives. But it is far from dead. This week, I will summarize the latest bailout plan, both the good and the bad and the risks. Actually, there are some smart people who believe the government will make money on the bailout plan, maybe a lot of money. I'll explain that as well, although I don't necessarily agree. Hopefully, this week's discussion will be helpful. Let's jump in....
  • Category 2 Hits Texas, Cat 4 Hits Wall Street

    While Hurricane Ike ravaged the Gulf Coast over the weekend, there was a major financial storm on Wall Street on Saturday and Sunday. Lehman Brothers, the fourth largest US investment bank, announced on Sunday that it was filing for Chapter 11 bankruptcy. Shortly thereafter Bank of America announced that it was gobbling up brokerage giant Merrill Lynch for a mere $45-50 billion in stock. If that weren't enough, insurance giant AIG is in serious financial condition and is requesting $70-75 billion in new loans to stay afloat. These latest developments are the next chapter in the subprime mortgage/credit crisis, and they took a heavy toll on the stock markets yesterday. I will sort it all out for you in the pages that follow....
  • Storms On The Horizon - The Entitlement Time Bomb

    The federal budget deficit is projected to soar to a record $482 billion in 2009. With that in mind, I reprint a recent speech by Dallas Federal Reserve Bank president Richard W. Fisher on the subject of the US debt crisis. Let me warn you, this is not for the faint of heart. It is one of the most chilling forecasts I have read in a long time. You need to read it. The question is, why is no one talking about this problem or taking any steps to head it off? I offer some comments at the end....
  • The Fed, The Stock Market & What To Do Now

    The Fed left interest rates unchanged at 2% at the FOMC meeting last week, despite warnings in the media that rates would be increased. To the contrary, I have argued that the Fed will leave rates unchanged all year, and the FOMC policy statement last week supports that view. There are indications that inflation will moderate later this year, which will take pressure off the Fed to raise rates. Next, we turn our eyes to the stock market and ponder whether we are looking at a continued sideways market for several more years. If so, this will be bad news for millions of Baby Boomers that have not saved enough. Maybe it's time they consider something different, such as the investment programs I recommend....
  • On The Economy, The Fed & President Obama

    This week we begin by taking the pulse of the US economy, which is holding up better than most analysts have expected. 1Q growth was better than forecast, and it now looks like the 2Q will be better than expected as well. The bad news is that inflation is on the rise, and there are fears that the Fed will begin to hike interest rates soon - but then maybe not - I'll give you my take on it. Finally, we focus on the presidential race which seems to be tightening according to the national polls. I will highlight Obama's background and his positions that bother me, and why I think he is the most arrogant candidate in a long time. Finally, we will take a detailed look at the 11 "battleground" states where the race could go either way. Feel free to share this analysis as you see fit....
  • Bailouts - Bear Stearns, Housing - What's Next?

    Bailouts are on the rise. Over the weekend of March 15-16, in a desperate move, the Federal Reserve bailed out Bear Stearns, the large investment bank that got into trouble over subprime mortgages and related securities in a deal with J.P. Morgan-Chase. But for the first time, the Fed...
  • Market Mayhem & Credit Fears - What's Next?

    Market Mayhem & Credit Fears - What's Next? IN THIS ISSUE: 1. The Economy - The News Is Not All Bad 2. Consumer Spending Remains Firm For Now 3. Housing & Subprime - More Bad News 4. Should The Government Come To The Rescue? 5. The Fed Needs...
  • Is A Subprime Recession Inevitable?

    Is A Subprime Recession Inevitable? IN THIS ISSUE: 1. Stocks - Correction Or New Bear Market? 2. Consumer Confidence & Spending Remain Key 3. A Look At Previous Credit Crunches 4. How Bad Is The Subprime Mortgage Problem? 5. Crisis In Confidence 6...