February 2010 - 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.

Forecasts & Trends

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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.

    • Falling Global Birthrates Threaten Prosperity

      Long-time clients and readers will recall that one of my macro concerns is the steep decline in birthrates in developed countries around much of the world, as discussed at length in my September 4, 2007 E-Letter. Given that we have a short week due to the President's Day holiday, I have elected to reprint another fascinating article on the subject of falling birthrates. The following article by Professor Steven Malanga points out that the US birthrate is hovering at just above the necessary 'replacement' level, which he and others believe will lead to a long period of healthy economic growth in the years and maybe decades ahead. However, as he points out near the end, rising taxes have a negative effect on birthrates, and with our national debt exploding, we are definitely headed in the direction of higher taxes. I think you will find this very interesting reading.

    • The Mother of All Budget Deficits

      President Obama unveiled his fiscal year 2011 federal budget last week, and it is another whopper. If approved, he would spend a record $3.83 trillion and run a deficit of at least another $1.3 trillion. The actual deficit could be much higher because his assumptions about the economy are considerably too optimistic in my opinion and that of many economists. Obama's new budget projections now show that the budget deficit for FY2010, which ends on September 30, will be much higher than previously forecast - a whopping $1.6 trillion. This week, we will examine the implications of trillion dollar deficits as far as the eye can see.

    • The "Catch 22" Housing Slump Is Not Over

      We begin this week by looking at the latest report on the economy. GDP rose a bit more than expected in the 4Q, up 5.7% (annual rate). Despite that, many economists are downgrading their forecasts for growth in 2010. Following that, we will take a close look at the latest reports on the housing market. Despite the improvement in the economy, home prices continue to fall in most areas of the country. The housing slump is still not over, and this is a big reason why consumer spending is not likely to recover to pre-recession levels anytime soon. If you are concerned about the housing market, you will definitely want to read this week's E-Letter.