March 2011 - 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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    • Obama Budget Adds $9.5 Trillion to US Debt

      On March 18, the Congressional Budget Office estimated that President Obama’s 10-year budget proposal will add at least $9.5 trillion to the national debt over the next 10 years, if enacted. Of course, if you read my February 22 E-Letter, you already knew that. Like a lot of other analysts, I don’t believe that it will be remotely possible to add almost $10 trillion to the national debt over the next 10 years.The bond market won’t stand for it, much less the foreigners that own almost 50% of our national debt held by the public. I will discuss the CBO's latest estimates as we go along today.

      Dallas Federal Reserve Bank President, Richard Fisher, went public recently with his serious concerns about the US debt trajectory. He warned that the US is now at a debt "tipping point" and added that if we don't change course, the US "will become insolvent." Fisher also let it be known that he opposes QE3 when QE2 ends in June. This raises the question of what will happen in the economy and the markets when QE2 ends in two months. I have some thoughts on that question below.

      Next, we take a look at just how enormous the spending cuts would have to be to remotely balance our federal budget, which will see a deficit of at least $1.65 trillion this year. It doesn't take a rocket scientist to figure out that there's no way to balance the budget without cutting entitlements. And that brings us back to the question: Do Americans really want serious spending cuts? Some recent polls are not encouraging, unfortunately. In any event, it should make for interesting reading.

    • Core Investments - What You Need to Know

      “Core" portfolio holdings are defined as being those steady performers that serve as the backbone of a diversified portfolio. However, they are among the most overlooked of all investments because they tend to be dull and boring. Unfortunately, this lack of attention has allowed mutual fund companies to define this category as predominantly large-cap blend and value funds. The problem is that these funds are far from steady performers since they are highly correlated to the ups and downs of unmanaged stock indexes.

      This week, I'm going to discuss the importance of core investment strategies and why they merit your close attention. I'll also point out the weaknesses of the mutual fund industry's conception of core investments, and then introduce you to an actively managed core investment alternative that may be a better option for you.

    • Will Spiking Oil Prices Tank the Economy?

      Our economic recovery was already fragile, to say the least, and now we have crude oil prices over $100 per barrel in less than two months. So what are the risks that the economy will head back into a double-dip recession? Today we look at the latest economic reports which hold mixed signals for the economy going forward, and what leading economists expect in light of $100+ oil prices.

      Following that, I will discuss the possible ramifications of the latest political turmoil in the Middle East. Thus far, the impact of political change has been marginal. But what happens if Saudi Arabia, the world's largest oil exporter, falls prey to a regime change? Could it really happen? Only time will tell, but if the Saudi government falls, expect all hell to break loose in terms of oil prices.

      And finally, I address once again the subject of whether "speculators" are the main cause of spiraling oil prices. Speculators are only an ancillary cause of rising oil prices, with marginal effects. The real cause of higher oil prices is the fact that political unrest in the Middle East and North Africa has escalated significantly over the last couple of months. No more, no less.

    • Passive Vs. Active Investing, a New Perspective

      Since the bear market low in early March 2009, US stocks have come roaring back, the last few days not withstanding. In fact, the Dow Jones and the S&P 500 are within striking distance of their all-time highs. It is not surprising, then, that advocates for passive buy-and-hold strategies are once again singing their praises: See we told you, the market always comes back!

      What they fail to mention, however, is that hundreds of thousands (if not millions) of investors bailed out of the stock markets in late 2008 and early 2009 and never got back in. The S&P 500 Index plunged almost 51% from its October 2007 high to the low in early March 2009. Not many investors had the stomach for that kind of collapse. Yet the buy-and-hold crowd would now have you believe that everyone held onto their stocks and mutual funds during that period. Not so!

      Today, we will take a fresh, objective look at buy-and-hold versus the actively-managed programs we recommend at Halbert Wealth Management that aim to make at least market rates of return during up cycles, and hold downside losses to a minimum. I will give you the pros and cons of both strategies and show you how you can get these professionally-managed programs in your portfolio (if you don't have them already).

    • Egypt & the Middle East Domino Theory

      Political uprisings have spread across the Middle East and North Africa in recent weeks. In February, we saw the removal of Egypt’s leader Hosni Mubarak, and the country is now under military rule with a very uncertain future. In oil-rich Libya, Colonel Muammar Gadhafi is under siege.

      In all of these countries, the so-called “Muslim Brotherhood” is involved and in some cases is trying to position itself to take control. The Muslim Brotherhood is vehemently anti-America. If the Brotherhood were to gain control of Egypt, the second largest country in the region, it is feared that they would join forces with Iran and dominate the entire Middle East over time. This explains in large part why oil prices have spiked from $85 to $100 over the last few weeks. Libya is a large oil exporter, and its ability to produce and export crude is now very uncertain. Crude oil could continue to soar depending on what happens.

      Today I will reprint an article which delves into the very troubling implications if the Muslim Brotherhood should take control of Egypt and align itself with Iran. Certainly, there are some who believe this will not happen, but it is a real possibility. The Obama Administration needs to ensure that the Egyptian military, to which the US provides $1.3 billion in foreign aid each year, does not allow the Muslim Brotherhood to take power. It remains to be seen if President Obama is prepared to take these critical steps.