May 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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    • ETFs and ETNs - Opportunity or Danger?

      Exchange-Traded Funds, or ETFs, continue to proliferate in the marketplace. There's no doubt that these securities are the latest "sexy" investments that all investors think they need to have. Couple that with the availability of Exchange-Traded Notes (ETNs) that offer access to asset classes and markets that were formerly available to only wealthy investors, and you have the potential for an investment disaster.

      While ETFs and ETNs do offer some very valuable access and flexibility not available through other types of investments, these features don't come without a number of disadvantages. In this week's issue, I'll discuss some of the downsides of ETF and ETN investing so you'll be fully informed should you choose to include these offerings in your portfolio.

      Since it's not always easy for individual investors to identify the good ETFs and ETNs from the bad, I'll also introduce you to Metropolitan Capital Strategies, a professional Investment Advisor with strategies designed to do this work for you. Metropolitan's methodology involves both mechanical systems and discretion, allowing it to not only overcome emotional trading, but also factor in "black swan" events such as the credit crisis or Japanese earthquake. Best of all, Metropolitan won't invest unless its proprietary formulas indicate a 90% or higher confidence level for a double-digit gain. If ETFs and ETNs are of interest to you, you'll definitely want to read this week's article.

    • Debt Ceiling Battle: Tax Hikes or Spending Cuts?

      On Monday, May 16, the US government officially exceeded the national debt ceiling of $14.3 trillion. Nothing much happened, of course, because Treasury Secretary Geithner had already announced that the Treasury Department could implement various emergency measures to fund the government and avoid default until around August 2.

      Since most Americans have no idea what these emergency measures are, I thought it might be interesting to briefly discuss them. Basically these emergency measures include robbing cash from various government trust and pension funds to keep the US from defaulting on its debts and day-to-day obligations. You may be surprised at the many ways Treasury Secretary Geithner has to keep the government running until the debt ceiling is raised.

      On the subject of raising the debt ceiling, the battle lines have clearly been drawn among Republicans and Democrats, including President Obama. Republicans vow that there must be at least $2 trillion in spending cuts in order to raise the debt ceiling from $14.3 trillion to $16.5 trillion. Democrats, on the other hand, want to raise taxes on the “rich” and on the five largest oil companies.A huge fight lies ahead between now and August 2.

      Finally, both houses of Congress are quietly planning to vote on a straight-up bill to raise the debt ceiling without any spending cuts and without any tax increases. Both houses expect the "clean" debt ceiling vote to fail unanimously with no "yes" votes on either side. They all want to tell their constituents back home that they voted "no" on raising the debt ceiling. In their minds, this will pave the way politically for both sides to compromise. How dumb do they think we are?

      Before getting into the debt ceiling saga, let's first turn to the latest economic reports which continue to show that the recovery is slowing down.

    • Use of Professional Financial Advisors is Changing What You Can Learn from Wealthy Investors

      I think that all of us can agree that the wealthy, those with a net worth of $10 million or more, have a certain edge in their investments. After all, only the wealthy can play in the high-stakes game of hedge funds and other "private" offerings with minimum investments in the millions of dollars. However, there are times that all of us can learn valuable lessons on investing by paying attention to the habits of wealthy investors.

      A recent study by Cerulli Associates is a good example. It found that many wealthy investors are now seeking the advice of multiple financial advisors. This week, I'll highlight the reasons that wealthy investors are using multiple advisors as well as the advantages of doing so. More importantly, however, I'm going to show how you can get the same benefit of multiple advisors for your own portfolio, even if you aren't a multi-millionaire.

    • Debt Ceiling Battle’s Predictable Outcome

      A political battle is looming over raising the federal debt ceiling limit which we will hit over the coming weeks. The media warns that we could face a massive government shutdown if an agreement is not reached to raise the debt ceiling. This is nothing new, and the truth is that the debt ceiling will be increased, as always, but probably not until the last minute.

      The Republicans are hoping to extract more federal spending cuts in order to agree to raising the debt ceiling, and I predict that they will get very little in the way of meaningful cuts. Some Democrats are calling for new tax increases before increasing the debt ceiling, but this is just a bargaining ploy. Truth is, it's all politics as usual on both sides and in the end, the debt ceiling will be increased - bank on it. I suggest not paying much attention as this plays out.

      The debt ceiling political fight that will play out over the coming weeks will once again miss the point. Our national debt is spiraling out of control, and raising the debt ceiling limit does nothing to correct this problem. It just kicks the can further down the road. Frankly, I wonder if it is possible to construct a viable plan to reverse our out-of-control spending at this point. Most of our leaders in Washington are drunk on increasing federal spending.

      At some point, unfortunately, the bond market will put a violent end to this. I have written about this before, but this week, I put this discussion into a more detailed perspective. The bond market may well send interest rates soaring once again when it become clear that our politicians refuse to cut the exploding size of government spending and deficits. Not a pleasant topic to consider, but we must keep focused on it.

    • 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.