July 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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    • Subprime Mortgage Crisis #2 in the Making?

      In May 2009, President Obama created the “Financial Crisis Inquiry Commission” (FCIC) to investigate the causes of the financial crisis of 2007-2009. Basically, the FCIC put the blame for the financial crisis on lax regulation, greed on Wall Street, faulty risk management at banks and other financial firms and on households for taking on too much debt.

      The FCIC’s Democratic majority placed the blame for the financial crisis on the private sector and dismissed the idea that government housing policy could have been responsible. The report went so far as to suggest that Fannie Mae and Freddie Mac, and the politicians that oversaw them, were not the cause of the financial crisis.

      I strongly disagreed in my May 18, 2010 E-Letter and now a new book on the subject comes to the same conclusions that I did. Now Fannie and Freddie and the politicians responsible are back in the news again.That’s good!

      What is not good is the recently reported fact that the government is once again pressuring regional and community banks to make mortgage loans to low income families that can’t afford them. This could be the making of subprime loan crisis #2. You need to know about this, and I will give you the details as we go along.

      To round-out today’s letter, I will show how the so-called government “Agency Debt” – that which is supposedly not backed by the full faith and credit of the government – really is guaranteed by the government. Agency Debt has exploded over the last 25-30 years, yet it is not included in our official national debt. You need to know about this as well.

    • Why Greece Matters to You and Me

      The sovereign debt crisis in Greece is rapidly spreading to much of the rest of Europe. In addition to Greece, Portugal, Spain and Ireland, Italy is now in question. Italy has the third largest bond market on earth behind the US and Japan. Today I bring you a sobering assessment of the European debt crisis from our old friends at Stratfor.com, which is one of the most alarming analyses I have ever read from them. I also bring you an even more alarming evaluation from GaveKal Research, a leading forecaster based in Hong Kong.

      The bottom line is that another global financial crisis may be just around the corner, in weeks or months, and I believe this could spark the next major bear market in the US and global stock markets. I suggest you read today's E-Letter very carefully and begin to think about what you need to do to protect your investment portfolio and your retirement nestegg. Time may be very short as events in Europe are unfolding very rapidly, and no one knows for sure what will happen next. This may be one of the most timely E-Letters I have ever written.

    • The Optimists’ Case for the Economy

      Over the past few months, I have presented a lot of information discussing why this economic recovery is so weak. As noted last week, new data confirms that this recovery is the weakest since WWII, if not of all time. Yet despite all the recent disappointing data, there are still some prominent economic optimists out there, including The Bank Credit Analyst. These forecasters still believe that the so-called "soft patch" during the first half of this year was the worst of it, and that growth will be better in the second half of this year. I will summarize this more optimistic outlook below.

      Before we get to that, I will review the latest economic reports. There were actually a few bright spots of late, but they were definitely overshadowed by last Friday's very disappointing unemployment report. We end up today by revisiting the debt ceiling debate. Republicans, Democrats and President Obama remain stalemated as this is written. Obama is insisting on $1 trillion in tax increases in return for cutting spending. Republicans are so far holding firm on no tax increases. The government runs out of money just three weeks from today on August 2.

      I am still somewhat optimistic that a debt ceiling agreement will be accomplished before the August 2 deadline for default, but both sides have their heels dug in as this is written. Whatever happens, the next three weeks will be very interesting, and the investment markets could go ballistic if a deal is not reached.

    • The Worst Economic Recovery in a Lifetime

      I hope everyone reading this had a memorable Independence Day holiday. We certainly did with lots of family and friends at our home on Lake Travis, and with lots of cooking on my part (but unfortunately, no fireworks this year due to the severe drought in Central Texas). July 4th is one of my favorite national holidays.

      Due to the short week, I have elected to reprint a surprising new study that has just been released by the Congressional Joint Economic Committee (JEC). The JEC is a bipartisan committee including 10 Senators and 10 House Representatives, evenly divided between Republicans and Democrats. The JEC’s main purpose is to make a continuing study of matters relating to the US economy.

      The latest study from the JEC, which was developed at the request of two Republican members of the Committee, compares the current economic recovery with previous recessions and recoveries. The conclusion: economic conditions are worse today than in any recovery since at least World War II.

      Because the study was commissioned by two Republicans, the analysis includes some partisan statements, unfortunately. However, the data and charts in this study are accurate, and this is the worst economic recovery in at least 70 years. I have written often this year about this disappointing economic recovery, and this relatively brief analysis sums it up very well. It is reprinted in its entirety below, including over a dozen charts and graphs, so it will print longer than usual.