March 2012 - 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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    • Is The US Headed For A Fiscal Cliff in 2013?

      Under current law, all of the Bush tax cuts expire at the end of this year - for everyone. President Obama wants to keep the Bush tax cuts in place for everyone except those individuals making over $200,000 and joint filers making over $250,000 a year. Either way, Congress must pass a new law before the end of the year. So it looks very likely that income tax rates are going up either way; it just depends upon whom. This will not be good for the economy next year.

      Meanwhile, the Budget Control Act of 2011 mandates that there must be automatic, across-the-board federal spending cuts of $1.2 trillion over 10 years beginning on January 15 of next year. While I'm all for cutting out-of-control federal spending, doing so will act as a drag on the economy. The question is, how much will the combination of higher taxes and reduced federal spending negatively affect the economy? Some sources I quote today believe that it could throw us into a new recession next year.

      Following that discussion, we look into the likelihood that the US will again hit the debt ceiling before the end of the year. You no doubt remember the partisan political battle in Washington over the debt ceiling last summer. Now it looks like we may face another showdown, this time right around the November elections. Won't that be fun!!

      We end today's discussion with some thoughts on President Obama's call for a minimum income tax of 30% on all those making over $1 million a year, also known as the "Buffett Rule." If this law goes into effect, it won't raise a lot of money for the government in the big picture, and it will almost certainly cost jobs. The President knows this but wants the tax hike anyway, because he says it's "fair." What else is new?

      This is a lot to cover in one E-Letter, so let's jump right in.

    • Why Convertible Bonds Should be Part of Your Asset Allocation

      Where should you be investing now? Bonds? With interest rates beginning to spike, bonds prices are getting hammered. Stocks?The stock market, on the other hand, has seemed to go too far, too fast this year, leaving many to fear a major correction just ahead That's bad news for buy-and-hold investors. Cash? Let's not forget that many risk-free assets literally cost you money to hold them on an inflation-adjusted basis. What's an investor to do? This week's E-Letter has one answer.

      It's no secret that I am sold on Wellesley Investment Advisors' convertible bond managed account program. Yet, many of my readers have held off on this investment, possibly because of some analysts are saying that it's time to ditch bonds. It's clear that investors do not realize that convertible bonds are a completely different animal than interest-sensitive Treasury and corporate issues.

      This knowledge gap has caused many to reject convertibles when they should be embracing them. Greg Miller, CPA, is one of the foremost experts on convertible bonds in the country. In our webinars, he notes that anyone who listens to his presentation will know more about convertible bonds than 99% of the US population and even many investment professionals. Today, I'm going to offer you the opportunity to learn more about the hybrid nature of convertible bonds and why, when properly managed, they have the potential to make money in whatever market environment we may face in the future.

    • Is the Fed Now Leaning Toward QE3?

      Since late last year, the consensus has been that the Fed will not enact more quantitative easing, or QE3, since the economy is slowly improving. Yet there is new evidence which suggests that the Fed may yet implement QE3, despite the fact that QE is unpopular politically. If this is the case, and no one knows for sure, I would expect the Fed to announce QE3 no later than this summer and maybe even sooner. They don't want to do something unpopular during the election season in the last half of this year.

      Following that discussion, we turn to Europe and the fact that the European Central Bank has now made over $3 trillion in bailout loans to banks across the region. That tops even our own Fed which has $2.9 trillion on its balance sheet! Greece has reportedly completed its huge bond swap in which investors took a haircut of 70%. In return, it appears that Greece will get its much needed second bailout loan of 130 billion euros. While Greece may be off the front pages for now, it won’t be for long.

    • The Truth Behind High Gasoline Prices

      Being in the business I am, people frequently ask me why gasoline prices are so high. Of late, people have also been asking me if President Obama has any idea whatsoever about how the energy markets work. As it turns out, the Heritage Foundation just released an excellent report that addresses both questions. It also lists five specific actions that Congress and the Obama administration should undertake to increase energy production in this country.

      But before we get to that, I will summarize the latest economic reports which continue to give mixed signals. While the latest report on 4Q GDP came in a bit better than expected, most economists agree that growth in 2012 will not be as good as the 4Q of last year. Following that, we look at some remarks from Fed Chairman Ben Bernanke in his recent Senate testimony. While he defended quantitative easing, it doesn’t sound like the Fed is going to do QE3 anytime soon.