June 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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    • Fed Extends Operation Twist – Europe at the Brink

      For the last several months I have argued that the most likely time for the Fed to enact another round of stimulus would be at the June 19-20 FOMC meeting. I first suggested this in my March 13 E-Letter. My main reasoning was that Bernanke would not want to do it after June 19-20 for fear that it would be seen as a political move ahead of the November elections.

      As I’m sure you know by now, the Fed elected to extend “Operation Twist” last Wednesday, June 20. Operation Twist is the action whereby the Fed uses cash from the sale or maturity of short-dated Treasuries to buy longer-dated securities, in an effort to bring down long-term rates. The Fed says it will make $267 billion in such purchases and the Twist will continue until the end of this year.

      The Fed also revised its economic forecasts downward, suggesting even slower GDP growth in 2012 and 2013 than they predicted back in April. They estimate that the unemployment rate will remain at or above 8% all this year, and then be 7.8% - 8% in 2013. Not a very rosy outlook.

      The financial crisis in Europe is back on the front pages. Moody's downgraded 28 Spanish banks on Monday, and stocks cratered around the world. There is a major European summit this Thursday and Friday in Brussels, and this may be the last chance for a solution to the crisis before the Eurozone begins to break apart.

      Finally, I end with some thoughts regarding the Thursday's Supreme Court decision on ObamaCare. If the healthcare law is struck down by the High Court, I expect all hell to break loose! The mainstream media and those on the left will have a conniption. No doubt the Obama administration will weigh in on the bashing of the Supreme Court. If the healthcare law or the individual mandate are struck down, it will get very ugly!

    • Shocking Fed Survey on Consumer Finances

      Today we focus on a new Fed study which found that Americans’ net worth plunged almost 39% in the period from 2007 to 2010. That period included the so-called Great Recession, a financial crisis and a severe bear market in stocks. There are lots of interesting statistics to look at in this new Fed study.

      I would be remiss not to comment on the results of the Greek elections on Sunday. As I suggested in my Blog on Friday, the mainstream New Democracy party prevailed and defeated the left-wing Syriza party that vowed to default on Greece’s debt and exit the euro. It remains to be seen what happens in Greece going forward, but hopefully it is off the front pages at least for a few weeks.

      The Fed Open Market Committee (FOMC) is in session as this is written. Rumors abounded last week that the Fed would vote to enact more “quantitative easing” at this meeting. I have also discussed that possibility in recent weeks. While we won’t know anything until tomorrow afternoon when we get the official policy statement, the markets are anticipating some new stimulus in one form or another. As for me, I’m not so sure.

    • The "Fiscal Cliff," ObamaCare & the Supreme Court

      Today we revisit the subject of the so-called “fiscal cliff” that our country faces at the end of this year if a Lame Duck Congress fails to pass a number of new laws by December 31. Some analysts are arguing that nothing really bad will happen if the Lame Duck Congress fails to get the job done. I disagree and I will tell you why below.

      As you may have already seen, I have been alerting clients that we could see a significant uptrend in the stock markets if the Supreme Court overturns ObamaCare as is expected by many on June 25. There are others, however, that do not believe the High Court will overturn ObamaCare, or at least not all of it. I will discuss this line of thinking as we go along.

      You may have read the two preceding paragraphs and assumed that this will be one of my weeks to go “political.” I beg to differ. With regard to the fiscal cliff, we are very likely facing a recession next year if the issues discussed below are not addressed by the end of this year. As to the fate of ObamaCare, it could have serious implications for the stock markets (and your 401-k/IRA), however the Supreme Court rules. Actually, all of this is much more than political.

    • Spain & Weak US Economy Dominate Markets

      Stock markets around the world have been pummeled in recent weeks amidst the growing reality that we’re in a global recession, especially in Europe. Fears that the US will also fall into recession have intensified, particularly in light of last week’s very disappointing economic reports.

      At the same time, the European debt crisis has once again raised its ugly head, this time with the spotlight on Spain. Spain’s own Prime Minister has admitted that the country is in a state of emergency, and money is gushing out of Spanish banks. Interest rates have soared once again to levels that led to the European Central Bank’s €1 trillion bailout package late last year and early this year.

      Last week, the yield on Spain’s 10-year bonds spiked to 6.7%, a whopping premium of more than 5.5% above the yield on the 10-year German bund at the time. Meanwhile, short-term rates in Germany fell to zero as new money seeks a safe haven there and in the US where 10-year Treasury-note yields fell to a post-war record low of 1.45% last Friday.

      Spain is facing a full-fledged banking crisis and knows it. Yet Spain's leaders do not want a bailout and the accompanying loss of sovereignty. They see that such bailouts in Ireland and Portugal have not gone well. Still, Spain is running out of money fast, and the country is largely shot out of the credit markets. How this plays out is uncertain, but it won't be pretty.

      Following that discussion, I will address the fact that consumer confidence is dropping like a stone in the US. This has prompted new hopes that the Fed will unleash QE3. We will know soon enough as the next Fed policy meeting is June 19-20.

      We end up today with a suggestion on my part that the current swoon in stocks is a BUYING OPPORTUNITY. No one knows where the bottom is, of course, but consider this. If the Supreme Court renders Obamacare unconstitutional later this month, and I think it will, we could see a MONSTER RALLY in stocks. The High Court's decision is scheduled to be announced on June 25. This is why I think you need to be getting back in the market now, while it's down. And I offer two excellent suggestions on just how to do that at the end.