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    • US Economy, Consumers Remain Strong, But Risks Rise

      IN THIS ISSUE: 1. US Economy Grew By 2.3% In 2019, Down From 2.9% 2. US Consumer Confidence Remains Strong For Now 3. Gallup: US Economic Confidence Highest Since 2000 4. Why Recession Could Unfold Sooner Than We Think Overview Today we’ll look...
    • Plunging Oil Prices Spark Fears of Global Recession

      Today, we touch on several bases. No doubt everyone reading this noticed that stocks tanked last week, and now seem to be moving in lockstep with oil prices. While consumers welcome cheaper gas and heating oil prices, there is a growing fear that the collapse in oil prices may be a harbinger of a global recession.

      Despite worries that the oil price plunge is pulling down stock prices, the latest Reuters/University of Michigan Consumer Sentiment Index soared to a near eight-year high this month. Expectations for a better job market helped power the Index from 88.8 in November to 93.8 this month, well above expectations.

      Finally, I am sad to report that our national debt topped $18 trillion on November 28 according to the Treasury Department. It was not widely reported by the mainstream media, of course. While our annual budget deficits have come down significantly from the first four years of the Obama administration, we are still on-track to hit a whopping $20+ trillion national debt by 2019.

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    • Unemployment Dips Below 6%, But Incomes Stagnate

      Last Friday’s unemployment report came in better than expected. The headline unemployment rate fell more than anticipated, from 6.1% in August to 5.9% last month. The number of new jobs created last month was also better than expected at 248,000.

      Given that the unemployment rate is now below 6%, and given that 2Q GDP expanded by 4.6%, you might think the economy is finally off to the races. But what is becoming increasingly clear is that wages for most Americans have been stagnant or falling since before the Great Recession began in late 2007.

      As we will see below, this trend of stagnant income has actually been with us since the early 2000s. Without rising incomes, there’s little reason for people to feel like their financial lives are getting better or for the economy to grow at a faster rate.

      Fortunately, not all the news is bad. While the vast majority of Americans believe that we’re either still in a recession or the country is headed in the wrong direction, pessimism in the business community is lifting. Companies are investing more in capital assets. After years of sitting on their hands, companies are beginning once again to build their businesses.

      Finally, recorded versions of our recent webinars with Potomac Fund Management and YCG Investments are now available on our website at Both managers explain in detail how their investment strategies work. I encourage you to watch these videos to see if their strategies are a fit for your portfolio.

    • GDP Report Tanks – Is A Recession Looming?

      We will cover a lot of ground today. We begin with a new report from Goldman Sachs which argues that the US economy will remain the strongest in the world for many more years. The report rebuts claims that America is a nation in decline. This will be a very interesting discussion given that we have $16 trillion in national debt and exploding. Thank you President Obama!

      The upbeat Goldman report was delivered before last Wednesday’s surprising news that the US economy actually declined in the 4Q for the first time since 2Q 2009. While there are reasons to believe that the advance estimate of 4Q GDP (-0.1%) will be revised upward in subsequent reports, the surprise GDP report was not the only bad news in the last few weeks. We’ll take a look at the latest economic reports as we go along today.

      From there, we turn our eyes to the Fed. In December, there were rumors that some members of the Fed Open Market Committee (FOMC) were having doubts about the Fed buying a record $85 billion a month in Treasury bonds and mortgages indefinitely. Some even predicted that the FOMC might vote to end such purchases by the end of this year. Not so, as evidenced by the January Fed policy meeting. The Fed made it clear that the $85 billion in monthly purchases will continue indefinitely (unfortunately).

      Finally, we look at a new poll from Pew Research Center which found – for the first time ever – that a majority of Americans believe that the government is a threat to our personal rights and freedom! This is stunning! I will summarize this new poll which is loaded with eye-opening data.

      It should be an interesting letter. Let's get started.

    • 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.

    • GDP Report Shows the Economy is Stalling

      It appears that the debt ceiling fiasco will finally be put to bed with a Senate vote later today, as I predicted. But not before our leaders in Washington led us to the brink of another financial crisis. Frankly, the new debt ceiling deal is UGLY as I will discuss below. But before we get to that, we have to look at last Friday's very disappointing GDP report - it was a shocker. So was the Fed's latest assessment of the economy last week. And so was yesterday's ISM manufacturing report which plunged in July. It is now clear that the US economy is very close to moving back into recession again.

      None of this is good news for the stock markets, which are down again today following a significant sell-off last week. The debt ceiling drama pointed out to millions of Americans just how dire our national financial situation is, and they are moving out of the stock markets in droves to the safety of Treasuries or cash. Is this an overreaction? I'll give you my thoughts as we go along.

    • Has the Liberal Economic Experiment Failed?


      Monday holidays always cut into our writing time, so this week we have elected to reprint one of the more interesting articles I have read recently.  I think you will like it unless you are a big Obama fan, in which case, you’ll probably find it disappointing.  In any event, I think this piece is spot-on as we close in on the mid-term elections.

      Following that article, I will update you on the performance of Hg Capital’s Long/Short Government Bond Program which has continued its winning ways in 2010 following its record year in 2009.

    • Headed For a Double-Dip Recession?

      This week, we focus on the latest outlook for the US economy. As you are no doubt aware, the consensus view of the economic recovery has dimmed over the last month, especially with the latest disappointing 1Q GDP report on Friday, June 25. While consumer spending increased very modestly in May (latest data available), bank lending remains in the tank. Unless lending improves, the economic recovery will be disappointing at best, and a double-dip recession is clearly a possibility in 2011.

      Following that discussion, we will look into the new financial regulatory bill which is expected to be passed by Congress any day now. While I have been an outspoken advocate for financial regulatory reform (see my April 20 E-Letter), the huge new reform bill is lacking and even negative on several fronts. It will not eliminate 'too-big-to-fail' and it will not preclude an even more serious financial crisis in the years ahead. About all it does is to greatly increase the size of government. Surprise, surprise!

    • On the Economy & Obama's Trillions

      Most (but not all) of the economic reports over the last month or so have been positive, and more and more forecasters now believe that GDP growth will be slightly positive in the 3Q. Unfortunately, we don't get our first 3Q GDP estimate until the end of October. The latest GDP estimate for the 2Q was unchanged at -1.0%, which was better than expected. I will cover the latest encouraging (and not so encouraging) economic news just below.

      Next, on Friday, August 21, the Obama administration quietly announced that the White House Office of Management & Budget revised upward its long-term federal deficit projections to fall in line with those of the Congressional Budget Office. The White House finally admitted that its economic assumptions were too optimistic - to the tune of $2 trillion over the next 10 years. So now it's official - even President Obama admits he will more than double the national debt in the next 10 years, which will likely lead to another financial crisis.

    • Is The Recession Over? Don't Bet On It

      Over the last month, we have seen several encouraging economic reports: 2Q GDP was down considerably less than expected (-1.0%); the unemployment rate officially fell slightly in July to 9.4%; and the ISM manufacturing index posted a nice improvement last month. As a result, many forecasters have declared that the recession is over. This week, we will look at the latest economic reports which suggest that we've seen the worst of the recession, but do NOT mean the recession is over. I will also reprint excerpts from a recent economic and market analysis from Dr. John P. Hussman, of the Hussman fund family, which I think you will find interesting.

    • Recession May End But Growth Prospects Low

      Last Friday's better than expected GDP report has caused many forecasters to declare that the recession is ending. While I would say that it is still too early to declare that the recession is ending, the latest data strongly suggests that we've seen the worst of this recession and the credit crisis. Even if the recession is ending, economic growth going forward is likely to remain disappointing since the unemployment rate will continue higher for some time to come. We will look at the latest economic numbers and draw some conclusions as we go along. We will also look at the latest survey of over 100 large hedge fund managers and what they predict for the economy, stocks, interest rates, etc. It all should make for interesting reading.

    • Why This Recession Could Last Another Year

      While we have seen some encouraging economic data over the last month or so, the vast majority of reports remain negative. The housing slump is getting worse, not better, with home prices plunging a record 19% in the 1Q. The home foreclosure rate skyrocketed 46% over year-ago levels in March. Meanwhile, millions of adjustable rate mortgages (ARMs) are going to "reset" to higher monthly payments over the next couple of years. And finally, the default rate on commercial real estate loans and mortgages is rising rapidly. All of this reinforces my view that this recession will last all year or longer, and this is bad news for the credit markets and the stock markets. Don't be fooled by all the talk of "green shoots" in the economy. We are not out of the woods yet....
    • Signs of the End of the Recession - Maybe

      While most of the latest economic reports remain quite bleak, we have seen a few modestly positive indicators over the last few weeks. In addition, the latest Wall Street Journal survey of 53 economists concludes - on average - that the recession will end by the 3Q of this year. If correct, that would be very good news. Yet the leading economic indicators (LEI) and the unemployment rate continue to worsen month after month. Thus, I continue to believe that we will be in this recession for the rest of this year. The Federal Reserve's latest Beige Book assessment agrees, unfortunately. This week, we will take an in-depth look at the latest on the economy, the credit crisis and when we might see an end to this recession. Finally, I will discuss the recent rally in the stock markets, and whether this is a new trend or simply a bear market rally. Let's jump in....
    • Have We Turned The Corner On The Recession?

      While the global recession and credit crisis are still in full swing, at least we have finally seen a few positive economic reports of late. Specifically, we have seen some good news in the housing sector where new and existing home sales actually increased nicely in February, following months and months of decline. We also saw an unexpected jump in durable goods orders for last month. These reports, along with the nice jump in the stock markets, have led several noted forecasters to suggest that we've seen the bottom in the recession and the worst of the credit crisis. I am not so convinced.

      We will also take a close look at Treasury Secretary Geithner's latest bank bailout plan that would partner government and private investors in a scheme to take toxic assets off of the banks' books, but there is no guarantee that this new plan will work. We'll also examine the Fed's latest plans to buy Treasury debt and more toxic assets from banks. Next, we'll examine the latest report from the Congressional Budget Office regarding President Obama's record large budget for 2010, which the CBO says will result in a massive $2.3 trillion deficit. Can I say, I told you so?

      It's a lot to cover in one letter, but I trust you will find it interesting....
    • Who Will Buy America’s Trillions In New Debt?

      Since taking office on January 20, President Barack Obama has proposed new government spending of almost $3 trillion dollars. Yes, $3 trillion consisting of his $787 billion "stimulus" package, up to $2 trillion in bank bailouts proposed by Treasury Secretary Geithner earlier this month, and another $275 billion for homeowners and mortgage companies that Obama announced last week. The question is, who is going to buy this gargantuan amount of US Treasury debt over the next few years? With the global recession, the largest foreign buyers of Treasuries, like China, Japan and Europe, may not be in a position to keep buying our debt. It now appears the US Federal Reserve will be called upon as the "lender of last resort," but the Fed will be forced to print these trillions in new money. That could trigger another round of big inflation (hyperinflation, some predict) in the coming years. This week, I will explore the implications of this record spending and borrowing. Be warned that what follows is not pretty, but it is what it is. The latest plunge in the stock markets is indicative of just how precarious the situation is. As investors, we need to understand what is happening and how to react to it. Let's get started....