The national unemployment rate is now 9.5%. Some states have entered double-digit unemployment (California, Nevada, Michigan, Indiana) and this trend may continue. I strongly believe that the unemployment rate provided by the Bureau of Labor Statistics is grossly understated. This rate does not include new college grads, people who have stopped looking for work, self-employed (real estate agents / independent contractors), and the under-employed (part-timers). Unless the employment rate improves the economy will continue to trend downward along with home prices, consumer spending, GDP, and corporate earnings.
Earning season is now kicking off with Alcoa. These earnings may wind up disappointing the market and we could enter the second stage of the bear market selloff of 2008-2009. The government stimulus will eventually wear off and we will be left only with the $12 trillion federal debt burden (which doesn't include entitlement programs like Social Security and Medicaid). China owns $800 billion of US Treasuries and the US stimulus program was $800 billion?!?!
If the Obama administration decides to push for another stimulus program it may send a sell signal on the US dollar which would be highly inflationary. The fed is also monetizing the US debt by buying Treasury bonds. The Fed announced on March 18 it would buy as much as $300 billion in Treasuries over six months to hold down borrowing costs (mortage rates, etc.). The exit strategy is nowhere in sight and it will be very difficult to raise interest rates when the economy is still extremely unstable.
Wednesday, July 8, 2009
Friday, March 20, 2009
Greenbacks = Wallpaper
The U.S. Government is in the process of running the printing press and debasing our currency. The true definition of inflation is the increase in the money supply... price inflation is just the effect of monetary inflation. Many high profile companies continue to slash dividends and make their stocks not worth holding. The only reason to own a stock is for dividends!
The scandals at AIG should be blamed squarely on the U.S. Government. You cannot just give a heroin addict money and expect them to use it for college and to pay off their debts. AIG is a bad company and they should have gone bankrupt. All the U.S. Government did was pay off their gambling debts to Goldman Sachs, etc. That is taxpayer money that will NEVER BE RECOVERED!!!
There has recently been a big shift away from the U.S. Dollar / U.S. Treasuries into commodities / foreign stocks. I expect this trend to continue and U.S. stocks / real estate to lose value. At the same time, however, I expect consumer good prices to increase. Everything from food, energy, and clothing will become very expensive due to limited inventories. People will continue to lose their jobs putting additional pressure on real estate prices and consumer credit across the country.
The scandals at AIG should be blamed squarely on the U.S. Government. You cannot just give a heroin addict money and expect them to use it for college and to pay off their debts. AIG is a bad company and they should have gone bankrupt. All the U.S. Government did was pay off their gambling debts to Goldman Sachs, etc. That is taxpayer money that will NEVER BE RECOVERED!!!
There has recently been a big shift away from the U.S. Dollar / U.S. Treasuries into commodities / foreign stocks. I expect this trend to continue and U.S. stocks / real estate to lose value. At the same time, however, I expect consumer good prices to increase. Everything from food, energy, and clothing will become very expensive due to limited inventories. People will continue to lose their jobs putting additional pressure on real estate prices and consumer credit across the country.
Monday, December 22, 2008
Happy New Year 2009!
What a tough year it has been for the American investor. Hopefully, 2009 will offer a much needed fresh start. Recent retirees have been rocked by a 1-2 punch in 2001-2002 and again now in 2008-2009. These losses will be devastating to the retirement of millions of American households. The evolution of the retirement plan from Defined Benefit to a Defined Contribution arrangement has left retirees with a lump sum rollover and a "good luck" wish from their former employers. The retirement plan sponsors must adopt guaranteed lifetime income payout options in the form of immediate annuities to ensure that their retiree assets are not dissipated by stock market girations, bad investment advice (predatory advisors, real estate speculation), and outright financial scams (Madoff, etc.).
The unemployment rate is moving up quickly from 6% to 7% and foreclosures continue to plague the real estate market. The NBER has finally stated the obvious; the US economy is now in a recession that began in December 2007. The new administration certainly has their work cut out for them. The TARP funds are slowly being distributed and the banks, insurance companies, and auto industry are all looking for a handout. A new fiscal stimulus plan is yet to be announced and many Americans are really struggling. I have one suggestion to the new administration....
OFFER A TAX CREDIT OF $10K - $15K TO HOME BUYERS!!!!!!!!!!!
We must clear out the real estate inventory before this economy can get back on a stable footing. If the real estate market continues to fall and credit markets remain frozen, the US economy will head into a prolonged recession or possibly a full blown depression. The US stock market has already decreased -50% this year and the Fed has cut interest rates down to 0% and has committed to keeping rates low (even if that means buying long term bonds). Inflation has moderated with declines in commodity prices and the consumer has finally caught a break with declines in gas prices ($1.50 a gallon due to demand destruction). The flight to safety continues and the 10 year treasury yield is now down to 2.00%. That's lower than it has been since 1953!
See the link below for historical 10-year treasury yields direct from the Federal Reserve:
http://www.federalreserve.gov/releases/h15/data/Monthly/H15_TCMNOM_Y10.txt
The Madoff Securities scandal has only added to the crisis in confidence among investors. My advice is to handle your own investments. You will pay a lot less fees and you will be in control of your own destiny. Investors must get back to fundamentals and take more responsibility for their own future.
I hope that people across America will spend this holiday season focusing on what is really important in life... health, family, and freedom ; )
Merry Christmas & Happy New Year to you and yours!
The unemployment rate is moving up quickly from 6% to 7% and foreclosures continue to plague the real estate market. The NBER has finally stated the obvious; the US economy is now in a recession that began in December 2007. The new administration certainly has their work cut out for them. The TARP funds are slowly being distributed and the banks, insurance companies, and auto industry are all looking for a handout. A new fiscal stimulus plan is yet to be announced and many Americans are really struggling. I have one suggestion to the new administration....
OFFER A TAX CREDIT OF $10K - $15K TO HOME BUYERS!!!!!!!!!!!
We must clear out the real estate inventory before this economy can get back on a stable footing. If the real estate market continues to fall and credit markets remain frozen, the US economy will head into a prolonged recession or possibly a full blown depression. The US stock market has already decreased -50% this year and the Fed has cut interest rates down to 0% and has committed to keeping rates low (even if that means buying long term bonds). Inflation has moderated with declines in commodity prices and the consumer has finally caught a break with declines in gas prices ($1.50 a gallon due to demand destruction). The flight to safety continues and the 10 year treasury yield is now down to 2.00%. That's lower than it has been since 1953!
See the link below for historical 10-year treasury yields direct from the Federal Reserve:
http://www.federalreserve.gov/releases/h15/data/Monthly/H15_TCMNOM_Y10.txt
The Madoff Securities scandal has only added to the crisis in confidence among investors. My advice is to handle your own investments. You will pay a lot less fees and you will be in control of your own destiny. Investors must get back to fundamentals and take more responsibility for their own future.
I hope that people across America will spend this holiday season focusing on what is really important in life... health, family, and freedom ; )
Merry Christmas & Happy New Year to you and yours!
Thursday, September 18, 2008
DOW 10,000
Well here we are... let's recap. Bear Stearns, Indymac, Lehman Brothers, AIG, Merrill Lynch, and now Morgan Stanley all rocked by toxic mortgage debt. Will Goldman Sachs be left as the only independent investment bank without the cushion of deposit accounts to fall back on???
I smell opportunity here... GS at 100 and GE at 20 (with 5% dividend). They are both extremely well run firms that may have the strength to weather this storm. When the dust finally settles there will emerge from the wreckage a few bright stars that had enough foresight to plan for a rainy day.
Interest rates are going down. A flight to safety has accelerated and yields on U.S. Treasury bonds have dropped fast. It is very difficult to find a safe place to stash money today other than government debt. Even money market accounts have lost value and have "broken the buck". Some money market investors are only getting back .96 cents on the $1.00. That is almost considered sacrilege in the investing world!!!!
I smell opportunity here... GS at 100 and GE at 20 (with 5% dividend). They are both extremely well run firms that may have the strength to weather this storm. When the dust finally settles there will emerge from the wreckage a few bright stars that had enough foresight to plan for a rainy day.
Interest rates are going down. A flight to safety has accelerated and yields on U.S. Treasury bonds have dropped fast. It is very difficult to find a safe place to stash money today other than government debt. Even money market accounts have lost value and have "broken the buck". Some money market investors are only getting back .96 cents on the $1.00. That is almost considered sacrilege in the investing world!!!!
Friday, June 27, 2008
Stagflation is here... Bernanke is in a pickle
Inflation and recession = stagflation. This is a very dangerous position for the US economy and the Fed has the mandate to keep inflation low even if they have to push the economy futher into recession by raising interest rates. When Bernanke and the Fed lowered interest rates fast and furious they signaled that they may raise them just as quickly to avoid the same problems of the Greenspan era.
"The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."
This type of uncertainty with slowing growth is very bad for the stock market and rising interest rates is very bad for the bond market.
"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."
The Fed will act and must act to keep inflation in control. Gas prices may go from $4 to $5 a gallon and oil could top $150 a barrell in the near term (especially if a conflict erupts between Isreal and Iran). Prices for just about everything from food, durable goods, etc. are all rising as companies try to push higher production costs on to the consumer, however, the consumer is strapped for cash and may not be able to handle it.
The DOW has officially entered a bear market... down - 20%. The volatility should continue throughout the rest of 2008 and may get worse after the Presidential election. Housing prices will continue to fall due to foreclosures flooding the market and rising mortgage interest rates with strict underwriting standards. Eventually the job market may really start to sour so make sure you save for a rainy day because it is coming very soon. However, with every bear market you have opportunity to purchase large well established Blue Chip companies at bargain basement prices.
"The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."
This type of uncertainty with slowing growth is very bad for the stock market and rising interest rates is very bad for the bond market.
"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."
The Fed will act and must act to keep inflation in control. Gas prices may go from $4 to $5 a gallon and oil could top $150 a barrell in the near term (especially if a conflict erupts between Isreal and Iran). Prices for just about everything from food, durable goods, etc. are all rising as companies try to push higher production costs on to the consumer, however, the consumer is strapped for cash and may not be able to handle it.
The DOW has officially entered a bear market... down - 20%. The volatility should continue throughout the rest of 2008 and may get worse after the Presidential election. Housing prices will continue to fall due to foreclosures flooding the market and rising mortgage interest rates with strict underwriting standards. Eventually the job market may really start to sour so make sure you save for a rainy day because it is coming very soon. However, with every bear market you have opportunity to purchase large well established Blue Chip companies at bargain basement prices.
Monday, March 17, 2008
Bear Stearns
JP Morgan buys BSC for $2 per share. This is a harbinger of things to come. We may see other financial institutions fail this year as inflation spirals out of control and growth slows causing "stagflation". The Fed is walking a very delicate balance with a meeting scheduled tomorrow at 2pm with a possible 100 basis point cut in the Fed Funds rate. This is a band-aid on a gun shot wound. Housing prices and equities may fall another 10% to bring prices back into equilibrium. Keep your powder dry!!!
Wednesday, November 14, 2007
Tuesday's Big Bounce Back
Yesterday's big +316 point bounce back for the DOW just goes to show that there is no way to guess the direction of the stock market in the short term. However, the issues that are causing concern in boardrooms across the country still remain. E-Trade, the discount brokerage, lost a whopping -60% on Monday after Citigroup analyst Prashant Bhatia raised the possibility of bankruptcy due to write-downs of E-Trade's sub-prime related investments. That sent shock waves through the financial sector as firms such as; Merrill, Citigroup, Bank of America, Bear Sterns, HSBC, Wachovia,Washington Mutual, etc. try to grasp the limit of exposure they have to these illiquid, hard-to-value, convoluted securities. Merrill and Citigroup have both let go of their CEO's due to billion of dollars of losses and the realization of last year's overstated profits under their watch. Interest rates are expected to be lowered another -.25 bpts at the Fed's 12/11/07 meeting, however, if we do not see at least another -.25 bpt cut materialize the market may react very negatively.
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