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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.

Introduction

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.

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.

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.