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.

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  • Stocks Fell Off A Cliff in Late August - What To Do Now

    What an absolutely CRAZY couple of weeks we’ve just been through! The collapse of stock prices around the world has stunned investors. By some measures, the plunge in the Dow and the S&P 500 in August was the worst in 75 years, even worse than the Crash of 1987. While I advised readers to reduce long-only equity exposure significantly in April and May, I was not expecting a 15% spike down in just a few trading sessions.

    Later in today’s E-Letter, I will introduce you to the latest money manager to make it on to our recommended list. This money manager specializes in buying and selling options on stock index contracts. This is one of the more unusual strategies I have seen over the years, but when you see the results, you’ll understand why I’m so excited to add ZEGA Financial to our stable of recommended Advisors.

    Before we get to the above issues, let me briefly comment on last Thursday’s better than expected report on 2Q Gross Domestic Product.

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  • Population Growth & Productivity Headed in Wrong Direction

    Today we’ll focus on some longer-term economic data which shows, unfortunately, that the US economy is in a multi-decade slide that will be very difficult to reverse. Population growth and worker productivity – the keys to sustained economic growth – are both in decline, trends that are not likely to change anytime soon.

    US Gross Domestic Product averaged 3.74% annual growth from 1950 to 1990, but has since  slowed dramatically to average only 2.21% from 2010 to 2014. Even worse, worker productivity that averaged 2.5% annual growth from 1948 to 2007 has been slashed by over 50% to only 1.2% annually from 2010 to 2014.

    Throughout its history, the US has been a productivity powerhouse. US worker productivity growth averaged around 3% annually during the period 1996-2004, but fell to 1.5% in 2005-2012, and more recently has slipped even further to just above 1%.

    What’s at stake is the very future of America. Without faster growth, the US can’t create enough jobs for those who want them, and Americans will have to get used to much smaller increases in their paychecks. The middle class will likely shrink even more, and the poor would be even worse off. Are we doomed to a dimmer future?

    The question is, what can be done to reverse these troubling trends? The answers are not simple, nor politically correct in most cases. Another question is, do any of the politicians running today have the knowledge and/or conviction to tackle these critical problems?

    That’s what we will talk about today. But before we get to that discussion, let’s look at the Fed’s latest prediction for the economy in the 3Q. The latest GDPNow forecast will surprise you.

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  • Global Economic Slowdown - Implications For US Stocks

    The global economy is rolling over to the downside for the most part. The question is, will this global slowdown take the US economy down with it? While no one knows for sure, that possibility simply cannot be ruled out. If the softening in the global economy leads to a slowdown in the US, that will almost certainly result in a weakening of our stock markets.

    In my March 17 E-Letter, I recommended that investors in traditional “buy-and-hold” equity funds reduce stock market exposure (or hedge long positions partially or fully) due to increasing global risks at that time. I repeated that recommendation twice since then.

    Since March 17, the S&P 500 Index has moved sideways to lower as of this writing. Could the US equity markets be setting up for a significant downward correction? It would be unwise in my opinion to rule it out.

    The slowdown in the global economy and the implications for the US economy and our stock markets will be our main topic for today, but before we get to that, let’s take a quick look at last Friday’s unemployment report for July.

    At the end of today’s letter, I will briefly comment on Obama’s new Clean Energy Plan which will raise electricity costs significantly, if enacted, and give you a link to the full story. I will also comment further on the Dodd-Frank law I wrote about in my Blog last Thursday.

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  • "Renter Nation" - US Homeownership Hits 48-Year Low

    The government’s Census Bureau reported last week that the US homeownership rate fell to the lowest level in the last 48 years. It is indeed a sad awakening that the level of home ownership is now the lowest since 1967.

    Along this same line, the Census Bureau found that more Millennials (18 to 34 year-olds) are living with their parents today than at the worst point in the Great Recession. This is despite the fact that the economy and labor market conditions have improved in recent years.

    The issue is not that we aren’t forming more households. We are. The problem is that fewer and fewer households can afford to buy a house – despite record low interest rates – and more and more are renting rather than buying, whether by choice or by necessity.

    The fact that more and more Americans are choosing to rent their homes and apartments has resulted in rents going through the roof. It’s supply and demand, of course. But the fact that Americans are spending more and more on rent means that they have less and less to spend on buying other goods and services to spur the economy.

    The bottom line is that the American Dream of owning your own home is fading fast. This fact is affecting younger Americans the hardest. Way too many have given up the dream of owning their own home, as a recent Gallup poll has found.

    Today, we’ll look at this disturbing trend and try to discern why it is happening.

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  • Thursday’s GDP Report May Hold Big Surprises

    The next few days should be an interesting time in the markets. The Fed Open Market Committee (FOMC) is meeting today and tomorrow and will release its latest policy statement at the conclusion of the meeting. While it is not expected that the Committee will vote to raise the Fed Funds rate at tomorrow’s meeting, Fed Chair Janet Yellen has been talking hawkishly about a rate hike of late.

    Friends, business associates and clients increasingly ask me: Why is the Fed so intent on raising interest rates? The US economy is not that great, the global economy is slowing down, inflation is practically nonexistent and commodity prices are signaling deflation. So why on earth is the Fed hell-bent on raising rates when much of the world is doing just the opposite? I’ll tell you why as we go along today.

    Then on Thursday, we get the first estimate of 2Q GDP from the Commerce Department, and there is an unusually wide range of pre-report estimates. While there is broad agreement that the economy bounced back after the disappointing 1Q rate of -0.2%, some forecasters believe the 2Q estimate will be less than 1%, while others believe it will be north of 3%. That’s a huge spread! The Atlanta Fed’s rolling “GDPNow” indicates 2Q growth of 2.4%.

    Yet perhaps the most important news of this week will be the Commerce Department’s annual revisions to its GDP numbers going back several years on Thursday. While such revisions happen every year, this year’s revisions and changes are expected to be more significant than usual as the government tries to smooth-out “seasonal adjustments.” Many expect that the 1Q GDP estimate of -0.2% could be revised to a slightly positive number. This will be big news.

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  • Halbert Wealth Celebrates 20 Years, I Celebrate 40 Years

    This year marks the 20th anniversary of Halbert Wealth Management. 2015 also marks my 40th year in the investment business. Since many of my readers don’t know my career history, I thought I would devote this mid-summer issue of Forecasts & Trends to telling my story going back to 1975 when I first got into the investment business.

    I also want to revisit how and why I came to found Halbert Wealth Management and began searching for professional money managers in 1995, and have continued to do so ever since. If you’re an investor, I think you’ll find this story interesting.

    I’ll finish out today’s E-Letter by highlighting two of my favorite money managers, each with 19 and 20-year performance records. These two should be strong candidates for almost any well-diversified portfolio.

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  • The National Debt Is Over $18 Trillion, Not $13 Trillion

    In June, the non-partisan Congressional Budget Office (CBO) released its annual “Long-Term Budget Outlook” which concluded yet again that the trajectory of US federal debt is “unsustainable” and will lead to an unprecedented debt crisis in the years ahead.

    After running $1+ trillion annual budget deficits in fiscal years 2009-2012, the deficits have come down significantly in the last few years, to $483 billion in FY2014, down from $1.3 trillion in 2011. However, the CBO warns in its latest report that the debt will start to ratchet significantly higher in a few more years if major changes are not made soon.

    The CBO estimates that “debt held by the public” will rise to 78% of Gross Domestic Product by 2025 and 103% of GDP by 2040 – assuming its long-term assumptions hold true. Several of those assumptions are dubious in my opinion. The CBO admits as much and offers an alternative fiscal scenario which shows the debt rising to over 100% of GDP much sooner.

    The problem I have always had with the CBO’s debt numbers is that they only consider the debt held by the public, which is currently apprx. $13.1 trillion. The CBO does not include the additional apprx. $5.2 trillion of so-called “intra-governmental debt” which is owed by various governmental agencies including Social Security.

    If we add the intra-governmental debt, then our national debt leaps to apprx. $18.3 trillion today, which is actually larger than our GDP of $17.7 trillion at the end of 2014. So our real debt-to-GDP ratio is already above 100%! That’s what we will talk about today. All Americans should understand what follows.

    Finally, it is widely agreed that the latest nuclear agreement with Iran is a victory for the Iranians and a dangerous setback for the West, thanks to President Obama. While I don’t have space to address it today, be sure to read the first link in SPECIAL ARTICLES below which points out 16 reasons why this was a very bad deal.

    This is just another example that illustrates how our president does not have America’s best interest at heart.

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  • China’s Stock Markets Imploded In June - Why?

    While the mainstream media has been obsessed with Greece over the last month or so, there has been scant attention paid to the fact that China’s high-flying stock markets unexpectedly have plummeted in June and were down around 30% through the end of last week.

    China’s exploding economy in recent years has made it the hotspot for global investors. Mutual fund families and ETFs have rushed to add exposure to the Chinese markets. China’s two major stock exchanges have seen their share indexes surge over 100% in the last year, drawing ever more investors to jump in. This includes many middle class Chinese who have never invested in anything before (many of whom have borrowed money to invest).

    Yet as noted above, in the last month, share prices on China’s stock exchanges have plummeted by around 30% as of the end of last week, to the surprise of just about everyone. The decline continued overnight (Tuesday).  Many investors don’t even know it yet since they have not seen their June account statements.

    With the world’s attention focused on Greece over the last couple of weeks, the China story has not made its way onto the media’s radars for the most part. For that reason, I will focus on the latest disturbing developments in the China story today.

    But before we get to the troubling news on China, let’s take a look at a few of the latest US economic reports – including the June unemployment report, the big jump in consumer confidence last month and the Gallup Job Creation Index which is at a new record high.

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  • Roberts’ Supreme Court Overstepped Its Bounds, Again

    Last week the Supreme Court rendered two controversial landmark decisions, one on Obamacare subsidies and another on same-sex marriage. Both went in favor of the liberals on the Court, and many conservatives cried foul.

    While neither decision came as a surprise to me, Supreme Court observers on both the right and the left were surprised by the way the court went about making them. In both cases, there was a great deal of liberal “interpretation” of the law, and in the same-sex marriage case, states’ rights were trampled.

    Today, I will share a few of my thoughts on the landmark decisions last week. More importantly, I will share with you summaries of the “dissents” written by conservative Justice Antonin Scalia, one of my long-time favorites on the Court. He had some powerful thoughts on last week’s decisions that I think you will appreciate.

    There was one other troubling Supreme Court decision last week that you probably didn’t hear about, but you should have. The ruling cracks down on housing discrimination, which sounds like a good thing. Yet this decision could lead to a new housing bubble and the next financial crisis, so you need to know about it. This story appears as the first link in SPECIAL ARTICLES.

    Before we jump into the Supreme Court discussion, let’s take a look at a couple of important economic reports released over the last week.

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  • The Hot Debate Over 4% Growth In The Economy

    On June 15, former Florida governor and GOP presidential hopeful Jeb Bush formally announced his campaign with a promise that, if elected president, he would return the nation to 4% economic growth and create 19 million new jobs over the next decade.

    That’s a huge promise, especially with the economy stuck at around 2% growth, and one he may regret if he indeed becomes our next president (which I doubt). In any event, Bush’s 4% promise has sparked a spirited debate on the right and the left.

    Pundits on the left almost unanimously agree that 4% growth is a pipe dream and believe we should be satisfied with 2-2½% GDP growth. Some on the right believe that 4% growth is indeed possible and some even offered specific steps to get there. Today, I will try to summarize both positions and draw some conclusions.

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  • Stock Markets Have Stalled Since March - Now What?

    The major stock indexes (Dow, S&P 500, Nasdaq) have gone virtually sideways since March. Yes, there was the brief day or two in May when all three indexes recorded new record highs, but then promptly sold off sharply. This suggests that there is a lot of overhead resistance just above current levels. As a result, the natives are getting restless! And for good reason. Today I have reprinted a very good report from a seasoned stock market analyst who points to a number of key factors that are weighing on the stock market presently, factors that most investors pay little or no attention to. His point is that it may be very difficult for the stock markets to break out of the recent trading range to the upside. For that reason, we could be headed for a serious downward correction - the likes of which we haven't seen since September/October of last year or worse. I think you'll find his analysis very interesting. Following that discussion, I will give you my latest thoughts on when the Fed will raise interest rates - what with so much attention focused on that question. And there's a possible new twist as to how the Fed may go about announcing and then actually implementing the first rate hike that you'll find interesting (or maybe too cute). Finally, the World Bank released its mid-year economic projections last week and downgraded its 2015 forecast for the US. No surprise there, at least not for me and my readers. What was most interesting was that the World Bank joined the IMF in asking the Fed not to rai

    The major stock indexes (Dow, S&P 500, Nasdaq) have gone virtually sideways since March. Yes, there was the brief day or two in May when all three indexes recorded new record highs, but then promptly sold off sharply. This suggests that there is a lot of overhead resistance just above current levels. As a result, the natives are getting restless! And for good reason.

    Today I have reprinted a very good report from a seasoned stock market analyst who points to a number of key factors that are weighing on the stock market presently, factors that most investors pay little or no attention to. His point is that it may be very difficult for the stock markets to break out of the recent trading range to the upside. For that reason, we could be headed for a serious downward correction - the likes of which we haven't seen since September/October of last year or worse. I think you'll find his analysis very interesting.

    Following that discussion, I will give you my latest thoughts on when the Fed will raise interest rates - what with so much attention focused on that question. And there's a possible new twist as to how the Fed may go about announcing and then actually implementing the first rate hike that you'll find interesting (or maybe too cute).

    Finally, the World Bank released its mid-year economic projections last week and downgraded its 2015 forecast for the US. No surprise there, at least not for me and my readers. What was most interesting was that the World Bank joined the IMF in asking the Fed not to raise interest rates until sometime next year. That raises the question: Is Janet Yellen listening?

    se interest rates until sometime next year. That raises the question: Is Janet Yellen listening?

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  • IMF Urges Fed Not To Raise Interest Rates Until 2016

    On Thursday of last week, the International Monetary Fund downgraded its forecast for US economic growth this year from 3.1% earlier in the year to only 2.5% now. That is not surprising in light of the mainly disappointing economic reports we’ve seen recently, and other forecasters have been revising their estimates lower as well.

    Yet in addition to the downwardly revised growth forecast, the new IMF report openly called on the Federal Reserve to delay any interest rate hike until sometime next year. In all of my years of Fed-watching, I don’t remember the IMF ever trying to influence Fed monetary policy. This is an unusual development, and it will be very interesting to see how it plays out.

    The question is whether Fed Chair Janet Yellen and her fellow members of the policy setting Committee pay much, if any, attention to what the IMF has to say. We all know that the Fed really wants to raise short-term rates to give it some ammunition for the next recession.

    This apparent disagreement is between two of the most powerful women in the world – Christine Lagarde, head of the IMF, and Fed Chair Janet Yellen. This issue will be our main topic today.

    But as we often do, let’s first take a look at Friday’s stronger than expected unemployment report for May and the latest disappointing report on consumer spending.

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  • Our $1.3 Trillion Government-Assisted Student Loan Crisis

    I have been wanting to address our exploding student loan crisis for over a year now, but the topic didn’t seem to fit into the normal themes I tackle. Yet in fact, it does: It represents just one more financial/debt crisis facing our country that will surely impact the economy and the investment markets at some point.

    Student loan debt in the US topped $1 trillion in 2012 and by most estimates is over $1.3 trillion today. There are several reasons why student loan debt has skyrocketed – the disappointing economy, stagnant wages and the fact that more young adults have been staying in college longer rather than accepting low-paying or part-time jobs. Add to that the fact that college tuition has gone up significantly every year.

    What many Americans don’t know is that the federal government has largely taken over the student loan program since the current occupant of the White House has been in office. In so doing, the standards for qualifying for student loans have dropped significantly. As a result, even more people are getting student loans and becoming more dependent on the government – by design.

    But before we get into that lively discussion, let’s take a look at last Friday’s GDP report which reduced 1Q economic growth from modestly higher in the initial report at the end of April to decidedly negative (-0.7%) in the latest revision. We will also look at the latest controversy over whether the government’s estimates of 1Q GDP in recent years have been understated.

    Because the second estimate of 1Q GDP was decidedly negative, that has forecasters swiftly downgrading their estimates for 2Q GDP growth. We will round-out today’s economic discussion with a question I raised last month: Could the US economy already be moving into a new recession? While I doubt it, we should at least think about it. Let’s get started.

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  • China Surpasses America As World’s Largest Economy

    For the first time in history, the People’s Republic of China’s Gross Domestic Product exceeded the GDP of America, as measured by purchasing power, in 2014. According to the International Monetary Fund, China’s purchasing power GDP hit $17.6 trillion last year versus $17.4 trillion in the US.

    This was an important milestone for both countries, and China will almost certainly expand its lead over the US in the coming years and decades. Yet that is not necessarily a bad thing for the US, as I will explain below. You probably didn’t hear about this in the media, and that’s why we will talk about it today.

    But before we get to our main topic, let’s look at a few recent economic reports of interest. The US economy has largely disappointed this year, with weaker-than-expected growth in sales, spending and production, with most of reports showing scant momentum.

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  • Why US Economic Growth May Disappoint Again In 2015

    Our main topic today is how the US economy continues to disappoint expectations, and 2015 looks to be no exception. Forecasts for GDP growth this year continue to be downgraded, and there is at least a small possibility that the US economy is slipping into recession, as I will discuss below.

    But before we get into that discussion, let’s look at a few recent economic reports that are not encouraging. Retail sales that were expected to bounce in April were flat and have been trending lower since 2012. Consumer sentiment, which had reached the highest level since 2004 by the end of last year, dropped to a seven-month low earlier this month. And factory output slipped in April, the fifth monthly decline in a row.

    We will end today with a new article on the Trans-Pacific Partnership from the Wall Street Journal, which explains why I continue to support this controversial trade agreement.

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