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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  • 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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  • Problems The Media Ignored In The April Jobs Report

    Today we’ll start with a look at last Friday’s unemployment report for April. If you read the mainstream media accounts, it was fantastic – the official unemployment rate fell to 5.4%, the lowest level since 2007. But as usual, if we dig into the internals of the report, we find that the results were much less than desired.

    One of those findings was the fact that the percentage of adult women in the workforce has fallen to the lowest level in 27 years, but you had to look deep into the report to discover that data. The reasons for this phenomenon are not entirely clear, but I will offer some suggestions, in what is a rapidly growing debate.

    Following that discussion, we take a look at the exploding growth in “margin debt” on the New York Stock Exchange. In March, margin debt soared to a new record high of $476.3 billion. Some analysts believe this is a major problem for the equity markets, while others think it’s a positive development. But what we do know is that margin debt peaks at major market tops. With the major market indexes at or near their all-time highs, the next few weeks should be very interesting!

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  • Why Most Investors Consistently Underperform The Market

    Long-time clients and readers will recall that for years I have been writing about the annual Dalbar Studies which compare the actual performance of mutual funds versus what the average mutual fund investor actually earns. You may also recall that the numbers are quite ugly – the average investor makes significantly less than mutual fund performance reports would suggest in both stock and bond funds.

    The problem is not that mutual funds overstate their performance. The problem is that too many investors decide to switch into and out of mutual funds too frequently, in the hopes of boosting their returns. All too often, investors decide to sell the fund(s) they currently own, often at a low point, and switch into the latest hot performers, just before they hit a losing period. This practice too often results in selling low and buying high. I call it the “Mutual Fund Merry Go-Round.”

    If you have not seen these Dalbar statistics before, you are probably shocked. So was I when I first saw them in 1994! What is most surprising is that there has been very little improvement in the numbers over the last 20 years.

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  • Do More Americans Feel Confident About Retirement?

    More Americans say they are feeling more confident about their retirement. That’s according to the results of the latest “Retirement Confidence Survey” conducted each year by the non-profit Employee Benefit Research Institute (EBRI). The Washington-based EBRI is the leading source for data on savings, retirement, health and related issues.

    In their 2015 survey, some 37% of all respondents said they feel “very confident” about their retirement, and another 33% said they feel “somewhat confident.” The problem is that many Americans ‘say’ they are confident about having enough money to retire, even though they have nowhere near enough money stashed away. Many people overstate the amount of retirement savings they actually have and under-estimate how much money they will actually need in retirement.

    As we drill deeper into the latest retirement survey, we find that overall only 22% of current workers are now very confident about having enough money for a comfortable retirement. The 2015 survey also revealed that workers with a company-sponsored retirement plan are more than twice as likely as those without a retirement plan to be very confident – 28% with a plan, as compared to only 12% without a plan.

    I'll summarize the main findings in the latest EBRI retirement survey as we go along today. Following that discussion, I am compelled to criticize what I consider to be some of the worst investment advice I have seen in my 38 years in this business. The advice came in the form of a controversial video that was posted on a popular website last week.

    It was quickly criticized by a number of respected financial writers, mainly because the author, James Altucher, argued that investors and savers, especially younger ones, should avoid and/or abandon their employers’ 401(k) plans. He makes several erroneous statements about 401(k)s and their sponsors that many of us in the financial industry vehemently disagree with. So along with others who quickly discredited the video, I will criticize Mr. Altucher today. I hope no one takes his advice seriously!

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  • Has The US Dollar Topped Out, Or Headed Much Higher?

    The US dollar’s value has been on a tear since last summer, with the greenback’s value surging more than 20% against a basket of major foreign currencies. Reasons for the dollar’s sudden strong advance vary widely, but include the following among others:

    The US economy is faring better than most other developed economies, and foreign investors have to buy dollars in order to participate.
    The Fed is expected to raise short-term interest rates this year, and higher rates historically lead to a stronger currency.
    US stocks and bonds have been the leaders in market returns in recent years, and foreign investors continue to flock to them, creating more demand for dollars.
    Global tensions and concerns are rising in many parts of the world, and foreign investors are seeking a safe-haven in which to park their money.
    Basically, the US is the least worst of a bad lot when it comes to where international investors want to stash their money.
    For these reasons and others, international capital has been flowing into the US at a near-record rate since last summer. This has definitely boosted the value of the US dollar since last July and may continue to do so. But questions remain.

    The first question is whether the strong rise in the US dollar will continue? There are some compelling arguments that it will, as I will discuss below. Yet in March of this year, the US dollar turned lower. So the next question is, whether the recent downturn in the US dollar is a real change of trend? I’ll offer an opinion as we go along.

    Following that discussion, we will delve into the latest data on who pays income taxes and who doesn’t. The numbers may surprise you. Despite the fact that the top 20% of income earners pay almost 84% of all income taxes, the Democrats want to raise income taxes on high income earners and corporations. What else is new?

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  • Why The US Unemployment Rate May Be Wrong

    Last Friday’s unemployment report for March was a stunner, no doubt about it. After 12 consecutive months of new job creation above 200,000 per month, the Labor Department reported that only a meager 126,000 new jobs were created in March.

    Theories abound as to the cause of the huge drop-off in new jobs last month, but the default reason cited, once again this year, is the severe winter weather. While bitter winter weather is a factor, questions arise as to whether this could be a sign of worse things to come in the US economy.

    We will focus today on the latest disappointing unemployment report and examine what the internals of the latest missive might mean for the economy, and for the Fed’s timing of its first interest rate hike.

    Following that discussion, I want to shift our sights to a new study which suggests that the government’s official unemployment rate, currently 5.5% is significantly lower than reality. This new study concludes that the real unemployment rate in America today is somewhere between 7% and 9% or even higher. I think you’ll find this discussion compelling.

    But before we get to today’s main topic on the latest unemployment report, I want to briefly share with you a new and disturbing economic forecast from none other than the Federal Reserve itself.

    At the end of March, the Federal Reserve Bank of Atlanta released a new forecast for US GDP growth of 0.0% for the 1Q. This surprising new forecast from the Fed itself has sparked a spirited new debate on the subject of where the US economy is headed this year.

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  • On The Economy, The Environment & Income Tax Time

    The combination of topics for today’s E-Letter might seem unusual, and it is – the economy, the environment and income tax time. How do those fit together? They don’t really, but I think you will find today’s discussion on each to be interesting.

    The economy has been in a slow recovery for the past five-and-a- half years. It’s the weakest post-recession rebound in generations. The Commerce Department’s latest revision of 4Q GDP shows that nothing much has changed. Meanwhile, winter economic reports for retail sales, manufacturing and capital investment point to a weaker 1Q, perhaps only around 1% growth in GDP.

    Today we will look at several recent economic reports, most of which were (you guessed it, unless you didn’t read last week’s E-letter) disappointing. That includes last week’s final Gross Domestic Product report for the 4Q, Gallup’s Economic Confidence Index and February durable goods orders and housing starts.

    I also want to share with you some of the latest interesting polling results from Rasmussen Reports that I think you’ll find very interesting, especially regarding how most Americans feel about the IRS – given that income tax day is just two weeks away.

    But before we get to those topics, I want to share with you the findings of a couple of new Gallup polls which gauge Americans’ concerns about the environment and global warming. With so much alarmist rhetoric out there, you would think that the environment would be near the top of most Americans’ worry list. Let’s take a look.

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  • US Economy Badly Disappoints Analysts’ Expectations

    Today we will talk about an economic indicator that I have not written about before, which is compiled and reported monthly by CitiGroup, the American multinational banking and financial services corporation headquartered in Manhattan.

    The report is known as the CitiGroup Economic Surprise Report. It is an interesting indicator in that it measures how actual economic reports exceed or fall short of their pre-report expectations, or “consensus” as we call it. 

    CitiGroup compiles the Surprise Report each month, not only for the US but also for other regions of the world, including the Eurozone, China, Asia and others. We will look at this particular indicator today since most US economic reports this year have come in below expectations, whereas in late 2014, most exceeded the consensus.

    What does this tell us about the future? Most analysts conclude that the recent downward trend in the Surprise Report means that the US economy is slowing down, perhaps significantly. I tend to agree. Yet some others maintain that the report tells us little, if anything, about the direction of the economy. That’s what we will talk about today.

    Following that discussion, we’ll turn our attention to the latest developments in the oil patch. Given the collapse in oil prices over the last year, the number of working oil rigs has plummeted by almost 50%. Yet very surprisingly, daily oil production and our level of above-ground crude inventory have continued to increase rapidly.

    The question is, how can the rig count drop by almost half, yet daily oil production has continued to soar? The answer may surprise you.

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  • The Surging U.S. Dollar - Good For Some, Bad For Others

    The US dollar has been surging against most other currencies over the last year. The question is, is the rising US dollar good for the economy and the investment markets, or not? No doubt, the rising dollar has been buffeting the US equity and bond markets this year and is increasingly cited as the main culprit. That is what we will delve into today.

    Opinions differ whether a rising dollar is a net positive, or a net negative, for the US economy going forward. But as I will point out below, the strong US dollar is a good thing, despite what others may say. However, the main reasons why the dollar is surging may surprise you.

    The US dollar has risen about 33% from its low in April 2007. The euro is approaching a new low relative to the US dollar, reaching $1.05 last week, the lowest level since 2003. The euro could be at parity with the US dollar, or even less, very soon. But what does that mean for most Americans? We will answer that question today.

    At the end of today's letter, I will recommend that investors reduce exposure to equities or hedge long positions due to rising financial risks around the globe, which are reflected in the soaring US dollar. Be sure to read my analysis below.

    Before we get into that discussion, let’s look at some recent economic reports and data. We start with the results of the latest Wall Street Journal survey of over 60 economic forecasters. Next, we look at the wholesale price index which has now declined for the last four months. And then we look at retail sales which have declined for the last three months, well below expectations. Let’s get started.

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  • Strong Jobs Report Hits Fed’s Rate-Hike Target Zone

    Last Friday’s unemployment report for February was stronger than expected, both in terms of new jobs created and the headline unemployment rate which fell from 5.7% to 5.5%. This sparked growing fears among investors that the Fed will move to raise short-term interest rates sooner rather than later. Stocks fell sharply just after the report.

    The debate over when the Fed will raise interest rates this year, by how much and over what period of time, continues. The financial media hangs on the Fed’s every statement, looking for clues as to whether the first rate hike will happen in June or September or even later this year.

    Whenever “liftoff” happens, it is likely to be only a quarter-point hike in the Fed Funds rate – the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight – which is currently around 0.1%.

    How much the Fed Funds rate could rise over the next few years is a subject of much controversy – as I discussed in my blog last Thursday (you really should subscribe) – but most analysts don’t expect the key rate to rise above 1% by the end of this year.Today we will discuss when the Fed might make its first move and how much rates may rise over the next several years.

    But before we jump into that discussion, let’s take a look at last Friday’s unemployment report, which saw the headline unemployment rate drop to 5.5%, the lowest in seven years. However, as is often the case, not all the data in the latest jobs report were positive. I’ll explain the good and the bad as we go along today.

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  • January Inflation Turns Negative - Is Deflation Upon Us?

    Consumer prices fell in January for the third straight month, while inflation over the past 12 months turned negative for the first time since 2009, largely because of cheaper gasoline. In January, the Consumer Price Index sank by a seasonally-adjusted 0.7%, the biggest one-month drop since the end of 2008, the Labor Department reported Thursday.

    The pace of inflation over the past 12 months, as measured by the CPI, fell to negative 0.1%, and it’s down sharply from 2.1% last summer shortly before crude prices collapsed. That’s the lowest annual rate since late 2009/early 2010. If this trend continues, we will fall into deflation.

    Deflation, not to be confused with disinflation, or a slowing rate of inflation, is dangerous because it reduces the supply of money and credit flowing through the economy, and it can create less demand for big-ticket items from cars to washing machines. At its worst, dwindling demand can lead to global depression.

    Many investors are celebrating the widely-held belief that lower inflation is good for stocks and higher inflation is bad. But, as is often the case, this conventional wisdom is misleading, if not plain wrong. A study by the by the National Bureau of Economic Research found that corporate earnings and inflation tend to move up and down together, generally speaking. So the idea that lower inflation is good for stocks may be dead wrong.

    But before we get into that discussion, let’s take a look at last Friday’s report on 4Q Gross Domestic Product, which was a disappointment. At the end of today’s E-Letter, I will comment on Fed Chair Janet Yellen’s testimony before the Senate last week. And we will end with some thoughts on President Obama’s quest to reach a nuclear deal with Iran.

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  • U.S. Supreme Court - 2015 Will Be A Blockbuster Year

    The Supreme Court is poised for a blockbuster year in 2015 – and the list of high-profile cases could keep growing. Already, the Court is set to rule in a key case that threatens to wreak havoc on Obamacare. In addition, the justices will consider important cases regarding religious freedom, free speech, and limits on political fundraising.

    That mix of cases poses big risks for liberals, who were caught off guard by the Court’s willingness/enthusiasm to take on another high-stakes Obamacare battle much sooner than expected. Yet conservatives have a lot on the line as well. Under mounting pressure, the High Court agreed to hear a landmark the case on same-sex marriage once again – one that could clear the way for same-sex couples to legally marry in every state.

    We will take a look today at the most high-profile cases that the Supreme Court will hear this year, and what lies at stake in each of them. I wish Americans paid more attention to the Highest Court in the land.

    Before we get into that discussion, let’s take a look at the minutes from the most recent Fed Open Market Committee (FOMC) meeting on January 27-28. Those minutes revealed that several members on the Committee have new concerns about the economic recovery, especially in light of falling inflation and the rising US dollar. While the minutes didn’t say so specifically, it is clear that several members of the Committee now question whether short-term interest rates should be raised at all this year.

    Finally, we’ll look at the federal court decision in Texas last week that stopped President Obama’s executive action on immigration dead in its tracks, at least for now. This is an interesting development, and it remains to be seen if Obama can get this decision reversed.

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  • The Most Successful Public Company In The World

    Today we focus on the most successful and profitable company in the entire world. It just happens to be an American company, but many of us have never heard of it. If you had invested $1 in this company in 1968, your investment would have soared to $6,638 at the end of last year. I think you’ll be surprised to see which company this is.

    Following that discussion, I will address the growing trend of “socially-responsible” investing. That is, not investing in so-called “sin” stocks such as tobacco, alcohol, gambling, firearms, etc. A new report from Credit Suisse points out that there is a cost associated with socially-responsible investing – in the form of lower performance returns.

    I bring this to your attention, not in an attempt to discourage it, but to point out that there is a cost involved in “politically-correct” investing. In my 35+ years in the financial business, I have never seen an analysis that compares socially-responsible investing to investing in so-called sin stocks. I think you’ll find it very interesting.

    But before we jump into those topics, I want to briefly revisit the likelihood that the Federal Communications Commission, under orders from President Obama, will vote a week from Thursday to take control of our precious Internet. It now looks inevitable that the federal government will enact what may prove to be one of the largest power grabs in history!

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  • Deflation Is Spreading In Europe – Is America Next?

    US consumer prices fell in December by the largest amount in six years, reflecting another big monthly decline in gas prices and providing further evidence of falling inflation pressures. The Labor Department said Friday that its Consumer Price Index dropped 0.4% in December, the largest one-month drop since December 2008.

    Consumer prices also fell in the Eurozone in December by 0.2% for the first time in over five years. Given that consumer prices in the US and Europe went negative in December, we are hearing a lot more talk about deflation – which is a general decrease in prices for goods and services.

    A general decline in prices may sound good on paper but when deflation takes hold, it can wreak havoc on the economy. That’s because consumers and businesses have an incentive to delay purchases and investment since prices are expected to fall further. Deflation strangles borrowers because their debts get harder to repay. Just ask Japan.

    With the growing concern about the threat of deflation, I am receiving more requests from clients and readers to address it. While I don’t think deflation will take hold in the US anytime soon, it is growing rapidly in parts of Europe, one of our largest trading partners, and elsewhere. So today, we will focus on deflation and the trouble with falling prices.

    Before we go there, I would like to discuss two important recent economic reports. The first is last Friday’s unemployment report for January which was widely hailed by the mainstream media. The other recent report we’ll look at is the January Consumer Confidence Index which surged higher than anyone expected.

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  • President Proposes $4 Trillion Budget & New Tax Increases

    Most every year about this time, I criticize the sitting President of the United States for submitting an ever-larger federal budget that almost always includes a big deficit which adds to our massive national debt. I have criticized every president for this going all the way back to Ronald Reagan who also ran budget deficits, especially in his second term. Yes, I even criticized “The Gipper” who sparked my initial interest in politics way back in 1976.

    Given my long history of speaking out on this issue, I see no reason to make an exception today. On Monday, President Barack Obama submitted the largest proposed federal budget in history to Congress. In the past, most presidents who were shellacked in the mid-term elections tended to compromise in order to work with the opposition in Congress. Not this president!

    The president’s proposed federal budget for fiscal year 2016 is a whopping $3.99 trillion which would increase spending for government agencies by a whopping 7% and includes numerous onerous tax increases to pay for most of it. Yet even with the tax increases, the FY2016 deficit is projected to be $474 billion.

    The reality is that this is all simply political theatre. The president knows he won’t get nearly all of the new spending increases and taxes on the wealthy and corporations he proposes, what with a Republican-controlled Congress. But he does throw a very large bone to his liberal political base, while making the Republicans look like the “Party of No.” 

    In any event, I’ll briefly summarize the president’s latest record-large budget proposal today, and you can make of it what you will. But before we go there, let’s take a look at last week’s disappointing 4Q GDP report and what transpired at the Fed’s first policy meeting of 2015.

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