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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  • Three Interesting Articles I Read Last Week

    I’m taking most of this week off to hang out with the kids before they head back to college this weekend. So today we’ll look at a few of the most interesting articles I’ve read over the last week. I hope you enjoy them. I have some comments of my own at the end of each article.

    We will start with an article on Saturday from Larry Kudlow, a CNBC senior contributor and host of The Larry Kudlow Show on radio. Larry is one of my favorite economic and financial writers because he knows how to cut right to the chase and pulls no punches. In the following article, Larry offers his no-nonsense plan to get the economy back on track – and I fully agree with him.

    Following that, I have a very good article on the state of the European economy, and the news is not good. Europe may be headed in the direction of Japan. Our last article focuses on President Obama’s use of Executive Orders when Congress fails to cooperate and, specifically, his latest threat to grant a path to citizenship to millions of illegal immigrants by EO.

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  • The Border Crisis: Why Is It Happening & Why Now?

    The recent surge of tens of thousands of unaccompanied children to the United States from Central America has sparked an intense and emotional debate over the crisis on the US-Mexico border. Unlike illegal immigrants from Mexico that can be deported within 48 hours, illegals from “non-contiguous” countries must be provided a deportment hearing in a court of law.

    As a result, these illegals must be detained and housed (and educated if they are minors) until they have their day in court. Our government is quietly shipping these illegal immigrants to cities across America, often with no advance notice to the local communities. Why is this happening?

    Many Republicans say that the crisis is largely due to lenient US immigration policies that have led these illegal immigrants to believe that if they can get here, they can stay here. Many Democrats believe that these people are fleeing rampant violence in their home countries and that we should help them – along with a path to citizenship.

    Yet there are many more questions than there are answers. Is our government directly responsible for this humanitarian crisis? How do these families in poverty in Central America scrape together thousands of dollars to pay the “coyotes” and send their young children into potentially grave danger? Why is this flood of immigrants and children happening now?

    Finally, could the border crisis be a prelude to a National ID Card? Maybe it’s a preposterous question, but it needs to be asked. I will ask it today and explain why we need to be aware of this possibility. This should make for an interesting letter, whether you agree or not.

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  • Consumer Confidence Hits 7-Year High - Really?

    Today we’ll look at several key economic reports over the last week or so. Most have been better than expected. The Conference Board reported that its Consumer Confidence Index surged to the highest level in seven years in July. However, a couple of other reports we’ll look at below paint a very different picture.

    The advance report on 2Q GDP came in well above pre-report estimates. Last Friday’s unemployment report for July was disappointing, but at least new jobs were over 200,000 for the sixth consecutive month. The Fed’s favorite inflation indicator (PCE) climbed to the highest level since 2011 last month. And the ISM manufacturing index surged to a three-year high in July. We’ll analyze all of these reports as we go along today.

    Finally, a recording of our latest WEBINAR with YCG Investments is now available on our website. You’ll definitely want to hear Brian Yacktman and his team discuss their very successful “value investing” strategy.

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  • Fed’s Janet Yellen To Continue Punishing Savers

    New revelations have suggested that our new Fed Chair, Janet Yellen, may be the most liberal person to ever hold the highest monetary office in the world. This news comes after a recent extended interview Ms. Yellen did with The New Yorker Magazine and her testimony before Congress earlier this month.

    Today we’ll look into these revelations about Ms. Yellen and ponder what they might mean for Fed monetary policy going forward. Chair Yellen made it clear before Congress that she is quite willing to keep the zero interest rate policy (ZIRP) in place considerably longer than most forecasters have been thinking. That will continue to punish savers and those on fixed incomes.

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  • Economic Outlook Dimming, Yet Fed Plans Rate Hikes

    The mainstream media was largely successful in convincing the public that the dreadful 1Q GDP number (-2.9%) was the result of the bitter winter in January and February. The media spin was that the economy would snap back strongly in the 2Q with growth of 4%, 5% or even 6%. While there were some encouraging economic reports in April, May and early June, the economy now appears to be losing momentum again.

    Predictions of 4-5% GDP growth in the 2Q have faded. A new Wall Street Journal poll last week found that forecasters on average expect 2Q GDP growth of only 3.1%, down from a 3.5% estimate a month ago. The same poll of 48 forecasters now expects the economy to grow by only 1.6% for all of 2014, down from 2.8% forecast earlier this year.

    Despite this dimming economic outlook, the media is now concerned that the Fed may begin raising interest rates sooner rather than later, and that the expected series of rate hikes will happen more rapidly than previously expected. But is there any real evidence that Janet Yellen and the Fed have changed their plans? I don’t think so. I’ll tell you why as we go along.

    Finally, we’ll round-out today’s discussion by looking at the latest Gallup poll that gauges what most Americans consider to be our biggest problems. For most of this year, Americans cited the economy as our biggest problem. However, in the latest poll a new concern has jumped to the top of the list and for good reason: Immigration/Illegal Aliens.

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  • U.S. Now World’s Largest Producer of Oil & Gas

    Recent reports have confirmed that the US is now the world’s largest producer of crude oil with output exceeding 11 million barrels per day in the 1Q of this year. This surpasses the daily oil production of Russia and Saudi Arabia. This is the first time in over 40 years that the US has once again become the largest producer of oil in the world – and this is despite the Obama administration’s continued ban on new drilling for oil in our coastal waterways. Oil extraction is soaring at shale formations in Texas and North Dakota as companies split rock formations believed to contain oil using high-pressure liquids, a process known as hydraulic fracturing, or “fracking.” This oil boom has dramatically lowered petroleum imports into America. The share of US fuel consumption met by imports is down from 60% in 2005 to 33% in 2013 and is expected to fall to 22% in 2015, which would be the lowest since 1970. I will discuss the latest good news in detail as we go along today.

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  • Why The Fed Needs You To Sell Your Bonds

    Today I will attempt to explain why longer-term interest rates have fallen significantly this year when almost everyone expected rates to rise. This discussion focuses on the fact that there is a shortage of Treasury securities in the marketplace today, especially in maturities of 10 years or longer. The shortage is due to a combination of factors that I will discuss below.

    The bottom line is that when Treasuries are in short supply and demand is strong as it has been this year, buyers bid up the prices of these securities. When bond prices go up, yields fall. This is why the Fed would like investors to sell their bonds to help solve the shortage.

    It is doubtful that this trend of lower interest rates will continue if the economy continues to gain momentum. This should be an interesting letter for those of you who own bonds and pay attention to interest rates.

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  • 1Q GDP Plunges Nearly 3% - What Will The Fed Do Now?

    Today we take a closer look at last week’s very ugly 1Q GDP report and see if we can discern why it was so much worse than anyone expected (hint: it was more than the severe winter weather). Fortunately, it continues to look like 2Q growth will come in at +3.0% or better. But even if GDP for the rest of the year comes in strong, the devastating 1Q will ensure yet another slow growth year.

    The stunning 1Q GDP report immediately raised the question of what the Fed will do in response. Will the Fed slow down its methodical reduction of QE bond purchases? Will it put the so-called “taper” on hold? Or will it continue to taper as planned and end the program in the fall? I’ll share my thoughts as we go along today.

    Finally, one well-known financial writer – Mark Hulbert – believes that the recent decline in corporate profits spells the beginning of the end of the bull market in stocks. I have reprinted his latest article below, and I suggest you read it and give it some serious thought.

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  • Economy: 1Q Looks Even Worse, But 2Q Looks Good

    The government’s final estimate of 1Q GDP comes out tomorrow, and it is expected to be revised from -1.0% to near -2.0%. Based on recently released data, it is clear that healthcare spending by consumers was considerably lower in the 1Q than first estimated. We’ll look at some of the reasons why.

    From there, we’ll look at some disturbing economic data which show that businesses in the US are shutting down faster than new ones are starting up. This has never happened before in America according to a new Brookings Institute study.

    Next, we’ll review some recent developments which suggest economic growth has accelerated sharply in the 2Q. Most forecasts for 2Q GDP are at 3% or better. Our first look at 2Q GDP will come in late July.

    Finally, there is news that the US Immigration and Customs Enforcement (ICE) agency knew back in January that a flood of undocumented children – specifically 65,000 – were going to pour across the Texas border this year. They requested help on a government website.  This has the potential to be really BIG!

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  • Unimaginable Human Tragedy On The Texas Border

    Thousands of illegal immigrants are flooding across the border into Texas and other border states every day, but two things distinguish this wave from earlier illegal immigration waves. First, most of these people are coming from Central America, not Mexico. And second, large numbers of these illegal migrants are unaccompanied children. US authorities estimate that between 60,000 and 80,000 children will seek safe haven in the US this year, up from about 6,000 in 2011.

    The explosive increase in the number of illegal migrants coming over the border over the past several months – especially the number of children traveling without their parents – has overwhelmed the Border Patrol’s detention centers in South Texas. During the past eight months, Customs and Border Protection has detained 47,000 unaccompanied minors, most of them in the Rio Grande Valley area of South Texas.

    The question is, how and why are these hoards of young people coming here now. The working theory is that they are fleeing violence in their home countries. That may be true in some cases, but in most instances, they are coming because they believe they will get amnesty as a result of President Obama's lax immigration policies.

    This is a truly horrific story that all Americans need to know about. Feel free to share today's E-Letter with others.

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  • The US Economy – The Good, The Bad & The Ugly

    As is true more often than not, there are mixed signals in the economy. There are indeed some “green shoots” emerging that suggest the economy is finally gaining some momentum. Yet there are also continued troubling signs that, while not warning of an impending recession, suggest we could be stuck in a structural period of continued below-trend growth.

    Today, we’ll look into the latest economic indicators – good, bad and in between – and see if we can make any sense of where we are. My view is that the economy is most likely to remain in sub-par growth (i.e. – below 3%) for at least the rest of this year and maybe longer. Yet as we’ll see below, some others feel that the economy is nearing “breakout velocity.” We’ll see, but I am not so optimistic. Let’s hope I’m wrong.

    A new report finds that President Obama’s economy is the worst in over 80 years. You can read this story at the first link in SPECIAL ARTICLES below.

    Let’s start with the latest good economic news.

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  • Why Food Prices Are Soaring, Likely To Continue

    Do you know that the US state which produces the most vegetables by far is going through the worst drought it has ever experienced? Do you know that the size of the total US cattle herd is now the smallest that it has been since 1951, even though our population has doubled since then? Do you know why bacon prices are up 55% or more in the last few years?

    As you are no doubt aware, food prices are soaring higher and higher. As we’ll see below, one widely-followed food price index is up almost 21% in less than a year. The question is, why have food prices risen so sharply in the last few years? That’s what we’ll talk about today.

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  • Fed Official: We’re Sitting On A "Ticking Time Bomb"

    It is very rare for high-ranking Fed officials to issue dire warnings, but that’s exactly what Charles Plosser – the president of the Philadelphia Federal Reserve Bank – did last Tuesday. Mr. Plosser is very concerned about the apprx. $2.5 trillion in “excess reserves” that banks have on deposit with the Fed. Plosser worries that if the economy strengthens as many expect, borrowing could surge and those excess reserves could pour out of the Fed and “that’s going to put [upward] pressure on inflation.”  This is "ticking time bomb" he warned about.

    For decades, the Fed paid banks no interest on reserves held at the central bank; however, in late 2008 the Fed began paying banks 25 basis-points (0.25%) annually on deposits. Since then, excess reserves held at the Fed have exploded to a record above $2.5 trillion today.

    Much of this money held at the Fed is owned by large banks and financial institutions which are designated as “primary dealers” from whom the Fed has purchased huge amounts of bonds as a part of its massive QE program. These entities have merely chosen to leave a large part of those bond proceeds on deposit with the Fed.

    The banks can remove all the excess reserves they hold at the Fed at any time. If inflation moves higher, the Fed could be forced to raise interest rates earlier and higher than it would like, which could slam the breaks on the economic recovery. I will explain this "ticking time bomb" problem as we go along today.

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  • Interest Rates Have To Go Up. The "Bond King" Says No

    The prevailing view on Wall Street and Main Street is that medium and long-term interest rates have to go higher in the months and years ahead. Interest rates have to get back to “normal” at some point, so we’re told. Yet in the last several months, yields on 10-year Treasury notes and 30-year Treasury bonds have fallen rather significantly. What’s up with that?

    Last week, PIMCO’s founder Bill Gross – aka the “Bond King” (because he runs the largest bond fund in the world) – predicted that medium and long-term rates are going down, not up. For reasons I’ll explain below, Gross makes a case for falling yields going forward. His latest prediction is clearly out of step with the mainstream, but I thought you would appreciate his thinking, even if you disagree.

    Next, some new data reveal that over 40% of retiring Americans start taking Social Security benefits at age 62, which means they will get less money overall than if they had waited until later. In most cases, you should delay taking Social Security benefits until age 70 if possible. Given that we are in the investment/financial planning business, we are often asked for advice on when to take Social Security.

    As it turns out, the best article I’ve ever read on this subject appeared over the weekend in RealClearMarkets.com. The piece is written by award-winning author and lecturer John F. Wasik. Today, I’ll reprint that article in its entirety. Even if you’ve already had to decide when to take Social Security, this article would be good to pass on to others who are nearing Social Security eligibility.

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  • Fed’s Zero Interest Rate Cost Savers A Trillion Dollars

    Get a group of adults together in a social setting and the conversation almost invariably gets around to a discussion about the paltry returns savers have been earning on their money in recent years. Three-month certificates of deposits are averaging only 0.23% nationally; one-year CDs are at only 1% if you can get it; and five-year CDs get you only about 2%. And rates have been at or near these depressed levels for the last four years.

    When the Fed realized in early 2008 that we were in a financial crisis, it quickly ratcheted down the Federal Funds rate from 5.25% to near zero where it’s been since late 2009. The Fed Open Market Committee adopted a policy of keeping the key rate between zero and 0.25% indefinitely. This is commonly referred to as "ZIRP" – Zero Interest Rate Policy. As the Fed moved to ZIRP, banks, money markets and savings institutions quickly lowered their savings rates accordingly.

    For the past five years, MoneyRates.com has calculated the cost of the Fed’s low-interest-rate policies in terms of how much purchasing power savers have lost to inflation as a result of today's artificially low bank rates. For each of the five years, those losses have exceeded $100 billion, and the running total at the end of last year was $757.9 billion.

    MoneyRates suggests that it has not been the Fed’s intention to hurt savers, but I would argue that the Fed knew very well that its policy of keeping the key Fed Funds rate near zero would cause saving rates to plunge. While there is a lot of support for low interest rates – from stock market investors, home buyers, business borrowers, etc. – it has not been a cost-free policy.

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