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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  • 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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  • Are “Currency Controls” Coming To America On July 1?

    Some very controversial regulations passed way back in 2010 and finalized in 2012 are scheduled to go into effect on July 1 of this year, and most Americans know little or nothing about this new law. Yet the effect of these new regulations could send shockwaves through the financial system worldwide. Basically, the regulations that take effect July 1 will make it very difficult and costly for Americans to hold money or investments outside the US.

    Starting in July, foreign banks and financial institutions will be required to report to the IRS any accounts they hold which are owned by Americans – including the owner’s name, address, Tax ID number (or Social Security number) and account balances of all offshore accounts if the combined amount is over $50,000. Many foreign institutions are up in arms about this, and some are kicking their US clients out to avoid reporting this information to the IRS. Most US investors who have money in offshore banks, funds, etc. will very likely close such accounts and bring their money home when they learn about this.

    The Democrats who passed this law (back in 2010 when they controlled Congress) say these new regulations were designed simply to identify “tax cheats” who do not pay the IRS taxes on their gains earned outside the US. But the unintended consequence may be a major disruption in the global financial system that could cause the US dollar to plunge. Some even believe it could threaten the US dollar’s status as the world’s “Reserve Currency.”

    Some analysts are calling the new law “currency controls,” which have never happened before in the US. As a result, ALL US investors need to know about this ASAP, not just those who have money or investments in offshore accounts, due to the potential for global repercussions. It’s complicated, and no one knows exactly what the outcome will be, but I will do my best to explain it today.

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  • Dependence On Government Has Become Epidemic

    Did you know that the number of Americans getting benefits from the federal government each month greatly exceeds the number of full-time workers in the economy by a longshot? Sadly, it’s true. Based on the latest Census Bureau data  there were apprx. 148 million non-veteran Americans who are on some kind of monthly means-tested government benefits programs, by far the highest number ever, versus only 103 million full-time workers in 2012.

    Thus, the number of people that are taking money out of the system is far greater than the number of people working full-time who are putting money (taxes) into the system. Even worse, nearly 70% of all of the money that the federal government spends each year goes toward entitlement and welfare programs.

    America’s welfare empire encompasses more than 200 federal and state programs. We have become a nation that is hopelessly addicted to government benefits. This is why the only realistic way to balance our federal budget and reduce our massive national debt is to address and reform our entitlement and welfare programs.  That's what we'll talk about today.

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  • The Real Obamacare Nightmare is Just Beginning

    Last Thursday, the Obama administration said that a total of eight million Americans had signed up for Obamacare. In a hastily called press event, President Obama spiked the football, took a victory lap around the White House and declared the healthcare law a smashing success – although they still haven’t told us how many enrollees have actually paid a premium.

    In any event, the millions of Americans who have purchased health insurance on the government exchanges are in for another round of shocks as they begin to try to actually use their new healthcare insurance. New nightmares are being reported almost daily and we’re only getting started.

    The problems that will create the next Obamacare headlines will come in three main areas: 1) lack of access to doctors, 2) failures of the system to verify coverage and pay claims, and 3) the incredibly high deductibles and copays on the exchange insurance policies. I have reprinted an excellent article on this growing nightmare below.

    Yet before we go there, let’s take a look at a few recent economic reports that are actually encouraging. Also, our webinar last Wednesday on the HWM Alpha Advantage investment opportunity was one of the most highly attended web events we have ever done. The presentation was excellent and the questions from attendees were spot on. To view the webinar, CLICK HERE.

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  • Uncle Sam Seizes Children’s Tax Refunds To Pay Parents’ Debts

    Today, millions of Americans will file their 2013 income tax returns, and many are expecting to receive a tax refund from the IRS in a few weeks. Many income tax filers expecting a refund already have plans for how that refund check will be spent. But what you may not know is that the government can and does seize tax refunds from the children of parents who are deemed to owe the government money.

    The government is now going through old records to see if it overpaid Social Security benefits to people in the past. If it thinks it did, it can now seize the IRS tax refund checks of the children of those people it thinks it overpaid. Uncle Sam can seize your refund without your knowledge or consent, even without proof or exact details. It has been doing this for the last three years, confiscating hundreds of thousands of Americans’ tax refunds. It has already confiscated $1.9 billion in tax refunds this year alone.

    Worst of all, much of this supposed debt is over 10 years old. The Social Security Administration says it has identified over 400,000 children of deceased parents in an effort to collect billions in overpayments of benefits in years past, including $714 million that is over 10 years old. The SSA says it will start proceedings against all of those people by this summer.

    This is critical information that all Americans should know! Feel free to forward today’s E-Letter to anyone who can benefit from this knowledge.

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  • How High-Frequency Trading Benefits Most Investors

    A controversial new book came out in late March that lambastes so-called “high-frequency trading” on the major stock exchanges and claims that such computerized trading robs retail investors of good executions and profits on their stock orders. The book, “Flash Boys: A Wall Street Revolt,” was written by former bond salesman turned author, Michael Lewis, who appeared on CBS’ 60 Minutes on March 30. Since then, his book has stirred up quite the controversy among stock market investors.

    Mr. Lewis has joined other critics who say that the booming high-frequency trading field, in which computers buy and sell stocks at lightning speed to take advantage of minute changes in prices, has essentially rigged the market against small investors. Lewis and other critics charge that high-frequency traders are essentially “front-running” investors’ orders – a practice that is otherwise illegal.

    Today, I will make the counter-argument that high-frequency trading is actually good for retail investors in that it greatly increases trading volume, narrows “bid-ask” spreads and enhances trade execution for most of us. I’ll cite a recent example wherein the Toronto Stock Exchange restricted high-frequency trading and overall market volume plunged by 30%, thus resulting in worse trade executions for most individual investors.

    As a result of the latest high-frequency trading controversy, these groups are being investigated by the FBI, the SEC, the New York Attorney General and of late, the Justice Department, and I’m all for that. There probably are some abuses that need to be eliminated. Yet I hope the regulators will not make the assumption that all high-frequency trading is bad for retail investors, as Mr. Lewis concludes.

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  • Consumer Confidence Up, But Concerns Remain

    The Conference Board reported last week that its Consumer Confidence Index jumped to 82.3 in March (up from 78.3), the highest reading since January 2008. But the two underlying components of the Index provided two different perspectives, as we will discuss today.

    Basically, consumers as a group are feeling better and more confident about the economy and their present situation.  However, when asked how they feel about their financial situation six months from now, most consumers are much less confident. About as many expect their situation to get worse as those who expect it to get better. That’s not good.

    But before we get to that topic, let’s take a look at last week’s third and final estimate of 4Q GDP which showed a modest increase (2.6%) over the second estimate in February. We now know that the economy stalled a bit in the 4Q of last year, following growth of 4.1% in the 3Q. And it likely slowed even more in the 1Q of this year due to bad weather.

    Following that discussion, I want to introduce you to a new breakthrough economic statistic that we’ll be hearing about for the first time later this month.  It’s called “Gross Output” (GO) and is a measure of total sales volume at all stages of production. GO is much larger than GDP, the standard yardstick for measuring final goods and services produced in the economy. I’ll explain why GO is being introduced and why we investors need to pay attention to it.

    Finally, President Obama’s disapproval rating has soared to a new all-time high, and his approval rating is falling once again. Americans continue to blame him for Obamacare, and 57% dislike his handling of the Ukraine situation.

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  • Looming Retirement Crisis – Boomers In Big Trouble!

    Let’s face it, we all know this country is facing a retirement crisis. The first of the Baby Boomers turned 65 and started retiring in 2011. The number of Boomers retiring each year will rise rapidly over the next decade or more. Before the end of this decade, Boomers will be turning age 65 at the rate of 8,000 per day.

    This massive retirement of Baby Boomers will stretch our health care and health delivery systems to the max and beyond. Our public safety net – entitlements – has long been poorly managed, ill-thought-out and threadbare. Imagine what will happen as tens of millions of Boomers retire.

    Yet the worst part of all is that so few people or families have saved anywhere near enough for retirement. According to a survey conducted earlier this year, 60% of workers have saved less than $25,000 for their retirement. And 36% have saved less than $1,000. This is appalling!

    Another new study found that 43% of Baby Boomers are at risk of running out of money in retirement. And this number is almost certainly understated because, as I will discuss below, many Boomers are untruthful about their assets when responding to retirement surveys. The point is, most Boomers are far, far behind in saving for their retirement.

    Given the magnitude of the coming retirement crisis, it will be a continuing theme I will be writing about periodically in the months and years ahead. I hope to present you with some ideas for saving more for retirement and, of course, making more on your investments.

    In that regard, I will be unveiling a new investment strategy that has me more excited than I’ve been in years! The risk/reward profile of this strategy is very impressive. We call it “ALPHA ADVANTAGE.” Trust me, you’re going to like what you see. I’ll talk a little more about it at the end of today’s E-Letter, but the details, including the performance, etc., will be unveiled in a special E-Mail to all clients and readers tomorrow. You don’t want to miss it!

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  • Understanding The "Millennial Generation"

    As the father of two adult children who were born in the early 1990s, I have a particularly keen interest in the “Millennial Generation” – those 80 million or so people born in the US between 1980 and 2002, the largest generation ever – and who will be running the country before too long.

    America is in the throes of a huge demographic shift, and a major factor in this sea-change is the Millennial Generation, which is forging its own distinct path toward the future and will precipitate many social changes in the years to come. As a result, we all need to understand them better.

    Since most of my clients and readers are Baby Boomers, many of you also have adult children who are Millennials, and I thought it might be insightful to take a closer look at this unique generation that is actually larger than the Boomer generation.

    I've gathered a lot of really interesting info and stats on Millennials, including the findings from a new Pew Research Center survey of this under-34 generation.

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  • U.S. Household Net Worth Hits New Record High

    The Federal Reserve announced last Thursday that US household net worth reached a new record high by the end of last year – at $80.7 trillion. The Fed said the new record was made possible largely due to vaulting stock prices, increased home values and Americans paying off more of their debts.

    Much of the surge in net worth went to affluent families and older Americans. Both groups are less likely to spend their gains and more likely to save and build more net worth – which is not particularly good for the economy unless it translates into new jobs.

    Meanwhile, many Americans continue to pay down their debts, a trend referred to as “deleveraging.”  Total household debt fell from near $13 trillion in 2008 to just under $11 trillion in 2012. For better or worse, that trend seems to have reversed in 2013 as more Americans started to take on debt again. We’ll discuss the details as we go along today.

    We also take a look at why the economic recovery is still sluggish, some four years after it officially began. Specifically, we’ll compare the current recovery with the average of the last 10 economic recoveries to determine the size of our so-called “growth deficit.”

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  • The US Economy - Back To The Slow Lane Again

    Late last year, President Obama predicted that 2014 would see“breakout growth” in the US economy. His optimism was not completely unwarranted since the economy grew by a healthy 4.1% (annual rate) in the 3Q of last year, driven largely by an unexpected surge in inventory rebuilding. Then in late January, the Commerce Department reported that the economy grew by a better than expected 3.2% in the 4Q.

    A 4.1% jump in GDP in the 3Q followed by an above-trend 3.2% in the 4Q gave some forecasters, including President Obama, reason to predict that our anemic economy might finally be out of the doldrums. That was until last Friday’s second estimate of 4Q GDP, which was revised significantly lower to only 2.4%. That’s our lead topic for today, along with a look at some other recent economic reports that raise cause for concern.

    Finally, we will look at some professional analysis of President Obama’s plans to significantly downsize our military in the next few years. If Obama and defense secretary Chuck Hagel get their way, the Army will be reduced to its lowest level in 75 years. Hopefully, Congress will stand up for our military, but in any event, you need to know what this president wants to do. Be sure to read the latest military intelligence analysis from LIGNET which appears later on.

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  • The Most Interesting Articles I Read Last Week

    I have been quite distracted over this past week as my 95 year-old Mother-In-Law was admitted to the hospital due to severe bronchitis. Debi and I have shared time being at her side since then. Fortunately, she was discharged from the hospital yesterday, and we have moved her to a skilled nursing facility where she will hopefully regain her strength and get to go back home before long.

    Given the demands of the last week, I had little time to work on today’s E-Letter, so I have chosen to reprint the two most interesting articles I have read over the last week. Both are very insightful and answer some critical questions that the media is ignoring. Regardless of your political leanings, this is information that all Americans ought to know.

    I will offer some brief commentary prior to each of the articles. Let’s get started.

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  • US Savings Rate Falling Again – Here Comes "MyRA"

    Today we weave together several different topics that are all connected in one way or another. We begin with the US savings rate which is trending lower once again. From 1975 to 2007, the savings rate fell to an all-time low of 2.4%. While it jumped up briefly after the 2008 financial crisis, it is now moving lower yet again.

    In an effort to boost the US savings rate, especially for lower income groups, President Obama introduced a new type of starter retirement account for Americans of modest means that he called the MyRA, which stands for “My Retirement Account” and rhymes with IRA.

    While the new MyRA may be well intentioned, it is fraught with problems – most notably that it can only be invested in government securities that have yielded paltry returns over the last decade or longer. And when inflation rises, MyRAs are sure to be a big disappointment. I’ll tell you why as we go along today.

    Next, the recent Congressional Budget Office report, with its economic projections over the next 10 years, contained several troubling findings that the mainstream media and politicians in Washington deliberately didn’t tell you about. I’ll tell you why below.

    Finally, the president recently told a series of whoppers following the CBO’s latest report that claims Obamacare will cost 2.5 million jobs over the next decade. He lied, misrepresented and completely contradicted several key statements he has made in the past. Obama easily hit a new high in his presidency for deception.  You really need to read this!

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