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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  • Investors Shun Stocks But Cling To Bonds - Why?

    This week, the Halbert family is taking it easy in sunny Florida, celebrating our son's graduation from college. Instead of my usual writing, I'm going to reprint an excellent article on investor behavior penned by the Wall Street Journal's Jason Zweig.

    As anyone reading my E-Letter knows, I have been concerned for some time about the effect of rising interest rates on bond prices, yet investors continue to pile money into these investments. Even in the face of a powerful bull market in stocks, investors are ignoring equities and clinging to bonds. It just doesn't make sense - at least not until you read the article below.

    Zweig seeks to answer the question of why investors continue to pile into bonds by examining the field of investor behavior. I think you will find his article to be interesting and perhaps a bit revealing. I have also added a few comments of my own throughout the article. Enjoy!

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  • 2013 Federal Budget Deficit Plunges – How, Why?

    It was so tempting to devote today’s E-Letter to a discussion about all of the scandals plaguing the Obama adminstration in recent weeks. In fact, some of my staff were very disappointed that I chose not to go there. My feeling was that the airwaves are so saturated with coverage of the Obama scandals, you might not want to see even more piling on from me, as much as I would like to. (There are some very good stories on the latest scandals in SPECIAL ARTICLES below.)

    Today, we’ll focus on the latest news that this year’s federal budget deficit will likely be significantly lower than previously estimated by the Congressional Budget Office, and the reasons why that is. But let us not be fooled into thinking that falling deficits are a permanent thing. No, in fact, the deficits and the national debt will continue a troubling increase over the next decade and even longer.

    We’ll also discuss the subject of our nation’s “unfunded liabilities” which now stand at a staggering $123 trillion, which is rarely ever mentioned by the media. And there are several other interesting points I will touch on today, but I don’t want to give everything away in this introduction. So please read on.

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  • Why Investors Are Still Their Own Worst Enemies

    Dalbar, Inc., a leading market research firm, studies investor behavior each year and calculates the performance of average stock and bond investors versus the returns of the major market indexes. Over the 20 years ended 2012, the S&P 500 Index delivered an annualized return of 8.21%, whereas the average investor in stock mutual funds earned only 4.25% annualized over the same period.

    You read that right. Due largely to jumping in and out of the market at bad times, and chasing the latest "hot" funds, the average stock mutual fund investor made only about half of what the market delivered. For bond mutual fund investors, the results are even worse over the last 20 years.

    Today we’ll look at the latest Dalbar studies which were released in April and show us – once again – that most investors are still their own worst enemy. Dalbar argues that stock and bond investors should stick to a strict “buy-and-hold” strategy and should never get out. We, on the other hand, have long argued that most investors don’t have the temperament to hang on during bear markets and are very likely to bail out at the worst times.

    I write about the Dalbar studies every couple of years, and the results are always the same. Average investors in mutual funds significantly under-perform the major market indexes. As we go along today, you’ll see the reasons why the study’s results are so consistent and why Dalbar’s recommended solution hasn’t changed investor behavior in over 20 years. Let’s get started.

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  • 6.7 Million “Missing Workers” – Where Did They Go?

    Today we will touch several bases. We begin with last Friday’s unemployment report which was hailed by the mainstream media, but had a lot of bad news to go with the good. From there we look at the estimated 6.7 million “missing workers” in this economy and ponder if they’re permanently gone from the employment rolls.

    Next we look at the latest Gallup poll showing how many Americans rate the economy as excellent, good, only fair or poor. You may be surprised at the results, which aren’t immediately clear in the chart. Following that, we look at some interesting data on mutual fund money flows which show that the love affair with bonds continues, and investor demand for stocks is waning.

    Finally, the International Monetary Fund downgraded its global economic forecast recently, including its forecast for the US and most of Europe. I have included the IMF’s graphic that lets you look at each country’s forecast for 2013 and 2014.

    By the way, we have a lot of charts and graphs today, so the letter will print longer than usual.

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  • US Economy to Get a Hollywood Makeover

    You may have heard that the government is going to make some major changes in how our Gross Domestic Product is calculated later this year. Your first thought might be that this is no big deal. However, I will argue today that it is a very big deal, the biggest in a decade, and you need to know why. So I hope you read what follows with more than a passing interest.

    Last week, the Commerce Department’s Bureau of Economic Analysis (BEA) announced it will be making some significant revisions to the way it calculates Gross Domestic Product in late July. This change is somewhat controversial in that it is expected to add a whopping 3% to GDP in one fell swoop in the last week of July. That’s about $1,500 worth of extra goods and services for every person in the US!

    The reason for the changes is the fact that our economy increasingly depends on the production of intangible goods, and we need to recognize that the production of ideas is an important form of investment. So in the future, the BEA is going to count a company’s research and development as a form ofinvestment just like the purchase of a new office building. And the creation of a lasting work of art – a painting, a movie, a television series, etc. – that can be sold year after year will, likewise, be treated as a capital investment.

    Today, I will talk about these sweeping changes and what they will mean for all of us.

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  • An Awesome Gift For Your Kids, Grandkids, or You

    This week, I veer from our usual economic and investment themes to tell you about what I believe is one of the greatest gifts you can ever give your children, grandchildren or others who are dear to you (or maybe even yourself). What I am about to describe is something that has literally changed the lives of dozens of my friends and relatives over the last 30+ years.

    Today we’re going to revisit the Johnson O’Connor Research Foundation and how it can have a huge impact on the future of any young or middle-aged person who goes there for aptitude testing and career counseling. Johnson O’Connor helps people decide which career fields they are most naturally suited for based upon scientific testing of their unique set of individual aptitudes.

    I have published similar articles on Johnson O’Connor (J-O) in the past because it has been such a godsend to everyone in my immediate family, many relatives and dozens of friends and business associates over the years. So, I urge you to read the following, especially if you have any loved ones who are struggling to find a career path.

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  • Fed to End QE, Obama’s Tax & Spend Budget

    Today I tackle several topics, each of which could take up an entire E-Letter. But these topics are very important, and I want to address them today. The first is the minutes from the March 19-20 Fed Open Market Committee meeting that were released last Wednesday. Those minutes definitively confirm that the Fed is ready to chart an end to quantitative easing.

    The second topic is President Obama’s proposed federal budget for fiscal 2014 that was also released last Wednesday. The Obama administration claims that the latest budget proposal will cut the federal deficit by almost $1.2 trillion over the next 10 years. It will not. Furthermore, his new budget proposal would raise taxes and fees by over $1.1 trillion over the next decade. And that’s just for starters.

    But before we go there, I want to touch on new data which confirms that US economic growth in the current recovery has been the weakest EVER, since 1930 when such data was first recorded – even worse than after the Great Depression. The recent Great Recession officially ended in the 2Q of 2009 – true enough. But growth since then has been the slowest on record.

    That’s a lot to cover in one letter, so let’s get started.

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  • Workforce Shrinks, Unemployment Falls – Say What?

    Today we begin by examining last Friday's miserable jobs report. The official unemployment rate edged down fractionally, but it was because almost a half a million people stopped looking for work last month. In fact, the labor force participation rate dropped to the lowest level in 33 years.

    From there, we look at the reasons why the Fed's massive quantitative easing (QE) is doing little to nothing to help the plight of the long-term unemployed. We also look at the growing number of “discouraged workers,” which are defined as those long-term unemployed who have stopped looking for work and the reasons why.

    The number of Americans on disability insurance has increased for the last 16 years, and the total stood at a record 8.85 million people as of March, according to the Social Security Administration.

    Finally, we are hosting a lunch seminar in Austin on May 8th at 11:30 featuring Hanlon Investment Management, a Registered Investment Advisor managing apprx. $3.5 billion in assets. If you live in Austin or will be in the area on May 8, call Joanne at 800-348-3601 to reserve your spot. Seating is limited. The lunch seminar will be at the Westin Hotel in The Domain at 11:30. This is also an opportunity for me to meet you personally.

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  • Why This Economic "Recovery" is So Weak

    We start today with an excellent editorial I read last week written by Mort Zuckerman, Editor-In-Chief of U.S. News & World Report. My goal every week is to do a lot of reading and summarize what I’ve learned in these pages week in and week out.

    But every now and then I run across something so good that it just makes sense to reprint it in its entirety, even if it’s not my own work. Not many of my contemporaries are willing to do that, as they think it makes them look less scholarly. I don’t have that problem. 

    Following that, we’ll take a look at the stock markets now that the S&P 500 Index has finally reached a new record high. You would think that investors would be jubilant with stocks at new record highs, but consumer confidence is still in the tank. We’ll look at some of the reasons why.

    Finally, we will revisit the public’s continued love affair with taxable bonds. Despite the huge bull market in stocks, investors continue to pour money into bonds and bond mutual funds. I continue to maintain that long-only bonds are in for a bear market due to rising long-term interest rates.

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  • On the Fed, the Keystone Pipeline & the War On Jobs

    The Fed Open Market Committee met last week and its decision was to continue the $85 billion a month in purchases of mortgages and Treasury bonds indefinitely. However, in his press conference after the meeting, Fed Chairman Bernanke hinted that the Fed could reduce these purchases later this year if the economy continues to improve. Very few in the financial media picked up on this important new clue, so I will expound on it today.

    There are some reasons to believe that the economy will improve later this year. The housing sector continues to rebound. Home prices have surged so far this year. The number of people who are "under water" on their mortgages is falling, and foreclosures are down as well. Some other economic indicators are also pointing higher. So while the economy still feels like a recession, growth should be better in the second half.

    Would you like to know the real story on why we haven't started building the Keystone Pipeline that would bring apprx. 600,000 barrels of oil a day from Canada and North Dakota to the Texas Gulf Coast? So did I. Today, I have reprinted the best article I have seen on this subject. I trust you'll find it enlightening, but it will almost certainly make you mad!

    Finally, I've been warning about the bond market bubble since late last summer, and Treasury bond prices have come down significantly since the peak back in late July. I close out today's letter with some links to the actively-managed bond programs we recommend. If you still haven't taken steps to protect yourself from bond losses, I urge you to consider moving to one or more of these professionally managed programs before it's too late.

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  • Is The Government Lying To Us About Inflation? Yes!

    On Friday, the Labor Department reported that the Consumer Price Index (CPI) jumped an unexpected 0.7% in February. This was above pre-report estimates and was the highest monthly reading since 2009. We should be very concerned, right? Let's take a closer look.

    Upon further examination, we find that if we subtract food and energy from the CPI, the cost index rose only 0.2% last month. It turns out that most of the big increase in the CPI last month was due to the sharp rise in gasoline prices.

    But the real question is whether or not the CPI reported to us each month by the government is really indicative of the actual inflation rate. Today, I will argue that it is not a very good indicator for a variety of reasons, including the methodology used to calculate it.

    The government says inflation over the last four years has averaged 2% as measured by the CPI. Others argue that the real rate of inflation in the US is in the 5%-8% range. That's what we will explore today, and you can be the judge.

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  • Who Cares if There’s a High-Yield Bond Bubble?

    The demand for high-yield bonds and bond funds has literally exploded over the past couple of years as the Fed continues to keep downward pressure on interest rates. Often known as "junk" bonds, these debt instruments typically pay a higher rate of interest to compensate for their higher potential for default. Some retirees see this higher income as a godsend, but the higher yield definitely comes at a price.

    Unfortunately, many high-yield bond investors are buying and holding these bonds and bond funds without regard to the risks they are taking. As the number of analysts predicting a high-yield bond bubble increases, the risks of buying and holding these securities increases.

    This week, I call upon high-yield bond expert, Steven D. Landis, CFP®, to shed some light on how you can participate in the higher yield and potential capital gains in high-yield bonds while minimizing the risks of doing so. He'll also explain why it really doesn't matter whether there's a high-yield bond bubble now or in the future, IF you have the right strategy on your side.

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  • Why Our Best Ideas Come In The Shower & Why They Are So Hard To Remember

    In perusing the many sites I visit regularly on the Internet this past weekend, I happened to notice an article on RealClearScience.com that caught my eye. The piece was entitled “Why We Have Our Best Ideas in the Shower: The Science of Creativity.” Does that sound familiar to you? It sure did to me.

    As it turns out, there are physiological and mental reasons why we tend to have our most creative thinking at times when we’re doing certain things like: taking a warm shower, driving home from work, exercising, cooking, etc. But there are also reasons why our creative thoughts are often fleeting and hard to remember.

    Best of all, there are ways you can increase your creativity. And there are some simple ways you can remember your creative ideas better. I’ll summarize the articles I read on this topic below. I think you will find it very interesting, as I did.

    Following that discussion, I’ll have some thoughts on the economy, the much over-hyped sequester and how the campaign for the 2014 mid-term elections has already begun in earnest.

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  • Pew: Americans Have Little Will to Cut Spending

    The Pew Research Center released a new national poll on Friday and the results are quite surprising. As the March 1 deadline for a possible budget sequester approaches, the new Pew survey finds limited public support for reducing spending for a wide range of government programs, including defense, entitlements, education and health care.

    What the latest Pew poll shows is that while a majority of Americans say in various polls that they are in favor of smaller government, when it comes to specific spending cuts, they are opposed. The will to cut government spending is just not there. We’ll look at excerpts from the new Pew poll just below.

    We’re just three days away from the dreaded “sequester” that will cut federal programs across-the-board starting on Friday. The Republicans continue to refuse to bow to President Obama’s demands for more new taxes on the “wealthy” in return for a deal to avoid the sequester. But is the sequester really as bad as Obama says? The answer is NO. I’ll tell you why.

    The minutes of the Fed’s January 29-30 policy meeting were released last Wednesday and caused quite a stir in the stock markets. Basically the minutes revealed that some members of the Fed Open Market Committee are becoming concerned about the Fed’s continued record- large purchases of Treasury bonds and mortgage-backed securities. Some feel this program needs to be scaled back or ended altogether. This is very important so be sure to read it.

    Finally, I want to let you know about a new Special Report I have written entitled, “7 Secrets of Successful Investors.” This Report doesn’t dwell on generalizations or old sayings, but rather actual habits of successful investors I have known. To receive this Special Report CLICK HERE. There is also a link to this Special Report at the end of today’s letter.

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  • Stock Market Lingers At A Precarious Place

    The Dow Jones Industrial Average has flirted with its all-time of 14,198 twice in February as the Dow managed to rise above the 14,000 mark but then fell back. The S&P 500 Index is not quite as close to its all-time high, but it is within striking distance. There is widespread optimism that both indexes can break-out to new record highs, which would likely spark a new buying surge.

    On the other hand, if the Dow and S&P fail to break out, the result could be a nasty selloff. The stock markets shrugged off the fiscal cliff melodrama at the end of last year and then rallied strongly. But there are reasons to believe that the upcoming "sequester" fight could unsettle the markets and derail the attempt to make new highs. We'll talk about that possibility today.

    Before we go there, we take a look at the latest economic reports. There's good news and bad news - no surprise there. We'll also look at the latest surge in gasoline prices and why that is more bad news for consumers and the economy. And I will summarize the latest economic forecasts from the Congressional Budget Office. Finally, I will give you my thoughts on the issue of raising the minimum wage.

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