Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Deficit

If someone were to spend more than they earn, that difference is called the deficit. The deficit has been a problem for many nations, as politicians have repeatedly spent more money than they are pulling in from revenue. Running a deficit is tolerable if it is temporary and is closely followed by a surplus that paid off the accumulated debt. The problem arises if a government continually runs a deficit, which then causes the overall debt to increase.

America: A Mirror Image of Japan 15 Years Later?

By for Profit Confidential

A Mirror Image of JapanWe need to learn from this example…

Similar to the U.S. economy, only years earlier, the Japanese economy also burst following a boom in real estate prices. To help revive its economy, the Bank of Japan brought interest rates to near zero in 1999 and has done several rounds of quantitative easing since. The central bank of Japan has increased its balance sheet to 166 trillion yen. (Source: Wall Street Journal, March 21, 2013.)

But all this monetary stimulus—interest rates near zero for years and lots of money printing—has helped the Japanese economy. In fact, global exports from the Japanese economy fell 2.9% in February 2013 from February 2012. This is important because it shows how the Japanese economy is struggling even after implementing unheard of monetary policy intended to bring economic growth to the country—similar to what the Federal Reserve is doing now in the U.S.

February marked the eighth consecutive month of slowing exports and an increasing trade deficit (more imports than exports) for Japan—the biggest streak of trade deficits since 1980. (Source: Bloomberg, March 21, 2013.)

Japan’s national debt to gross domestic product (GDP) stands at about 204% of GDP—this shows you just how easy monetary policy has been in Japan.

The Japanese economy should be looked upon as a good example for the Federal Reserve to see how its monetary policy will play out in the U.S. economy.

What has this done for the Japanese economy with all its paper money printing? Not much, to say the least. Since 1998, wages in the Japanese economy are down seven percent, property prices are down 51%, and … Read More

Beware Municipal Bond Investors: Storm Ahead

By for Profit Confidential

Municipal bonds investors might be headed towards a storm, which may cause significant damage to their portfolios. Cities within the U.S. economy are in distress—they are struggling to keep their spending in order to not increase their budget deficit.

Detroit, one of the biggest cities in the U.S. economy, was handed an emergency manager by the state to take care of the city’s budget deficit. The city is running a deficit of $327 million and has $14.0 billion in long-term obligations—mainly municipal bonds backed by the city’s water and sewer systems. (Source: “Snyder Says Detroit Needs Emergency Manager to End Fiscal Crisis,” Bloomberg, March 1, 2013, last accessed March 21, 2013.)

Michigan’s Governor, Rick Snyder, explained the city’s situation, saying, “it’s a sad day, a day I wish never happened, but it’s a day of promise.” (Source: Ibid.)

If the state didn’t intervene, then Detroit would have been the largest municipal bankruptcy in the U.S. economy—leaving municipal bonds investors in misery. In November 2011, Jefferson County, Alabama was the largest municipal bankruptcy in the U.S., involving more than $3.1 billion in municipal bonds.

Municipal bonds investors have enjoyed tax advantages in the U.S. economy, but if there is a downturn in these types of bonds, then the benefits will quickly disappear.

What’s ahead for municipal bonds investors looks even more troublesome. Williston, North Dakota’s municipal bonds were downgraded by Standard and Poor’s from “A-” to “BBB+.” (Source: KFYR-TV, February 28, 2013.) The municipal bonds credit rating went from being in the upper investment grade to almost the non-investment grade.

Moody’s Investor Services has downgraded 11 municipalities in the U.S. from … Read More

U.S. Debt-to-GDP Ratio This Year to Surpass Greece’s 2009 “Danger” Level

By for Profit Confidential

U.S. Debt-to-GDP RatioThe U.S. Department of the Treasury reported that the U.S. government incurred a deficit of $204 billion for the month of February 2013. So far, we are into the first five months of the government’s fiscal year (started October 1, 2012), and the U.S. government fiscal deficit has already grown by $494 billion. (Source: U.S. Department of the Treasury, March 13, 2013.)

The U.S. government has been running a deficit of over $1.0 trillion in each of the past four years. For 2013, the Congressional Budget Office (CBO) expects the deficit to be $845 billion—which is less than a trillion-dollar budget. (Source: The Hill, February 5, 2013.)

(But if I pro-rate the $494 billion the government has already tagged on this year, a rate of $99.0 billion a month, I get another $1.0-trillion deficit year.)

Sadly, while many are taking “less” deficit as good news, our national debt is still growing. Remember: when the government doesn’t have money to spend, it must borrow. The budget deficit for this year is going to see the U.S. national debt increase to well above $17.0 trillion.

In February, the U.S. government paid interest of $16.8 billion on the debt it has borrowed through issuing bonds. Since the beginning of the fiscal year, it has incurred interest expenses of $168.4 billion.

I don’t think the mainstream realizes that the more the government adds to the national debt through budget deficits, the more interest payments it will have to make. This year it expects to pay almost half a trillion dollars in interest. This amount will rise as the national debt increases and interest … Read More

Stock Market Overpriced by 50%?

By for Profit Confidential

Stock Market OverpricedAs the key stock indices approach highs not seen since just before the financial crisis, the underlying fundamentals are screaming “watch out.” The stock market could be edging higher on nothing but false optimism and greed.

The most basic reason for any stock market rally, corporate earnings, is missing from the equation. The bellwether stocks are flashing warning signals. Just as one example, United Parcel Service, Inc (NYSE/UPS) reported lower-than-expected corporate earnings for the fourth quarter of 2012. For the first quarter of 2013, the company expects to earn less than originally anticipated. (Source: Associated Press, January 31, 2013.)

Looking at corporate earnings expectations from a broader viewpoint, they are declining as the key stock indices inch higher. The corporate earnings growth rate for S&P 500 companies in the first quarter of this year was forecast at 5.1% in September of 2012. In December, the forecast declined to a corporate earnings growth of 2.4%. Now, according to FactSet, the corporate earnings growth rate for the first quarter of 2013 stands at -0.04%. (Source: FactSet, February 15, 2013.)

As I have documented in these pages, companies on key stock indices are showing better corporate earnings by cutting costs and buying back shares, as opposed to increasing revenues. In the fourth quarter of 2012, employee compensation (wages) only accounted for 54.7% of U.S. gross domestic product (GDP)—the lowest level since 1955. (Source: Wall Street Journal, February 11, 2013.)

Key stock indices are becoming significantly overpriced. The value of the U.S. stock market stands at about 133% of GDP. The average for the past 60 years has been around 82%. By … Read More

From Motor City to Fresno, Credit Ratings Being Slashed

By for Profit Confidential

The Congressional Budget Office (CBO) expects the U.S. federal government to have a lower budget deficit this year than those of the previous four years—finally getting the annual deficit under $1.0 trillion (although, not by much). But I am skeptical when it comes to the CBO estimates, as financial conditions at the more local level paint anything but a rosy picture.

Our country has already faced one credit rating downgrade and chances are another one is in the making. Why? Cities across the U.S. are in deep trouble, as their massive deficits continue to increase.

Take Detroit, for example. The city is on the verge of bankruptcy again due to the severe downturn in the local economy and the city’s annual deficit. Detroit’s residents are fleeing the city, with the population down 30% since 1990. (Source: Reuters, January 28, 2013.)

Troubles in California persist. Multiple cities in the state have already filed for bankruptcy; others may also follow suit. Fresno, the fifth-largest city in the state, is in financial stress. Fresno’s credit rating has already been downgraded by Moody’s. The credit rating agency notes that the city already has a high deficit, high payrolls, and other fixed costs in the background of a deteriorating economy. (Source: The Sacramento Bee, February 11, 2013.)

Sadly, this doesn’t just end here. Moody’s downgraded 11 municipalities in the U.S. from stable to negative—and all these cities had a credit rating of “AAA” prior to the downgrade. (Source: Barron’s, February 6, 2013.)

It would be good to finally see the federal government get its annual deficit under $1.0 trillion, but issues with cities … Read More

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America: A Mirror Image of Japan 15 Years Later?

By for Profit Confidential

A Mirror Image of JapanWe need to learn from this example…

Similar to the U.S. economy, only years earlier, the Japanese economy also burst following a boom in real estate prices. To help revive its economy, the Bank of Japan brought interest rates to near zero in 1999 and has done several rounds of quantitative easing since. The central bank of Japan has increased its balance sheet to 166 trillion yen. (Source: Wall Street Journal, March 21, 2013.)

But all this monetary stimulus—interest rates near zero for years and lots of money printing—has helped the Japanese economy. In fact, global exports from the Japanese economy fell 2.9% in February 2013 from February 2012. This is important because it shows how the Japanese economy is struggling even after implementing unheard of monetary policy intended to bring economic growth to the country—similar to what the Federal Reserve is doing now in the U.S.

February marked the eighth consecutive month of slowing exports and an increasing trade deficit (more imports than exports) for Japan—the biggest streak of trade deficits since 1980. (Source: Bloomberg, March 21, 2013.)

Japan’s national debt to gross domestic product (GDP) stands at about 204% of GDP—this shows you just how easy monetary policy has been in Japan.

The Japanese economy should be looked upon as a good example for the Federal Reserve to see how its monetary policy will play out in the U.S. economy.

What has this done for the Japanese economy with all its paper money printing? Not much, to say the least. Since 1998, wages in the Japanese economy are down seven percent, property prices are down 51%, and … Read More

Beware Municipal Bond Investors: Storm Ahead

By for Profit Confidential

Municipal bonds investors might be headed towards a storm, which may cause significant damage to their portfolios. Cities within the U.S. economy are in distress—they are struggling to keep their spending in order to not increase their budget deficit.

Detroit, one of the biggest cities in the U.S. economy, was handed an emergency manager by the state to take care of the city’s budget deficit. The city is running a deficit of $327 million and has $14.0 billion in long-term obligations—mainly municipal bonds backed by the city’s water and sewer systems. (Source: “Snyder Says Detroit Needs Emergency Manager to End Fiscal Crisis,” Bloomberg, March 1, 2013, last accessed March 21, 2013.)

Michigan’s Governor, Rick Snyder, explained the city’s situation, saying, “it’s a sad day, a day I wish never happened, but it’s a day of promise.” (Source: Ibid.)

If the state didn’t intervene, then Detroit would have been the largest municipal bankruptcy in the U.S. economy—leaving municipal bonds investors in misery. In November 2011, Jefferson County, Alabama was the largest municipal bankruptcy in the U.S., involving more than $3.1 billion in municipal bonds.

Municipal bonds investors have enjoyed tax advantages in the U.S. economy, but if there is a downturn in these types of bonds, then the benefits will quickly disappear.

What’s ahead for municipal bonds investors looks even more troublesome. Williston, North Dakota’s municipal bonds were downgraded by Standard and Poor’s from “A-” to “BBB+.” (Source: KFYR-TV, February 28, 2013.) The municipal bonds credit rating went from being in the upper investment grade to almost the non-investment grade.

Moody’s Investor Services has downgraded 11 municipalities in the U.S. from … Read More

U.S. Debt-to-GDP Ratio This Year to Surpass Greece’s 2009 “Danger” Level

By for Profit Confidential

U.S. Debt-to-GDP RatioThe U.S. Department of the Treasury reported that the U.S. government incurred a deficit of $204 billion for the month of February 2013. So far, we are into the first five months of the government’s fiscal year (started October 1, 2012), and the U.S. government fiscal deficit has already grown by $494 billion. (Source: U.S. Department of the Treasury, March 13, 2013.)

The U.S. government has been running a deficit of over $1.0 trillion in each of the past four years. For 2013, the Congressional Budget Office (CBO) expects the deficit to be $845 billion—which is less than a trillion-dollar budget. (Source: The Hill, February 5, 2013.)

(But if I pro-rate the $494 billion the government has already tagged on this year, a rate of $99.0 billion a month, I get another $1.0-trillion deficit year.)

Sadly, while many are taking “less” deficit as good news, our national debt is still growing. Remember: when the government doesn’t have money to spend, it must borrow. The budget deficit for this year is going to see the U.S. national debt increase to well above $17.0 trillion.

In February, the U.S. government paid interest of $16.8 billion on the debt it has borrowed through issuing bonds. Since the beginning of the fiscal year, it has incurred interest expenses of $168.4 billion.

I don’t think the mainstream realizes that the more the government adds to the national debt through budget deficits, the more interest payments it will have to make. This year it expects to pay almost half a trillion dollars in interest. This amount will rise as the national debt increases and interest … Read More

Stock Market Overpriced by 50%?

By for Profit Confidential

Stock Market OverpricedAs the key stock indices approach highs not seen since just before the financial crisis, the underlying fundamentals are screaming “watch out.” The stock market could be edging higher on nothing but false optimism and greed.

The most basic reason for any stock market rally, corporate earnings, is missing from the equation. The bellwether stocks are flashing warning signals. Just as one example, United Parcel Service, Inc (NYSE/UPS) reported lower-than-expected corporate earnings for the fourth quarter of 2012. For the first quarter of 2013, the company expects to earn less than originally anticipated. (Source: Associated Press, January 31, 2013.)

Looking at corporate earnings expectations from a broader viewpoint, they are declining as the key stock indices inch higher. The corporate earnings growth rate for S&P 500 companies in the first quarter of this year was forecast at 5.1% in September of 2012. In December, the forecast declined to a corporate earnings growth of 2.4%. Now, according to FactSet, the corporate earnings growth rate for the first quarter of 2013 stands at -0.04%. (Source: FactSet, February 15, 2013.)

As I have documented in these pages, companies on key stock indices are showing better corporate earnings by cutting costs and buying back shares, as opposed to increasing revenues. In the fourth quarter of 2012, employee compensation (wages) only accounted for 54.7% of U.S. gross domestic product (GDP)—the lowest level since 1955. (Source: Wall Street Journal, February 11, 2013.)

Key stock indices are becoming significantly overpriced. The value of the U.S. stock market stands at about 133% of GDP. The average for the past 60 years has been around 82%. By … Read More

From Motor City to Fresno, Credit Ratings Being Slashed

By for Profit Confidential

The Congressional Budget Office (CBO) expects the U.S. federal government to have a lower budget deficit this year than those of the previous four years—finally getting the annual deficit under $1.0 trillion (although, not by much). But I am skeptical when it comes to the CBO estimates, as financial conditions at the more local level paint anything but a rosy picture.

Our country has already faced one credit rating downgrade and chances are another one is in the making. Why? Cities across the U.S. are in deep trouble, as their massive deficits continue to increase.

Take Detroit, for example. The city is on the verge of bankruptcy again due to the severe downturn in the local economy and the city’s annual deficit. Detroit’s residents are fleeing the city, with the population down 30% since 1990. (Source: Reuters, January 28, 2013.)

Troubles in California persist. Multiple cities in the state have already filed for bankruptcy; others may also follow suit. Fresno, the fifth-largest city in the state, is in financial stress. Fresno’s credit rating has already been downgraded by Moody’s. The credit rating agency notes that the city already has a high deficit, high payrolls, and other fixed costs in the background of a deteriorating economy. (Source: The Sacramento Bee, February 11, 2013.)

Sadly, this doesn’t just end here. Moody’s downgraded 11 municipalities in the U.S. from stable to negative—and all these cities had a credit rating of “AAA” prior to the downgrade. (Source: Barron’s, February 6, 2013.)

It would be good to finally see the federal government get its annual deficit under $1.0 trillion, but issues with cities … Read More

What’s with Russia Buying All This Gold?

By for Profit Confidential

Russia Buying All This GoldAs currency devaluation is becoming a new goal for countries, central banks in the global economy are losing trust in each other.

The notion followed by central banks is that if they devalue their currencies, the prices of their goods become competitive in the global economy. Unfortunately, this may work in some situations, but right now this strategy is questionable. Why? Because to achieve their objectives of devaluating their currencies, central banks are printing money like never before.

Now with all this, think about what happens when central banks increase the circulation of their own currency while the value of their reserves starts to go down as well.

Let me explain…

Most central banks have the U.S. dollar as their main reserve currency. But, as the greenback is also depreciating in value, central banks need to replenish their reserves. And central banks are starting to look elsewhere to top up their reserves. For many central banks, gold bullion is the only option for sound reserves.

The activity of the central banks in the gold bullion market has increased since 2009 when they collectively became net buyers of gold. As I have mentioned in these pages before, central banks will not say when they are going to buy gold bullion or how much they are going to purchase, as they often want to keep their purchases under the radar.

At the World Economic Forum that is going on in Davos, Switzerland, right now, the First Deputy Chairman of Russia’s central bank, Alexei Ulyukayev, said, “We are buying metal and will continue to pursue this course.” He also added, “This is a … Read More

Is the U.S. Ready for Another Credit Rating Downgrade?

By for Profit Confidential

Mark my words: the U.S. budget deficit will continue to increase and it won’t be too long before the national debt soars to $20.0 trillion.

And if the federal government’s deficit isn’t a big enough problem unto itself, my concerns grow when I hear stories about cities and sates struggling with their deficits.

Take the City of Detroit for example. Detroit has run out of money, as the city continues to post an annual deficit, because spending outweighs revenue. The city council has been working to make spending cuts so that the city’s finances won’t be taken over by the state.

During a public hearing, the Detroit City Council President, Gary Brown said, “We’re in a crisis, and if we do nothing to save $90 million, the state’s going to come in and do it and it’s going to be a lot worse with respect to our employees.” (Source: Reuters, “Detroit council approves cost cuts to stave off state takeover,” January 16, 2013.)

Similarly, Illinois has troubles of its own. The Standard & Poor’s credit rating agency just slashed Illinois’s credit rating one notch lower to a credit rating of A-. The main reason for the credit rating cut: the unfunded public pension of its cities. (Source: Reuters, January 25, 2013.)

Minnesota’s government employee public pension is unfunded by $16.7 billion, $4.0 billion more than its shortfall in 2010. Out of 12 state public pension funds that are open for new members, 11 of them have deficits, meaning they don’t have enough money to pay for what they have promised. (Source: St. Cloud Times, January 24, 2013.) The pension … Read More

The Municipal Bond Threat: Another Reason Money Printing Can’t Stop Anytime Soon

By for Profit Confidential

Money Printing Can’t Stop Anytime SoonBefore I get into my rant today about the troubled municipal bond market, first I have to say that I just couldn’t believe it when I saw this cross the newswire yesterday:

On Wednesday, January 23, 2013, Congress voted to “temporarily” do away with the U.S. government’s debt ceiling. Once the Senate passes the measure and the President signs it, there will be no limit on the amount of money the government can borrow.

At this point, I’m thinking everyone in Washington has gone mad. How can you give the government unlimited borrowing power? The race to a $20.0-trillion national debt and a debt-to-GDP multiple of 125%—we’ll get there a lot quicker now!

Back to today’s story…

Municipal bonds investors beware!

Gone are the days when municipal bonds were the “best investment.” Some may still argue that they provide tax breaks, but today the risks of holding them are piling up.

Cities across the U.S. are experiencing budget deficit problems. As budget deficits increase, the ability of cities and municipalities to pay their creditors decreases. A number of municipalities filed for bankruptcy last year, because they accumulated too much debt under their budget deficits—and defaulted on the payment of the municipal bonds they issued.

As we enter 2013, the epidemic of increasing budget deficits could make 2012 look like the tip of the iceberg!

Syracuse, New York, is estimated to have a budget deficit of $25.0 million this year. The city’s pension costs have increased 40% in one year and healthcare costs are rising at nine percent on a per-year basis. (Source: The Post-Standard, January 17, 2013.)

Cities and … Read More

The Severity of the Municipal Budget Deficit Situation

By for Profit Confidential

The Severity of the Municipal BudgetHow severe is the municipal budget deficit situation? In some cases, it is getting to the point of no return. And it’s not just Californian cities that are in trouble; other municipalities in the U.S. economy are struggling to keep up as well.

For instance, San Diego could face a budget deficit of $84.0 million in 2013, compared to a $5.0-million surplus anticipated by the city’s mayor. (Source: U-T San Diego, November 22, 2012.) San Diego’s bigger-than-anticipated deficit is mainly due to investment losses in the city’s pension fund, infrastructure repairs, and the shutting down of its redevelopment agency.

Similarly, the Michigan state treasurer has warned Detroit about troubles ahead. In August of this year, it was estimated that Detroit would have a cash deficit of $62.0 million by June of 2013, and by this November, that number increased to $122 million. (Source: Reuters, December 15, 2012.)

The scrutiny for municipal bonds investors doesn’t end here; they have more reasons to be worried. The main reason municipalities in the U.S. economy are faced with such large deficits is because they promised generous salaries and pensions to their employees, but the tax revenues that would pay for those promises have deteriorated.

After the housing collapse, their property tax revenues fell short, but the obligations of municipalities remained the same. Municipalities issued bonds to fill their pension funds, thus, today’s municipal bond concerns.

Now Moody’s Investor Services is warning municipal bonds investors about cities involved in the practice of raising money simply to fill pension gaps. The rating agency believes that the cities are simply adding more to their liabilities and … Read More

America’s Only Choices Left: Raising Taxes, Introducing Austerity Measures

By for Profit Confidential

Introducing Austerity MeasuresWhile debt-infested countries in the eurozone are struggling to decrease their budget deficits, the U.S. government is reporting an increase in its deficit. For the fiscal year of 2012, the federal government budget deficit was $1.09 trillion, slightly below 2011’s deficit of $1.29 trillion. (Source: U.S. Department of the Treasury, October 12, 2012.) As a percentage of gross domestic product (GDP), the U.S. government’s budget deficit for the year 2012 stands at seven percent.

Yes, some might jump on the “decline” in the federal budget deficit in 2012 over 2011, but there is more to it. For the first month in the current fiscal year of 2013, which ended October 31, the deficit increased by $120 billion. This is an increase of almost 22% from the same month last year—$98.0 billion in October 2011. (Source: Department of the Treasury, November 13, 2012.

In the month of October, U.S. government spending was much higher than the previous month. In September, the U.S. government spending was $186.3 billion, in October 2011, it was $261.5 billion. In October of this year, government spending reached a staggering $304.3 billion—an increase of 63.3% from a month earlier and 16.4% from October last year.

So all this talk of lowering the government’s annual budget deficit seems to be just that; talk. Increasing budget deficits is not good for any country; every economist would agree with me on this one. So, where do we go from here?

The issues in the U.S. economy are becoming similar to the ones in the eurozone countries. For example, in those countries, government spending simply was greater than tax revenue, … Read More

Silver Meltdown on the Chart

By for Profit Confidential

 Silver Meltdown on the ChartIn early 2011, silver was the toast of the town, as speculators ran up the price to the $50.00 an ounce level on speculation that the world economies would explode upward. Of course, this has yet to happen since the white metal steadily declined over the past 15 months. The upward move in prices leading up to $50.00/oz was overextended on the chart and vulnerable to selling pressure, which did happen, so I hope you did not chase the metal higher.

The long-term chart of cash silver from 2003 shows the metal managing to hold just above its 50-day moving average (MA) around $25.00 per ounce. The last time cash silver traded below its 50-day MA was briefly in late 2008 and early 2009. We are seeing a sideways trading channel between $25.00/oz on the bottom end and just over $35.00/oz on the top end. If silver can hold, we could soon see another rally back above $30.00 toward $35.00.

Yet I would rather be in gold, which is used mainly as a hedge against risk and for jewelry. Silver is used in numerous industrial and electronic applications; hence, it’s more of a trade with the state of the global economy. The same goes with copper. I would not be a buyer of silver now unless you want to trade the sideways channel and buy the metal toward $25.00/oz and sell into strength in the low $30.00 to mid-$30.00 an ounce level.

The July Silver is bearish below the key $30.00/oz level—below its 50-day MA of $29.59 and 200-day MA of $32.24. Chart resistance looks tough, and there’s a … Read More

How Consumers Are Capping Economic Growth

By for Profit Confidential

market viewWhen consumers are cautious, they tend to hold back on any major purchases, such as homes, vehicles, furniture, appliances and travel, to list a few. This will impact spending and gross domestic product (GDP) growth and the ability of companies to expand their businesses and hire new employees, according to my market view.

Consumer confidence in May was another disappointment, with a reading of 64.9. This was below the estimate of 69.4 and the downwardly revised 68.7 in April. The reading is at a multi-year low. To tell you how bad the readings are: economists suggest a reading of 90 indicates a healthy economy, something that has not happened since December 2007 when the recession began. My market view is that it will be some time until the confidence reading heads back towards the pre-recession reading level of 90. This cannot be good.

And, while home building and permits are much improved, the critical home prices continue to fall, which I discussed in Homebuilders Show Improvement, But Stay Selective. The Case-Shiller 20-city Index contracted another 2.6% in March, following a 3.5% decline in February. Lower home values translate into less home wealth and less desire to spend until the situation improves, based on my market view. A strong housing market is important in many ways; for example, homeowners buy new furnishings, including many big-ticket items. This is not happening; home prices continue to decline, dragged down by continued high foreclosures and short sales where homes are dumped at prices below mortgage value.

My market view is that, to drive the economy, consumers need to spend. We have historically … Read More

Spain’s Debt Is Big News, But
Don’t Forget Our Own Backyard

By for Profit Confidential

unemployment rateThe market is focused on the debt situation in Spain, with the country hindered by a national debt of around 712 billion euros or about US$892 billion, which equates to about US$19,391 per citizen. This is why Spain is seriously concerned about the 10-year bond yield at near seven percent. Paying these high financing costs and trying to cut down its national debt and manage its budget will not be easy. Spain is asking for help. The reality is that the eurozone and Europe are in serious trouble, which I recently discussed in Eurozone Weakness: Don’t Take it Lightly!

But, while the Spanish situation and those in Italy, Greece, Portugal and Ireland look bad, somehow everyone seems to forgotten the $15.75 trillion in national debt in the U.S. That’s $50,215 per citizen or more than double the debt of the Spaniards. And the national debt is mounting and not going away anytime soon. Worst of all, it’s growing at an alarming rate every minute. The only plus here is our low bond yields. If the U.S. had to pay out the high yields Spain does, the U.S. would soon find itself broke and facing bankruptcy.

This national debt will take decades to pay off or even get it to more manageable levels.

Something drastic needs to be done soon regarding the national debt or the country’s financial strength will go down the toilet! Never mind talking about the European debt crisis; just look in our own backyard and you’ll see there’s plenty of work to be done.

Whether it will be President Obama or the new Republican hopeful, Mitt Romney, … Read More

Global Market Risk: Is it Improving?

By for Profit Confidential

Spain technically blundered into its second recession since 2009 in the first quarter and the country appears to be ravaged by heavy debt and muted growth. The Spanish government is trying to cut the budget deficit, but, with the country’s jobless rate at near 25%, it will not be easy based on my market view. The country’s gross domestic product (GDP) is predicted to contract 1.7% this year and expand an anemic 0.2% in 2013, with the unemployment rate stuck at around 24%.

And like Greece and Italy (some of the other PIIGS), my market view is that Spain will need aggressive austerity measures to put the country back on track. It will not be easy and the concern is that, with Spain being the ninth largest economy in the world, fallout here will be devastating to Spain and the rest of the world, according to my market view. Monitor the Spanish Bond Auction that showed the 10-year yield at 5.80%. A move to above six percent would be a red flag and, if yields rise to seven percent, my market view says watch out.

In all, my market view is that the world economies have changed dramatically since September as a result of the sharp slowdown in Europe’s growth along with the unrest and political turmoil in the Middle East and North African region. The economic prospects are gradually strengthening, according to my market view, as a result of the better policy steps in the eurozone and improved activity in the U.S. where the growth is rising and unemployment is falling, but there is still real risk to … Read More

Don’t Forget the Debt, Mr. President

By for Profit Confidential

Don’t Forget the Debt, Mr. PresidentHave you recently taken a look at America’s national debt?

What if I told you that your share of the country’s mounting spending spree is around $48,812 per citizen or $135,262 per taxpayer? This national debt could take decades to pay off!

The U.S. national debt broke above $15.0 trillion and is worsening. President Obama said very little about the mounting national debt levels at his State of the Union address on Tuesday, but you cannot simply ignore the problem and pray it goes away. There’s no magic here.

The reality is that something drastic needs to be done soon regarding the national debt or the country’s financial strength will go down the toilet! Never mind talking about the European debt crisis; just look in our own backyard and there’s plenty of work to be done.

Whether it will be President Obama or the Republicans, I don’t care; but the next president will need to focus on significantly cutting costs and reducing the national debt.

Of course, increasing the revenues the government takes in can also help. Taxes on the top one percent of the higher income earners and corporations are fair play. Revenues are also higher when the economy expands and jobs are created to drive consumer spending.

Get the 14 million or so unemployed Americans off to work each morning.

While there has been no indication of where the major cuts will be from, they will likely be from the top six budgetary areas: Medicare/Medicaid; Social Security; defense/wars; income security; interest on the debt ($223 billion!); and Federal pensions.

We know that President Obama will save … Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

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