Posts Tagged ‘budget deficit’
The general consensus among stock advisors is that the key stock indices will continue to go higher. Each day, I hear about another “bear” throwing in the towel and turning bullish on key stock indices.
“Don’t fight the fed or the tape; just buy stocks, and you’ll do fine” has become the norm again. Sadly, this worries me a lot because the fundamentals that drive the key stock indices higher are becoming weaker with each passing day.
As an example, for the third quarter, the corporate earnings growth rate for the S&P 500 companies was only 2.9%. To some, this might sound great, but look at these three facts: 1) corporate earnings were up 2.9% in the third quarter, but the stock market is up about 13% from the beginning of the third quarter; 2) corporate earnings growth so far in 2013 is running at its slowest pace since 2009; and 3) only 52% of the S&P 500 companies were able to beat revenue estimates for the third quarter. (Source: FactSet, December 6, 2013.) This suggests corporate earnings aren’t really coming from companies selling more, but rather from stock buyback programs and cost-cutting.
Troubles for corporate earnings don’t just end there. Corporate earnings are expected to be weaker in the fourth quarter. So far, of the 103 companies in the S&P 500 that have issued corporate earnings guidance, 89% of them have issued negative guidance!
And aside from corporate earnings, there is another problem brewing for key stock indices…
The chart below shows the dollar amount of stocks owned by households and nonprofit organizations. At the end of the third … Read More
Detroit, the “Motor City,” has been approved for bankruptcy. In making the ruling, Judge Steven W. Rhodes, who sits in the United States Bankruptcy Court for the Eastern District of Michigan, said, “This once proud and prosperous city can’t pay its debts.” He added, “It’s insolvent. It’s eligible for bankruptcy. But it also has an opportunity for a fresh start.” (Source: “Detroit Ruling on Bankruptcy Lifts Pension Protections,” New York Times, December 3, 2013.)
In his ruling, the judge also made it very clear that the pensions of city employees might be at stake. He said, “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy.” (Source: Ibid.)
Looking at what happened to Detroit, I question if we are going to see a spree of municipal bankruptcies in the U.S. economy.
You see, Detroit was a prime example of a city registering budget deficit after budget deficit, year after year. It borrowed to pay for its expenses. It came to a point where it had to tell its municipal bonds holders, “Sorry, we can’t pay you,” and its pensioners, “Sorry, your pensions are non-existent.”
After the housing bubble burst in 2007, cities across the U.S. economy started to register budget deficits as they continued to spend at the same pace despite the decline in property tax revenue.
As it stands, across the U.S. economy, there are a significant number of cities that are struggling to control their budget deficits. Mind you, it’s not just smaller counties that are struggling with this problem. Major cities in the U.S. economy, like Chicago, Los … Read More
Then something happened that I thought was strange.
We started circling in the air. Not once or twice, which is common when air traffic gets congested, but we circled for what seemed to be 20 to 30 minutes. I told my wife, “Something is up. I wish the captain would come back on and tell us what’s going on.”
And finally that announcement came. The captain came on and said, “Ladies and gentleman, as you probably know, we have been circling up here for the last little while.”
The captain then proceeded to tell us President Obama had left the Miami airport on Air Force One within the last hour or so, and when that happens, commercial airlines are not allowed to take off or land for a specific amount of time. We were stuck in the backlog of flights trying to land because Air Force One had recently taken off.
The next day, I heard on the news that President Obama was in Florida the night before for Democratic fundraisers and to play golf on Saturday morning.
This got me thinking and researching.
Air Force One costs approximately $200,000 per hour to operate. (Source: USA Today, May 22, 2012.) But that doesn’t include the cost of lost productivity for the thousands of business people who are often delayed when Air Force One travels (or the thousands of tourists who are inconvenienced).
According to Kiplinger Washington Editors, … Read More
Can you believe the mainstream headlines these days? I’m reading about the Dow Jones Industrial Average going to 19,000… I’m reading that stocks are rising because the amount of stocks for investors to buy has diminished…
It’s all rubbish!
The chart below of the Dow Jones Industrial Average breaking above 16,000 makes it look like people just woke up the morning of November 18 and said, “I need to rush out and buy stocks today!”
In my opinion, we are looking at the biggest bear market trap we’ve ever seen. The year 2008 is a distant memory. The notion of fear of “missing out” is back.
Investors are pouring billions into stocks…
Chart courtesy of www.StockCharts.com
According to the Investment Company Institute, long-term U.S. equity mutual funds had a net inflow of $5.4 billion for the week ended November 6. In the prior week, which ended on October 30, investors bought $4.2 billion worth of long-term U.S. equity mutual funds. (Source: Investment Company Institute, November 13, 2013.)
As investors are pouring back into stocks, the fundamentals that drive the key stock indices are dissipating. Each day, we hear weak economic news, which suggests key stock indices are moving beyond reality. And the disparity between the performance of key stock indices and the most basic fundamentals continues to grow.
Corporate earnings of companies in key stock indices are very weak. The corporate earnings “surprise” rate (this is the rate that shows how much higher or lower corporate earnings were registered) came in at 1.8% in the third quarter—far below the four-year average of 6.5%.
S&P 500 companies posted an increase in … Read More
For its fiscal year (ended September 30, 2013), the U.S. government posted a budget deficit of $680 billion…that’s after four years of annual trillion-dollar budget deficits. And with the onset of a new fiscal year, the trend continues. (There are projections the U.S. government will have a budget deficit each year until at least 2038.)
The Department of the Treasury’s Bureau of the Fiscal Service reported the U.S. government registered a budget deficit of $92.0 billion in the first month of its fiscal year 2014 (October 2013). The government’s revenues were $199 billion, and its spending amounted to $291 billion. (Source: Bureau of the Fiscal Service, Department of the Treasury, November 13, 2013.)
As a result of continuous budget deficits, the national debt has skyrocketed to $17.0 trillion, and with the crises that are currently taking place in the U.S. economy—municipal bankruptcies, soaring pension liabilities, and student debt delinquencies—I expect it to go to $34.0 trillion.
On the other hand, there’s the Canadian government. According to its most recent economic and fiscal projection, it expects to have a budget surplus (when revenues are more than expenses) by its fiscal year 2015-2016. It then plans to use this surplus to start paying off the small national debt it has accumulated. (Source: Department of Finance Canada, November 12, 2013.)
Note the difference: while the U.S. government expects to post budget deficits for a very long time to come, Canada—a major player in the global economy—is very close to a budget surplus.
If the U.S. government continues to follow the same trajectory (spending more and borrowing more), it’s not sustainable in the long … Read More
I’m blessed to be able to travel to Europe once or twice a year. I use the trips as an opportunity to see how the economies are faring over there. And I can tell you this first-hand: the economic situation in Europe is much worse than what we’re hearing from the mainstream media in the U.S. economy.
Here’s just one small story that paints the picture…
A couple of weeks back, while in Venice for four days, I walked into my favorite ice cream store for my daily fix of Italian ice cream. I’m chatty wherever I travel, as I want to get the locals talking so I learn what’s going on.
After engaging the store’s only employee in conversation (I’m fluent in Italian), the young man, who was between 25 and 30 years old and educated, told me how happy he was to have his job as an ice cream scooper at this particular location of a well-known chain of Italian ice cream stores. “Jobs in Italy are very hard to come by,” he told me.
But what he said next really got me thinking…
The ice cream scooper said he travels 65 kilometers (that’s about 40 miles) each way to and from work each day. He takes the train. Total travel time is four hours a day; two hours in the morning to get to work, and two hours at night to get home from work. Yes, four hours a day to travel to a job scooping ice cream for tourists.
When I asked him about getting a job closer to the town he lives in, he … Read More
The mainstream and politicians tell us the “wounds” of the financial crisis are over and the U.S. economy is in recovery mode. This simply isn’t true.
A few of the key indicators I follow to see where an economy stands are personal income, consumer demand, and businesses’ activity. All three of these indicators are telling me the U.S. economy is definitely going in the wrong direction.
First of all, the income gap in the U.S. economy continues to grow. The top earners make more, while the lowest income earners make less. According to the Wage Statistic from Social Security, in 2012, 23 million of the lowest wage earners earned a total of $47.0 billion in the U.S. economy. But those who earned $10.0 million or more annually in the year 2012 earned $64.3 billion! Here comes the kicker: there were only 2,915 wage earners in this category in the U.S. economy last year. (Source: Social Security, November 5, 2013.) Yes, you read that right. Less than 3,000 people cumulatively made more than 23 million people.
The bottom line: while Wall Street and big business has boomed again, the average working American family is struggling under an after-inflation personal income that is lower than it was in 2009—four years ago. In 1999, real median household income (that’s adjusted for inflation) in the U.S. economy was $56,030. By 2012, that number was $51,017. (Source: “Real Median Household Income in the United States,” U.S. Department of Commerce, September 18, 2013.)
Next, American consumers are pulling back on their spending—something that’s not supposed to happen when an economy is recovering.
One indicator of consumer … Read More
We have seen cities like Detroit and others in California tell their municipal bonds investors, “Sorry, we can’t pay you.” The reason behind this? Their budget deficit was out of control, they reached the breaking point, and they filed for bankruptcy.
But the troubles of municipalities and cities aren’t behind us. In fact, they are marching forward with full force. And it’s not just rural cities and counties that are struggling to fix their budget deficit; major ones are doing the exact same thing. And truth be told, they are failing at it.
Take Fresno, California, for example. In the fiscal year 2014—which began on July 1, 2013 and ends on June 30, 2014—Fresno, one of the largest cities in California, will register a budget deficit of $6.0 million. If the city is unable to reduce its budget deficit in the fiscal year 2014, then its budget deficit can grow to as much as $32.2 million in the next five years. (Source: “FY 2014 Adopted Budget,” City of Fresno, California, May 29, 2013.)
And Fresno has worked very hard to keep its budget deficit under control. In the last four years, the city has decreased its workforce by 1,200 employees (25% of the city’s workforce), reduced or completely eliminated the maintenance and replacement of equipment, and now relies on volunteers for parks maintenance, community centers, and for different functions in the police department. The city has also reduced the number of employees working in public safety. One would assume that after this many cuts, the budget deficit would be controlled; but that’s certainly not the case for Fresno, California.
While … Read More
The U.S. Department of the Treasury has reported that for the federal government’s fiscal 2013 year, which ended on September 30, 2013, the U.S. government budget deficit was $680 billion—the smallest budget deficit in five years. (Source: Bureau of the Fiscal Service, October 30, 2013.)
Should this be taken as great news? No, it’s “smoke and mirrors,” as I will explain below. But the mainstream certainly thinks this year’s budge deficit, which came in below $1.0 trillion, is good news. They forget that no matter how you look at it, any budget deficit, no matter how small or large, is adding to a bigger problem at hand—our massive national debt.
Let’s face it: a budget deficit at the end of the day means the government spent more money than it received. Where does this extra money that the government spends come from? The answer is simple: it borrows. And as a result, the national debt rises.
Our national debt has increased significantly over the past few years. At the beginning of 2008, the U.S. national debt stood at $9.2 trillion. Today, it stands above $17.0 trillion. (Source: Treasury Direct web site, last accessed October 31, 2013.) This represents an increase of almost 85% in the national debt in the matter of a few years.
I believe the national debt will double from here…from $17.0 trillion to $34.0 trillion.
Why am I so negative on the national debt? I’m skeptical because I don’t believe this year’s numbers present the real story on government spending. Let me explain…
In the fiscal 2013 year, the U.S. government paid … Read More
At the very core, this U.S. government shutdown means that about one million federal employees will be told to go home without pay. Non-essential services will be stopped until further notice. This will be mainly due to a lack of funds. (Source: Committee for a Responsible Federal Budget, September 24, 2013.) National parks will be closed; museums will be shut along with many other services.
What government services will be available? Social security and the Medicare payments will be sent out to those who already rely on it. For those who are applying for it during the U.S. government shutdown, they will not have their applications processed for the time being.
As bad as all of this may sound, this U.S. government shutdown isn’t the first one we’ve seen. Since 1976, there have been 17 instances when the U.S. government wasn’t able to come to a decision on funding. Mind you, many U.S. government shutdowns only lasted over the weekend, so their effects were minimal. The last two long U.S. government shutdowns were 17 years ago and they lasted a total of 27 days. (Source: Ibid.)
With all this, there are many different opinions. With so many people sent home, the U.S. government shutdown is an immediate money-saver. But on the other hand, those who aren’t getting paid are likely pulling back on spending and that will affect gross domestic product (GDP) growth for the U.S. economy.
As all this happens, I stay far away from making political predictions, as after all, that’s all we are dealing with here—two political parties pitted against each other resulting in a U.S. government … Read More
I often write about the crisis faced by the municipalities, cities, and states across the U.S. as they continue to register budget deficits year after year. Cities like Detroit and others in California have already filed for bankruptcy. When all of this was happening, I kept asking: when will the U.S. government bail out the troubled cities?
Well, it’s started to happen…
The U.S. government will be giving the city of Detroit $150 million for “demolition and redevelopment purposes.” In addition, it will also provide the city with almost $140 million to better its transit system. Another $25.0 million will be granted to the city to assist in its streetcar project. (Source: Newsmax, September 27, 2013.)
The economic situation for “Motor City” has gone from bad to worse. But I ask one question: if the U.S. government “helps out” Detroit, won’t other cities struggling with a budget deficit feel shortchanged? After all, they are in dire need of money too!
Take San Jose, for example. The city has been posting a budget deficit since the 2002-2003 fiscal year. The cumulative budget deficit since then to now has accumulated to a total $680 million. (Source: San Jose’s Mayor Office web site, last accessed September 30, 2013.) And it just doesn’t end at the city level. States have also been caught in the same budget deficit trap.
Credit rating firm Fitch Ratings, in assigning a revised credit rating to Connecticut, said, “The Negative Outlook reflects the state’s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty. The enacted budget for the new biennium delays repayment of deficit borrowing, adds … Read More
The “Bernie” Madoff name became famous while the stock market was falling during the credit and financial crisis. He was responsible for running one of the biggest Ponzi schemes in U.S. history—if I recall correctly, it was a $65.0-billion scheme. But as the scam got bigger, Madoff couldn’t go on. He was caught, prosecuted, and sentenced to more than 100 years in jail.
What did we learn from the Madoff ordeal? At the very least, we learned Ponzi schemes eventually become impossible to hide, no matter how smart and cunning the perpetrator.
Wednesday of this week, we learned that the Federal Reserve’s Ponzi scheme of printing paper money and giving it to the government via the purchase of U.S. Treasuries will go on.
While the Fed says it wants to keep the “stimulus” going until the economy gets better, as I have written in these pages many times, the Fed cannot stop printing because if it did stop, three things would happen: 1) the stock market would collapse; 2) housing prices would fall; and 3) the government would have no real buyer for its debt (especially in light of China and Japan pulling back on buying U.S. Treasuries).
Madoff’s $65.0-billion Ponzi scheme is nothing when I look at the U.S. national debt figures. While it looks like we are beyond the point of no return, our national debt level would have to double from $17.0 trillion to $34.0 trillion before our debt-to-gross domestic product (GDP) ratio matches that of Japan. (And don’t for a moment think that’s not going to happen!)
In 2011, only two years ago, we heard Congress … Read More
The middle class in the U.S. economy is on the verge of collapse. Yes, I said collapse. That social class that once helped the U.S. economy grow and prosper is coming apart. Will the U.S. economy ever be the same without it or is this the new norm?
Here’s why it’s important to you.
The middle class helped the U.S. economy (following World War II and up until the credit crisis of 2008) by buying goods and services they needed or wanted. They bought cars, TV sets, furniture, appliances, clothing, computers, and flashy gadgets. In simple terms: they spent money.
The spending by the middle class resulted in American companies selling more, making more, and hiring more people to meet consumer demand. Businesses then took their profits and invested in new projects and built more factories. This is how cities like Detroit flourished.
But where does the middle class of the U.S. economy stand now?
Signs of trouble for the middle class of the U.S. economy actually started to surface at the start of the new century, but it wasn’t until the financial crisis when the middle class in the U.S. economy really started to deteriorate.
Today, the middle class is not buying or spending like it once did—and this is not by choice.
The collapse of the housing market in the U.S. economy has taken a devastating toll on the middle class in this country.
While the media and politicians keep telling us the housing market has turned the corner and is healthy again, the delinquency rate … Read More
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