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

Posts Tagged ‘budget deficit’

The Sobering Issue

By for Profit Confidential

Why Our National Debt Will Double From HereAccording to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July 21, 2014.) From there, the budget deficit is expected to increase as far as the projections go.

Yes, the government’s own estimates are that our country will run a budget deficit every year for as long as the government’s forecasts go.

That’s quite unbelievable. We live in a country where the government (and politicians) feel it is okay to continue being “negative” every year, indefinitely. It’s like I’ve written many times: if our government were a business, it would have gone bankrupt long ago. But the government, through its non-owned agency, the Federal Reserve, has the luxury of printing paper money to fund its budget deficit and debt. If a business did that—printed money to pay its bills—that would be illegal.

Today, the U.S. national debt stands at $17.6 trillion with about $7.0 trillion of that incurred under the Obama Administration. (Is it any wonder a CNN/ORC International poll said this morning that 35% of Americans say they want President Obama impeached with about two-thirds saying he should be removed from office?)

But what happens to the budget deficit once interest rates start going up? We’ve already heard from the Federal Reserve that interest rates will be sharply higher at the end of 2015 and 2016 than they are now.

Earlier this month, the U.S. Department of the Treasury was able to borrow money (issued long-term bonds) at an interest … Read More

Sneaky New Taxes Way Government Debt Will Get Paid Down?

By for Profit Confidential

Getting Ready Mansion TaxAs it stands, the U.S. national debt has skyrocketed to above $17.4 trillion. With this year’s budget deficit expected to be around $500 billion, we’ll be at a national debt of $18.0 trillion in no time. In fact, a $30.0-trillion national debt is not out of the question by the end of the next decade.

Any way you look at these very big numbers, it is the American taxpayer who is on the hook for the years the government mismanaged finances.

If we look at the Greek example, that country’s government, too, rigorously spent money, registering massive budget deficits year after year. This caused Greece’s national debt to get to a point where it was unable to make payments on what it borrowed. Those who bailed out the Greek government asked for changes. This resulted in the lowering of pension payments to Greek citizens and austerity measures across the board.

The U.S. has more national debt than any other country in the global economy. At some point—and I don’t know when, as the can just keeps getting kicked down the road—either taxes will need to go up or austerity measures will need to be introduced to deal with the debt mess.

And since we now have so many people in this country dependent on government handouts and support, I think we’ll see higher taxes before we see austerity in the U.S.

Consider this: New York City’s mayor, Bill de Blasio, is considering a “mansion tax.” This is essentially an extra tax on homes valued at more than $1.0 million. He wants the proceeds from the tax to go towards adding … Read More

Why Prices Will Rise Exponentially Over the Next 10 Years

By for Profit Confidential

Social Security Health Care Costs Double 2014Something just doesn’t make sense here…

In 2013, the U.S. budget deficit came down to $680 billion. Finally, after four consecutive years of annual budget deficits of more than $1.0 trillion, the government got its annual “hole” under the trillion-dollar level, and it seemed as though we were headed in the right direction.

But stop. The government is now reversing its track…

According to the Congressional Budget Office (CBO), the budget deficit of the U.S. government will decline to $492 billion in 2014, but from then on it will increase and reach more than $1.0 trillion annually again by 2024! The CBO projects that between 2015 and 2024, the accumulated budget deficit for the U.S. government will be $7.6 trillion. (Source: Congressional Budget Office web site, last accessed April 30, 2014.)

The biggest expense increases for the government, Social Security payments are projected to almost double by 2024, and annual healthcare expenses are going to increase from $936 billion in 2014 to $1.7 trillion in 2024.

What this means is that the national debt will rise to $24.0 trillion by 2024 if everything goes as planned—if we don’t have another war between now and then, if we face no natural catastrophes that would require federal support, and if interest rates don’t run up too much (all three of which I believe will happen)!

My personal projection is that 10 years from now, we will be looking at national debt in the $30.0 to $34.0 trillion range. I believe annual budget deficits of more than $1.0 trillion will become the norm, not the exception.

When I look at this and the … Read More

What a Loan Officer Would Say to the U.S. Government

By for Profit Confidential

Does the Size of Our National Debt Really Matter AnymoreFor a moment, consider yourself a loan officer at a major bank. Would you approve a loan for a customer who says they earn $1,000 a month, spend $1,300 a month, and don’t have a job? They also tell you they have unpaid debts of $17,000.

I don’t think anyone would authorize that kind of loan because the chances of getting the money back are next to zero. The individual spending more than he earns is a prime example of a financial disaster waiting to happen. It is unsustainable living; when someone does this, they break the most basic principles of Personal Finance 101.

So why does the U.S. government get away with it?

The United States Department of the Treasury, Bureau of the Fiscal Service reported the budget deficit for the month of February was $194 billion. The U.S. government received $144 billion in revenues and spent $338 billion; the government spent 134% more than what it earned. (Source: Bureau of the Fiscal Service, March 14, 2014.)

So far for fiscal year 2014 (which began in October of 2013), the U.S. government has incurred a budget deficit of $380 billion on revenues of $1.10 trillion and expenses of $1.48 trillion. Since the beginning of its current fiscal year, the government has been spending 34% more than what it takes in.

The U.S. national debt, which has now surpassed $17.0 trillion, has skyrocketed since the Credit Crisis of 2008.

There are two important facts about our rising national debt that don’t get a lot of mainstream attention (and I certainly don’t hear the politicians talking about them):

Point #1: … Read More

Burning Money at the Rate of $113 Billion a Month; How Can They Stop Printing?

By for Profit Confidential

Why Our National Debt Will Double in the Years AheadIn the month of November, the U.S. government registered a budget deficit of $135 billion. Over the course of the month, it spent $318 billion and only took in $182 billion. So far for the fiscal year 2014, which began in October, the U.S. government has registered a budget deficit of $227 billion; that’s an average of $113.5 billion a month so far this fiscal year. (Source: Department of the Treasury; Bureau of Fiscal Service, December 11, 2013.)

In the same period a year ago (October and November of 2013), the U.S. government registered a budget deficit of almost $300 billion. (I ‘m certain that some politician comparing the two periods will say, “Look, our budget deficit situation is getting better!”)

Whenever the U.S. government registers a budget deficit, it has to go out to the market and borrow money to pay for its expenses and obligations. This increases our national debt, which has skyrocketed over the past few years due to consecutive years of extremely large budget deficits. As of December 10, our national debt stood at $17.2 trillion. (Source: Treasury Direct web site, last accessed December 12, 2013.)

I believe our national debt will double to $34.0 trillion in the years ahead.

Here’s my reasoning:

According to the Congressional Budget Office’s projection, between 2014 and 2018, the total U.S. budget deficit of the U.S. government will add up to about $2.4 trillion. This means that by the government’s own estimates, the national debt will hit about $20.0 trillion in four years. (Source: The Congressional Budget Office, May 2013.)

But I think the budget deficits the U.S. government will … Read More

Another Flashing Red Light: Investments in Stocks by Households and Nonprofits Reach Record High

By for Profit Confidential

key stock indicesThe 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 Bankruptcy Approval: A Green Light for More to Join?

By for Profit Confidential

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

My First Encounter with Air Force One

By for Profit Confidential

211113_PC_lombardiIt was a regular flight for me to Miami…a late Saturday afternoon two weeks ago. As our flight approached Miami International Airport, the captain announced we would soon be starting our descent.

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

The Day People Woke Up and Said, “I Need to Rush Out and Buy Stocks”

By for Profit Confidential

 key stock indicesCan 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…

Dow Jones Industrial Average Chart

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

If the U.S. Government Did What the Canadians Did, We Wouldn’t Be in This Mess!

By for Profit Confidential

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

What the Ice Cream Scooper Told Me in Venice

By for Profit Confidential

141113_PC_lombardiI’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

Three Key Indicators Say U.S. Economy in Trouble

By for Profit Confidential

 budget deficitThe 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

Municipal Debt Crisis Far from Over

By for Profit Confidential

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

National Debt to Double from $17.0 trillion to $34.0 Trillion?

By for Profit Confidential

national debtCan it be true?

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

First Government Shutdown in 17 Years. If Only It Will Last?

By for Profit Confidential

U.S. government shut downAt 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

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