What We Saw on TV Last Night: Sell Dollars, Buy Gold

Michael's commentary on President Obama’s speech to Congress and the nation this past Thursday night.I know this is a financial e-letter. But I can’t pass on the opportunity to comment on President Obama’s speech to Congress and the nation this past Thursday night.

Maybe I’m the only one who doesn’t get it. Maybe these politicians are all smarter than me. I see something very wrong.

Each time the President gets up to say a speech in front of Congress and Americans via television, I see all these people in the chamber smiling, hugging each other, shaking hands, clapping—these people look very happy to me.

But what’s there to be happy about? They are all failing miserably at their jobs. They’ve failed to revive the pathetic American economy. They’ve created a huge debt for our children. They’ve managed to get the U.S.’s once-stellar debt credit rating downgraded. The underemployment rate in this country is 16.2%, and these people sitting with Obama are all happy? Most companies would have fired them by now.

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So President Obama is asking Congress for another $447 billion in spending initiatives and tax cuts to stimulate the economy. We were told this new stimulus package would be “paid for,” but we need to wait until a week from Monday to find out how. We did get a clue—taxes are going up for the “rich.”

Obama talked about Warren Buffett in his speech and how Buffett is “asking” to be taxed more.

Here’s how I see it:

Warren Buffett’s salary from Berkshire Hathaway is just $100,000 per year. Increasing the tax rate on “rich” Americans would not affect Buffett at all, since most talk in the past on raising the marginal tax rate has been directed at Americans with a salary of $200,000 or more a year.

By increasing taxes on the rich, those who have taken the risk to build businesses that employ people, you are basically “taking from Paul to pay Peter.” Most of America’s wealthiest people are business owners. Taxing them for taking the risk to achieve the American Dream will give them less incentive to build their businesses and start news ones…which ultimately results in job growth. Personally, why would I take more risks if I just need to pay more tax on the money I could make?

Much of Obama’s proposal will have a difficult time getting past the Republican-controlled Congress. I don’t think I saw Republican House Speaker John Boehner smile even once last night.

While my math might not be perfect and while it may be approximate, since Obama took office, the official national debt has increased about $5.0 trillion. And we really don’t have much to show for that 50% increase in the national debt. Now Obama wants to up the ante another half-a-trillion? He wants to take us in the same direction that hasn’t worked yet?

The stock market wasn’t impressed at Obama’s proposal. As I write this, stock market futures are down.

What it means:

More debt equals more pressure on the U.S. dollar. More pressure on the greenback results in rising precious metals prices, especially gold. Short the U.S. dollar. Hold on to your gold investments.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this morning down 2.2% for the year. I continue to believe that a bear market rally in stocks that started in March of 2009, although it’s tired, presides.

What He Said:

“I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, August 2, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.