Forecasts & Trends

Last Wednesday, President Obama implored Congress to pass his latest healthcare plan, even if by only a majority vote (51) in the Senate - the process known as 'reconciliation' - despite the fact that a majority of Americans oppose the plan. Democrats appear willing to pass the sweeping healthcare plan even though polls show they could lose their majority rule in the House of Representatives in the November elections. President Obama doesn't seem to care either.

This week, we look at the details of Obama's latest healthcare proposal and ponder why he and the Democrats in Congress believe they are smarter than we Americans are, and why they are willing to risk everything to pass their government-run healthcare plan, when they really should be focused on the economy and creating jobs. And I've got some great poll results on healthcare - such as 57% think it will 'hurt the economy' and 61% want Congress to 'start over' - and a really good editorial at the end.

Last Thursday, after the stock market close, the Federal Reserve took what some are saying is the first step in the process of tightening up on the money supply by raising the discount rate by 0.25%. Fed Chairman Bernanke was quick to dispel any rumors of interest rate increases in the near future, as we would expect him to do.

The markets, perhaps the better indicator of investor sentiment, have been mixed after the Fed's action. After stock futures took a hit on late Thursday after the late-day announcement, the Dow actually closed at a gain on Friday. Since then, the Dow has been generally down, but the markets are definitely not in a panic. If the discount rate increase was a trial balloon for future interest rate increases, as I think it was, then the Fed has, so far, received an answer that the economy and stock market may be ready to at least entertain the idea.

So what does this mean to you as an investor? For those wanting to capitalize on the price movement of the long-term Treasury bond, it could mean an opportunity is at hand. However, there are still many uncertainties in the world that could drive Treasury bond prices up or down. Fortunately, there is a way to invest so that you can have a long or inverse (short) exposure to price movements of long-term Treasuries. This week, I'll again discuss the Hg Capital Long/Short Government Bond Program and why this strategy may be tailor made for the bond markets ahead.

President Obama unveiled his fiscal year 2011 federal budget last week, and it is another whopper. If approved, he would spend a record $3.83 trillion and run a deficit of at least another $1.3 trillion. The actual deficit could be much higher because his assumptions about the economy are considerably too optimistic in my opinion and that of many economists. Obama's new budget projections now show that the budget deficit for FY2010, which ends on September 30, will be much higher than previously forecast - a whopping $1.6 trillion. This week, we will examine the implications of trillion dollar deficits as far as the eye can see.

This Friday we will get the first report on 4Q GDP, and most forecasters expect it to be a very good one. While most forecasters believe the economy rebounded strongly in the 4Q, largely due to inventory rebuilding, these same analysts are lowering their estimates for growth in 2010. Why is that? Mainly because consumer spending is not rebounding as many had expected. With unemployment remaining above 10%, most consumers are worried about the future, as they should be. This week, we take a look at the latest economic reports, and I bring you one of the best articles I have read regarding how we got in the mess we're currently in. It all should make for an interesting letter.

Back in 1948, President Harry Truman nicknamed the 80th Congress the 'do-nothing Congress.' Today, we sometimes find ourselves wishing that we could return to the days when Congress was accused of inaction. Unfortunately, the stage may now be set for that wish to be granted, but the consequences will be far from favorable. By allowing the Bush tax cuts to expire, Congress could levy one of the largest tax increases ever, all by just doing nothing.

While President Obama and the Democratic leadership claim that they want to keep all of the Bush tax cuts in place for everyone making under $250,000 per year, they also know that they are going to build up huge budget deficits unless they find ways of generating some tax revenues. With cap-and-trade legislation and its expected tax revenues all but dead, the Dems are going to have to figure out some other way to pay for their march toward socialism.

The expiration, or 'sunset', of the Bush tax cuts could provide the necessary tax revenues they seek and all without having to cast a vote in favor of a tax increase. This week, I'll discuss the possible effects of a huge tax increase during a fragile economic recovery as well as the possibility that Congress may just sit on their hands and do nothing in order to fill their insatiable need for tax revenues.

This week, we start by looking at the latest economic data, and how hard it is to get a new job if you become unemployed. We also examine President Obama's new 'jobs program' that would spend what's left of last year's TARP money that was supposed to be repaid to taxpayers. Next, we look at the Democrats' move to raise the national debt ceiling, and what they really have in mind for the debt limit in January.

Following that, we will look at the disappointing holiday spending levels - as if anyone is surprised. On the plus side, there was at least a little encouraging news on the housing front over the last couple of weeks. Finally, we take a look at some of the forecasts for 2010 - hint, they are all over the board.

As always, thank you for taking the time to read this weekly E-Letter, and I especially appreciate your comments and suggestions. Happy New Year everyone!!

A recent Bloomberg survey found that Americans have grown gloomier about both the economy and the nation's overall direction over the past three months even as the US shows signs of moving from recession to recovery. The Bloomberg survey found that nearly a year into Obama's presidency, only 32% of poll respondents believe the country is headed in the right direction, down from 40% in September.

Many forecasters were surprised at the Bloomberg survey since several reports show the economy is improving, such as the Index of Leading Economic Indicators that has now risen for six consecutive months. I have a theory that the latest worsening of the mood of the country is correlated with the increasing likelihood that Congress will pass a sweeping healthcare reform bill. Surveys show that 50-60% of Americans are opposed to the healthcare reform bills in Congress.

This week, I will give you the details from the Bloomberg survey. We will also focus on the economy with a look at the latest reports, along with the Fed's latest 'Beige Book' and its assessment of the economy. In particular, we will look at the fact that lending to consumers and small business continues to decline. This is a real and growing problem. This should be an interesting letter, so let's get started.

During the 2008 presidential campaign, then-candidate Barack Obama promised he would cut the taxes of 95% of working Americans. Most agree that he delivered on this promise with the 'Making Work Pay Tax Credit' (part of the $787 billion stimulus bill), which gave most individuals a paltry $400 refundable tax credit or $800 for working families. So, a question that naturally comes to mind is, how's that tax cut working out for you?

The answer, unfortunately, is that it's not working out very well at all, especially for those in lower-income households. While the stimulus bill did provide some modest temporary payroll tax cuts for most working Americans, other Obama administration initiatives may effectively negate that relief by increasing taxes and/or the costs of goods and services. These tax and price increases are among the most regressive I've ever seen, meaning that they will hit the poor a lot harder than any other demographic group.

You won't see this analysis in the mainstream press, so read on to see what kind of change Obama is really bringing about.