Interference in the economy by the current administration is causing businesses to wonder how they can operate a profitable operation. A cap & trade tax of $2 trillion ultimately will be passed on to the consumer. The average work week is 33 hours in the U.S., the lowest since 1958. The next wave of foreclosures will reduce home prices another 10-15%. All of this uncertainty causes businesses to defer investment until stability arrives in the market.
On a technical basis, there is a possible global catastrophic “head & shoulders” formation forming. If it finishes forming, there is a notable probability of a financial catastrophe. The Federal Reserve is expected to no longer monetize debt after August. 3 1/2 trillion dollars worth of bonds are to be rolled over later this year which will put a lot of supply of U.S. Bonds. This is negative for low interest rates.
Many countries are moving away from the U.S. Dollar. China, the largest holder of dollars, wants to move away from the risk of holding dollars. China is diversifying out of dollars into commodities according to George Soros. That is one reason the commodity complex is the best performing sector. The valuations of oil, gas, gold, and silver are low and appear to be a great buy.
For the aggressive investor, investing in an ultra bear index fund may be a good investment to offset the rest of the portfolio at risk of a major decline. However, an ultra bear investment can slice both ways.
Precious metals are forming a reverse “head & shoulders” expected to have the opposite impact relative to the stock market. The summertime is normally weak for precious metals prices. The final four months of the year is normally robust for the price of gold & silver. Some central banks appear to be buying gold without making official announcements.
Unemployment is approaching 10% on an official basis but is double that to 20% based on raw numbers that have no “tinkering” done to them. As I have said before: If your neighbor is unemployed, it is a recession; it you are unemployed, it’s a depression. Reduced employment means reduced sales.
“Less bad” is now called improvement or green shoots in the economy. The consumer is reducing consumption in favor of savings and payoff of loans. Government stimulus payments have added only 8% in consumption thus defying the government’s intent and creating a possible jobless recovery. Unemployment is expected to increase through next year. Expect another stimulus package soon, they will do whatever is necessary to increase consumption at the expense of our children and grandchildren’s tax burden.
Tax Load: $1 Trillion of new taxes in 2011 (Bush Tax Cuts expiring), $2 Trillion in Cap & Tax, and $1 Trillion in Healthcare coming.
They want to phase out your itemized deductions on your tax return. What are these guys thinking? They seem to be assuring us of a double dip recession. When they add another stimulus, there will be a temporary recovery as they trade their stimulus for your itemized deductions and other tax benefits. Remember when you could deduct interest from your car loan off your taxes? Remember when your real estate taxes where based on the original cost of your house?
Threats to recovery include: higher interest rates, Fed tightening credit, higher inflation rates, protectionism, BRIC countries’ economies slowing down, black swan event.
Only Our Heavenly Father knows the future but HE gives us eyes to see and ears to hear and provide perspective about being prepared for what is coming. Watchmen on the wall were placed there to alert the rest of the people of the adversaries approaching the city. It appears we are on course of an economic challenge that most of us have never seen.