December 12, 2009
A PICTURE SPEAKS A THOUSAND WORDS
S &P 500 Chart Indicates Long Term Trend is UP!
The chart is simply constructed by averaging the Open, High, Low and Close (OHLC) of index prices on a monthly basis and then averaging those prices for longer periods to identify major changes in trends.
When the 6 month moving average (6 MMA) crosses over the 12 MMA a major change in direction is occurring.
The chart provides a clear and powerful signal on when Investors should make distribution or accumulate S&P 500 issues. Much of the market distortion (volatility extremes) is removed by averaging periodic price movements so changes in trend may be more easily detected.
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US Economic Outlook in the New Millennium
August 2, 2009
Led by the US, the global economy sputters along stimulated by $trillions in new money and debt. The seeds for another inflationary spiral (especially health care costs) are being firmly planted by self-serving politicians and bureaucratic functionaries in government, transnational corporations and the Federal Reserve led banking system.
Expectations of higher inflation and interest rates fueled by skyrocketing growth in government printing of money and debt may be subdued by the fact that what is in the vital interest of the US government often guides contrarian realities. The effects of the explosion of US deficits, debt and unfunded liabilities (both implicit and explicit, social insurance) is counteracted by the absolute necessity to keep interest rates abnormally low for an extended period of time (perhaps decades) because the unsustainable high costs of servicing US debt.
While business is reporting unexpected profits by cutting payrolls, the equity markets have begun to rebound from the nadir of the precipice of the pseudo depression. As free money and debt work their way through the global economy, employment in the private sector continues to deteriorate. Much of the current economic woes may be attributed to the crisis mentality created in the past couple of years on Wall Street and inside the Beltway comparing what may have been a modest downturn to the last Great Depression. The overwhelming preponderance of negative news spewing and recirculating from the mass media has added to the severity of the downturn.
In a nutshell, what I expect is a shallow economy with high unemployment for the foreseeable future (2-5 years). I interest rates to remain at historic lows because the Federal Reserve has no choice but to accommodate US government debt with free or cheap money. To do otherwise would only invite an even deeper downturn than the one just experienced.
This jobless recovery is likely to be stagnant because it is based on phony money, false promises, unsustainable debt, and irrational expectations. There is no free lunch! Adding millions of new beneficiaries to the Medicare and Medicaid government sponsored health care system will only multiply the unsustainable liabilities of the US government and accelerate the day of reckoning.
There are practical reforms that could alter the course from perpetual debt to perpetual prosperity; but that will not happen. Real reforms are not acceptable because politicians who fashioned this impending economic and social nightmare continue to focus on the societal parasites, have-nots, and bureaucratic leeches that spend beyond their means and receive subsidized health care, food and lodging. Victims of the government largesse (those in the private sector who actually work and pay taxes) are compelled to fend for themselves against tidal waves of government interference supported by unconstitutional laws. Disunity among the victims virtually insures that things will get worse before they get better.
Grass roots, class-action lawsuits, that compel politicians to repeal unconstitutional mandates, is the last resort for freedom loving people. And, that will not happen until the abyss has already been violated.
August 11, 2008
While the European economy is showing signs of weakness and the pace of growth in emerging markets is slowing down, the US is beginning to turn the corner away from recession and toward what I believe will be a surprising intermediate recovery in 2009 and lasting 3 to 5 years. This outlook is in startling contrast to the doom and gloom view expressed by mass media that power public sentiment and investor confidence.
Economic Stimulus Legislation
On February 13, 2008 President Bush, joined by Members of Congress from both political parties, signed into law a $152 billion economic stimulus package. The President called the stimulus plan a “booster shot for our economy”.
The plan provided a quick infusion of cash into a slowing economy through tax rebates of up to $600 for individuals and $1,200 for couples. Parents received an additional $300 per child. There is evidence to suggest that some are actually saving part of it.
The law also provided new tax breaks for small businesses to help stimulate the creation of new jobs in a slowing jobs market. The residual effects of the stimulus package will continue to favorably impact the economy for months to come.
The life preserver for struggling home owners and mortgage lenders begins October 1, 2008 and sunsets September 30, 2011. The most immediate purpose of the legislation is to reduce the number of foreclosures, provide government support to lenders who can with certain limitations exchange or refinance at-risk mortgages for new ones with government guarantees, and provide interest free loans (tax credits) to 1st time home buyers.
Rare opportunity for 1st Time Home Buyers
The decline in house prices coupled with the $7500 tax credit for qualified 1st time home buyers (from April 9, 2008 through June 30, 2009) will IMHO stimulate a lot of renters to take advantage of this rare opportunity. If my assumption proves to be correct; the housing glut may quickly become a shortage and a reversal in prices should not be unexpected. For a general review of basic information authorized by the legislation visit: http://www.federalhousingtaxcredit.com/ The following is a cautionary note extracted from the Q and A at the hyperlink.
“The tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.”
There are 36 million renter occupied households in the US, many of whom aspire to own a home. Inflation adjusted wages for average families have stagnated for years and until 2006 prices of houses often rose faster than down payments could be saved. http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=1152
Because of the short duration of the $7,500 tax credit for 1st Time Home Buyers; those who are qualified and have saved some money for a down payment will be highly motivated to buy now while prices are depressed and a “Buyers Market”, exist.
Commodities “Bear” Market Intermediate Correction during Long Term Super Cycle
The current bear market in precious metals, led by crude oil is providing temporary relief to struggling economies and households. Also, the disinflationary impact of commodity price declines allows the Federal Reserve to maintain an accommodating monetary policy to provide liquidity to the ailing banking system instead of raising interest rates to fight inflation.
Increasing transparency in the commodities markets and expert testimony before US House and Senate committees and sub-committees have demonstrated that crude oil prices are determined less by supply and demand of product fundamentals than by supply and demand of highly leveraged Futures Contracts that distort actual value and often enrich the few at the expense of many.
Stock Market Prices often Misrepresent Real Asset Values
The wide swings in equity prices provide investor opportunities for reward at the risk of loss. The risk of loss may be mitigated by extensive due diligence and by averaging accumulations of selected issues. Significant down trends may also be made profitable by taking temporary losses and buying back more shares when prices stabilize or buying additional shares at the nadir of a significant sell off.
Market psychology is developed and equity prices are heavily influenced by rumors, speculations, flawed analysis, biased “expert” opinion, misrepresentations, outright lies and disingenuous rating agency forecasts that cultivate irrational exuberance and irrational fear.
Window of Opportunity for Significant, Tax, Welfare and Immigration Reforms
The most important reforms needed to restore “The American Dream” in the new millennium are to replace defective tax and welfare laws that encourage consumerism and unsustainable personal and national debt and penalize savings, with bold legislation that can achieve the exact opposite. The US tax code see Principles of a Fair Tax System, Social Security see The Truth about Social Security, and Medicare must be reformed before the US destroys itself.
Another important change in law is needed to place more control over individual retirement assets to the individual instead of employers. The inability of workers to manage their own assets leaves them vulnerable to corporate and market mishaps over which they exercise little or no control.
Many corporate retirement plans are vested almost solely in company stock, many of which pay little or no dividends. A retiree needs Social Security benefits and stock dividends and/or interest income that are above tax and inflation adjusted returns to replace lost wages.
The corporate tax code needs to be completely overhauled, replaced with a transparent system that is understandable, or eliminate the corporate tax system that more resembles corporate welfare than a producer of income for the federal government. See Eliminate or Modify Corporate Income Tax.
For an overview of US economic prospects read my free E-Book Getting Ready for Hard Times
Failure of policy makers to put their country first and make the hard choices during this Window of Opportunity to revitalize the economy and return power back to the people will have disastrous results that will later be impossible to reverse. The Legacy of Perpetual Debt can be changed to A Legacy of Perpetual Prosperity; but, only if politicians are compelled by the voters and/or the courts to do so.
Vacuum of Leadership, Statesmen and Patriots
Throughout American history, great leaders have emerged during desperate times. As stated on the US Public Policy home page “Recognition of flawed policies will lead to clarity of purpose. Innovative, imaginative leadership will emerge from the crowd who will put national interest before their own and inspire the rest of us to work together.”
One such leader may be Texas oil billionaire Boone Pickens who recently developed a 10-year US independent energy strategy that actually makes sense and is doable. The policies he advocates and is being widely publicized at his own expense should have been put into place by politicians years ago when the US enjoyed trade surpluses and were significantly less reliant on imported energy. See Pickens Plan
The current administration and the warring political parties and the Federal Reserve banking system only respond to crises when action is no longer unavoidable. The current crop of legislators, administrators and candidates for elected office offer more of the same and will likely achieve the same undesirable results. It is time for change, but few rational alternatives to the economic status quo are being offered except by Boone Pickens.
Good Luck to All,
John Koraska aka SargeK
"In the beginning of a change, the patriot is a scarce man, brave, hated,
and scorned. When his cause succeeds however, the timid join him,
for then it costs nothing to be a patriot." MARK TWAIN
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