Investment Contrarians

Debt Crisis

US Debt Crisis 2013: Read the latest and ongoing updates about debt crisis in America here.

Is It True? Fed Official Apologizes for “Greatest Backdoor Wall Street Bailout of All Time”

By for Investment Contrarians | Nov 18, 2013

Fed Official ApologizesOne of the most amazing things occurred the other day: a former Federal Reserve official apologized for being part of the quantitative easing program!

Andrew Huszar was an integral member of the Federal Reserve team put in place to launch the most aggressive, unprecedented quantitative easing program in the history of America.

Much of what Andrew stated won’t be news to my readers, as I’ve highlighted many of these points before.

But now that an actual Federal Reserve official is publicly stating what I’ve said all along—that the quantitative easing is only helping Wall Street, not Main Street—perhaps this can help gain traction in trying to put pressure on the Federal Reserve to come back to reality.

At the very least, I’m glad that Huszar is now publicly stating what we already know, that the quantitative easing program implemented by the Federal Reserve is “the greatest backdoor Wall Street bailout of all time.” (Source: “Confessions of a Quantitative Easer,” Wall Street Journal, November 11, 2013.)

Huszar’s inside assessment of the Federal Reserve’s program is that quantitative easing does not help the average American; instead, he says, “Wall Street was pocketing most of the extra cash.” (Source: Ibid.)

It doesn’t take a rocket scientist to understand the true impact (or lack thereof) of the Federal Reserve’s quantitative easing program.

Think about it: trillions of dollars have been pumped into the economy, yet how much has the U.S. economy really benefitted? Very little, I would say.

Most of the benefits of the trillions of dollars have gone to build new bubbles, such as the bond market and now the stock market.

The … Read More

When Foreign Investors Pull Out of U.S. Bonds…

By for Investment Contrarians | Nov 5, 2013

U.S. BondsAs everyone is celebrating the market at record highs, another record was just broken and no one appears to be celebrating it.

Of course, I’m talking about the fact that the U.S. government debt total has just exceeded $17.0 trillion.

No one should be really surprised, since we continue running deficits each year. This just means that our government debt will continue to climb, with no end in sight.

Government debt totaling $17.0 trillion is a staggering amount of money. That equates to almost $149,000 per taxpayer. Of course, this doesn’t include unfunded liabilities. When you add in Medicare, Social Security liabilities, and a vast assortment of other levels of government debt, the total is well over $100 trillion.

Again, this may not be much of a surprise to our readers, as most of you are aware of our government debt problem; what may be a surprise to many, however, is the continued global demand for U.S. bonds.

Because we have been able to sell U.S. bonds for so long to investors around the world, this has enabled us to keep spending and to procrastinate when it comes to getting our house in order.

However, I don’t believe this can go on forever. At some point, foreign investors are going to start getting worried that all those trillions of dollars they pumped into U.S. bonds might be worth a whole lot less in the future.

This political circus that we are witnessing in Washington just barely scratches the surface of how much work really needs to get done to solve our government debt problem.

Because the rest of the world … Read More

More Easy Money Signals Tougher Times Ahead for U.S. Economy

By for Investment Contrarians | Nov 4, 2013

Easy Money Signals Tougher Times Ahead for U.S. EconomyThe easy money will continue to be pumped into the economy by the Federal Reserve, but the difference, I think, will be that the soft tone will have less of an impact on the stock market than in the previous years. As was widely expected and to no one’s surprise, the Federal Reserve sat on its hands and did nothing with its current bond buying. So its status quo again as we move ahead and get ready to welcome in Janet Yellen as the next chairman of the Federal Reserve.

Based on the subsequent reaction by the stock market, the news was clearly discounted. The only thing was what the Federal Reserve would say about the economic renewal.

As I have said on numerous occasions, the Federal Reserve, in spite of adding over $3.0 trillion in debt to its balance sheet, continues to see America in flux and unable to shake its demons. By this I mean the economic renewal, while in place, remains at a tepid pace. Consumer spending is just not where you want to see it, and I think the advance reading for the third-quarter gross domestic product (GDP) growth on Thursday will point to this. Also, the jobs market continues to be caught in a vacuum.

“Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months,” said the Federal Reserve. Notice the comment on the housing market which I said was heading down.

Of course, for market participants, the cloudy forecast from the Federal Reserve will likely mean the tapering of the monthly … Read More

BlackRock CEO Reports QE Causing Bubbles in Markets

By for Investment Contrarians | Nov 1, 2013

Bubbles Forming in MarketsAs most readers know, I have been calling for a reduction in the Federal Reserve’s quantitative easing (QE) program for some time. My worry has been that the current level of quantitative easing is not doing much to help Main Street, and it is building potentially dangerous risks to our economy over the long term.

I’m worried about the future of this country, and yes, even my investments. I don’t want my hard-earned wealth to disappear due to mistakes made by the Federal Reserve in continuing to pump quantitative easing.

And I’m obviously not alone in this sentiment, as recently the CEO of BlackRock, Inc. (NYSE/BLK), Laurence Fink, stated that the Federal Reserve’s current quantitative easing policy is creating bubbles in various markets. (Source: Bloomberg, October 29, 2013.)

Fink’s opinion that the Federal Reserve should begin tapering quantitative easing immediately comes from the long-term viewpoint of the overall economy and the damage that is being done. Even though money managers like Fink might benefit from quantitative easing over the short term from the boost in asset prices, if bubbles get bigger, the damage over the long term could be extremely serious.

This has been my viewpoint for some time. Sure, it’s great that the market has gone up recently, but if it’s not sustainable, what’s the point?

Much like real estate a decade ago, we all enjoyed the party on the way up, but the hangover has taken years to work off.

Because the Federal Reserve has been so aggressive in its quantitative easing policy, it’s not just the stock market that is going up. Investors who are desperate for … Read More

How to Protect Your Portfolio as Government Debt Cripples America

By for Investment Contrarians | Oct 30, 2013

Government Debt Cripples AmericaWhenever I’m asked what I think has the biggest potential impact not only on the stock market, but also on our way of life, I always point to the continued increase in government debt.

Over the short term, the Federal Reserve has attempted to stimulate the economy partially by buying U.S. Treasuries. Under normal monetary policy, the Federal Reserve only directly impacts short-term interest rates. To reduce long-term interest rates, the Fed began buying U.S. Treasuries, pushing up the price and lowering the yield.

Over the short term, we can look around today and notice that the sky is not falling. However, as government debt continues to pile on, approaching $17.0 trillion (which doesn’t include unfunded liabilities), at some point, this will impact not only U.S. Treasuries, but also our entire economy.

Part of the reason that U.S. Treasuries are still in demand worldwide is that the U.S. dollar remains a reserve currency. There are benefits from a logistical standpoint in conducting business using the reserve currency to also use U.S. Treasuries for investment purposes.

However, as I’ve mentioned in other articles, large investors in U.S. Treasuries, such as China, are increasingly calling for a new global financial system that relies less on the U.S. dollar.

That sentiment alone should shock the politicians into action and make them realize that our biggest lenders, the ones buying our U.S. Treasuries, are questioning our ability to manage the rising pile of government debt.

The most recent data from August was that China actually reduced its holdings in U.S. Treasuries to a six-month low, according to the U.S. Department of the Treasury. (Source: … Read More