Investment Contrarians

Deficit


How to Prepare Your Investments for Another Government Standoff Ahead

By for Investment Contrarians | Oct 21, 2013

Government Standoff AheadHooray for the folks in Washington! The playground battles among politicians have settled for now, but trust me, it’s going to get nasty again as we move towards the extended deadlines in the New Year.

But for now, the government is open for business again and the Treasury can continue to make its interest payments on the enormous national debt. Yet the resolution agreed upon last Wednesday is only a bandage solution. The country has only delayed the inevitable—that it must control spending and its national debt.

The nearly $17.0 trillion in national debt and annual deficits continue to grow, adding to the mounting financial crisis America could witness not long down the road if the spending doesn’t stop. I don’t think I would be buying Treasury bonds anytime soon, as there are superior yields in other debt-laden markets, like Italy or Spain.

America has become somewhat of a jester on the international stage. China is talking about making the renminbi the de-facto global currency. I think this is more wishful thinking than anything; more likely, it’s just some propaganda to remind the United States it needs to work out its national debt situation. China does hold about $1.7 trillion in U.S. national debt, so the country should be concerned. I kind of wonder how much interest the Chinese will have towards the future U.S. bond auctions.

When China said the national debt needed to be resolved, some genius in Congress said China should mind its own business.

Can you imagine a company telling its largest debt holder to take a hike and mind its own business? This would never … Read More


Why Moving Assets Out of Stocks and Into Treasuries Might Be the Right Move for Now

By for Investment Contrarians | Oct 4, 2013

Assets Out of StocksDue to the recent government shutdown, the easy money from the Federal Reserve will likely continue until at least the final Federal Open Market Committee (FOMC) meeting of the year in December.

The United States Department of Labor has said it’s no longer collecting data on the labor market as the majority of its workers have been told to go home during the shutdown. Without the non-farm payroll jobs report, I doubt the Federal Reserve will have the information it needs to make a decision regarding the tapering of its economic policy at the FOMC meeting at the end of October—and this will surely add to the stock market risk.

Having said that, while the tapering will likely not start until at least December, I doubt it means more gains by the stock market considering the slew of market uncertainties that need to be addressed.

First off, the House must resolve its differences toward the enactment of Obamacare. While there are debates on its delivery, the House simply needs to come to a conclusion. In my opinion, while the debates around Obamacare may represent some important concerns, this is just a distraction from the real issue. Once the debate on Obamacare is resolved, the country can then focus on the need to deal with the more critical and difficult topic of raising the debt ceiling.

The problem here is that there really is no other choice but to increase the debt ceiling; otherwise, the country could default on its debt, which would drive the stock market lower.

As an investor, these are tricky times, and I haven’t even talked about … Read More


Why the Easy-Money Markets Will Soon End

By for Investment Contrarians | Jul 18, 2013

GDP GrowthIt seems like every day we’re seeing the stock market advance higher, which makes me wonder if traders are just trigger-happy and trading on the momentum in the market—and, trust me, there’s plenty of it.

Whether you are a day, swing, or longer-term trader, there’s easy money to be made. The Federal Reserve has provided you with this great opportunity, so take it.

The only issues that continue to cast a cloud over the situation are the state of the country’s finances, namely the national debt and the many municipalities and states experiencing economic hardship. Recall my previous commentary on the colossal financial crisis in Detroit. The city is burdened by a massive debt load, declining revenues, and a rapid decline in population migration that has spanned across more than three decades. But Detroit is not an aberration. There are other regions across America that have fallen into the same financial abyss.

What really puzzles me is that the stock market is acting as if everything around us is faring well—which is far from the truth.

The U.S. economy is not expanding at a pace that I would deem acceptable, given the reaction in the stock market. The media harps on about the fact that the growth of China’s gross domestic product (GDP) growth was only 7.5% in the first quarter, but that’s pretty darn good versus America’s GDP growth.

The scary part is that the Federal Reserve, in all of its great wisdom, has been downgrading the country’s GDP growth as Chairman Ben Bernanke and the other Fed members clearly realize that the economy is in trouble. That’s why … Read More


U.S. National Debt to Surpass GDP for Third Year in a Row

By for Investment Contrarians | Mar 18, 2013

National DebtThe more I look at the size of the national debt, the more I get squeamish. With the national debt at $16.7 trillion and growing, something needs to be done, as the Federal Reserve continues to print money, creating the artificial economy that is making people think America is faring well and forgetting about the national debt.

The sequestration program will help, but will it hold as the two parties continue to argue about where the cuts should be from and alternative revenue sources? Budget cuts due to the sequestration are already at $17.2 billion and running (source: U.S. Debt Clock web site, last accessed March 14, 2013), but as I have said on numerous occasions, $85.0 billion a year will likely do very little to tackle the mounting national debt. Just the interest on the national debt is already around $223 billion, so the national debt will continue to expand in spite of the sequestration cuts. I wonder if the government gets it. You have $17.2 billion in cuts as of March 14, but $223 billion in interest costs. Something just doesn’t add up here.

The U.S. national debt as a percentage of the country’s gross domestic product (GDP) stood at 102.9% in 2011. (Source: “List of Countries by Public Debt,” Wikipedia, last accessed March 15, 2013.) This was just below the massive 208.2% in Japan and the 160.8% in Greece, according to the International Monetary Fund (IMF).

Translation: America is in a financial mess, and it will not be easy to get out of it.

And despite the national debt burden, the Federal Reserve has its hands tied. … Read More


Why the Budgetary Talks Are Critical to America’s Future

By for Investment Contrarians | Jan 31, 2013

Budgetary Talks Are Critical to America’s FutureThe national debt ceiling debate was initially expected to be resolved by January 1; but when that date came around, it was extended to May 18, as the two sides continue to debate the budgetary cuts, the deficit, and the increase in the debt ceiling above the $16.4-trillion legal limit.

While something needs to be done, President Obama and Congress must also understand that major cuts in fiscal spending to lower the deficit, at this point, could hurt the current economic recovery, which has been showing encouraging signs over the past year. The housing market is hot, with rising construction and sales and home prices that are edging higher. The Federal Reserve’s buying of mortgage bonds and the existence of near-zero interest rates together were the catalyst.

The combination of fiscal and monetary policy is clearly helping the economy, so it would be a grave error to cut spending at this critical time. Taxes for those earning over $400,000 have jumped. Those earning less are also seeing some increases in taxes. The end result was a decline in the consumer confidence reading to 58.6 in January, well below the 61.0 estimate by briefing.com and the 66.7 reading in December. The numbers suggest that consumers may become more hesitant in wanting to spend, given the tax increases.

For the government, the current debt limit will be reached soon. Without the extension of the debt ceiling deadline, the government would have run out of money to pay its employees, support programs, and cover other key spending items.

Nobel Prize economist Paul Krugman is not in favor of cutting spending to curtail the … Read More