How high can the stock market go?

So... how high can the stock market go?

As the markets flirt with record highs, one can't help but wonder.... how high CAN the stock market go?

  If you are old enough to have experienced the most recent economic downturn and challenges, but young enough to have not experienced the 1940's, then you probably have a similar level of uncertainty when it comes to the current stock market. Many economic indicators point towards a continued recovery albeit slower than preferred. Recent job reports show that the number of jobs is increasing, and the unemployment rate is slowly beginning to decrease, which points towards a promising future economy. There are, however, several indications that we are not out of the woods just yet. The Federal Reserve continues to influence our currency through quantitative easing, the number of unemployed that have stopped looking as well as the number of graduates that aren't even counted in the unemployment rate remains high, and the national debt continues to increase with extreme deficit spending. All of which are influences, let alone as a combination. So, which way does the wind blow? Who is going to predict the next trend?

  My prediction is that we will see 2-4 years of slow recovery and the national deficits will decrease to the $600 billion mark, the Federal Reserve as indicated will begin to raise interest rates sometime in 2014 and we will then begin to see rising inflation at which time we will see another economic slowdown, possibly even another recession. If the situation is compounded by additional credit rating decreases, and a drop out of demand for U.S. treasuries and bonds, the impact may be incremental or catastrophic.

The real question isn't are we headed for a recovery, but how long will it last?

  Some believe that the U.S. Government plays a larger role in the total U.S. economy. Although it is true that as a percentage of GDP the government is larger than ever, the biggest impact it has is in consumer confidence. As we have seen through it's management of U.S. currency, fiscal accounting practices of war spending, encouragement of lenient lending policies, poor negotiation of debt reduction legislation, and generally poor communication of a vision for the country, the U.S. government does not have a track record of cultivating confidence to it's businesses, investors, citizens and consumers. If you believe that past performance predicts future performance, then you would be accurate in the assumption that the U.S. government will likely meet with continued impasse and ongoing fiscal irresponsibility that will lead to a severe correction, not on a stock market basis, but on a management basis. A person can stand with their backs to the waves and for many waves remain standing, but to think that the ocean won't teach a lesson, is to be truly naive.

Tax and Spend... Again?

Tax and Spend... Again?

President Barack Obama heads out on a rally tour to promote the new "Stimulus" activity, and to help draw attention toward "Paying your fair share" directed towards wealthy individuals and the intention to continue to raise taxes on the wealthy. Some democrats believe that because Obama was re-elected, they have a mandate to continue the same policies of bigger government, more programs, and more taxes. People may have bought into the idea that these things they are being promised are actually "FREE"!  There will come a day when we must pay the piper, and we won't be able to pay the piper with IOU's. For those who understand compound interest, the government is creating compound losses from which it will take a great deal of time to recover.

Do we need more taxes?  Do we really have a problem of not taxing enough?  Or is it a spending problem?  Regardless of which you may believe. The math equation of balanced or unbalanced budget is just

Take a look at some of the taxes + fees that are out there. This is just scraping the surface of what the total picture really looks like.



Accounts Receivable Tax

Building Permit Tax
Capital Gains Tax
CDL license Tax
Change of Use Permit Tax
Cigarette Tax
Corporate Income Tax
Court Fines (indirect taxes)
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel permit tax
Gasoline Tax 
Hunting License Tax
Inheritance Tax Interest expense (tax on the money)
Inventory tax IRS Interest Charges (tax on top of tax)
IRS Penalties (tax on top of tax)
Liquor Tax
Local Income Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Property Tax
Real Estate Tax
Septic Permit Tax
Service Charge Taxes
Social Security Tax
Road Usage Taxes (Truckers)
Sales Taxes
Recreational Vehicle Tax
Road Toll Booth Taxes
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Toll Bridge Taxes
Toll Tunnel Taxes
Traffic Fines (indirect taxation)
Trailer registration tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft registration Tax
Well Permit Tax
Workers Compensation Tax

Will the Fed ever raise interest rates?

Will the Fed ever raise interest rates?

  There is talk that the fed will continue to sustain "easing" past it's current actions. The Federal Open Market Committee is discussing bringing the bond buying program to an end. Almost immediately the assumption would be that the next step is to raise interest rates, however the Federal Reserve indicated that they wouldn't necessarily raise interest rates right away. They claim they will keep them low, as is 0% to .25% through 2014 as long as inflation for the next 1-2 years is not predicted to rise by more than 2.5 percent.
  The problem is that raising rates before the economy recovers could stifle economic growth, and not raising rates at the sign of inflation could lead to hyper inflation. Some folks say that there is no way the federal reserve can raise rates in this environment and not for the foreseeable future. It's possible that people have become addicted to debt, and cheap debt as well.
   Higher interest rates help those who save money, as banks pay higher yields to account holders when they make more on inter bank loans, and right now they are making practically nothing.
  I predict that as the housing market continues to recover, and as the job market continues to slowly recover over the next 36 months, that the Federal Reserve will raise interest rates by mid 2014 by at least half a percentage point.

Hope for the economy will come with oil exports

There is hope for the economy with the recent energy boom and oil exports. If we can become energy independent, and a net energy exporter, we could recapture wealth and revitalize our economy.

Today, it was announced that record petroleum exports helped close the trade deficit. The gap was narrowed by 20.7 percent to $38.5 billion. The commerce department figures were announced today in Washington D.C.  This is a good sign for the country. Although we are not out of the woods yet, seeing some light is promising.

Stockpiles were reported to have dropped 0.1 percent for the first time in six months. The U.S. met 84 percent of its own energy needs in the first 10 months of 2012, the energy department reported.

Although isolationism is not the answer, if most americans can adopt the attitude of "Buy American First" when it comes to most things, we would narrow the trade deficit even further.


Source: http://www.bloomberg.com/news/2013-02-08/trade-deficit-in-u-s-plunges-on-record-petroleum-exports.html  

   Today the CBO (Congressional Budget Office) announced the projected budget deficit for 2013. Only $845 Billion. It's the first time the deficit has fallen below $1 Trillion since Obama took office. And even more concerning is the projection that the jobless rate will stay above 7.5% through 2014. Further projected is that the debt will reach $26 Trillion by the year 2023.
  Many folks would marginalize and minimize the impact of these events. By comparing the deficit and debt to GDP (Gross Domestic Product) a person can claim that the percentage is smaller, therefor it's not important that we create urgency around the issue. I liken this claim to that of a ship that is taking on water, and as we continue to expand the size of the ship, someone yells out "The hole looks smaller as the ship gets bigger!"
 
  A more accurate comparison could be contrived by comparing the amount of debt to population, or the amount of the deficit to the revenue received.

  It is just a commonplace for the US government to postpone dealing with tough issues, until the last possible moment, at which time the issue is compounded. Any business that ran their business this way would go out of business.


Source: http://thehill.com/blogs/on-the-money/domestic-taxes/281177-cbo-projects-845b-budget-deficit-for-2013

US Economic Trend

  As we head into 2013 and attempt to predict the US economy and it's inherent opportunities as well as the outcome, we should  take a brief look at what led up to this point. The 2008 financial collapse was predominately caused by the high risks incurred by banks through mortgage backed securities, predatory lending, sub-prime lending, and inappropriate borrowing on the part of many borrowers without true capacity to pay, as well as the compound effects of market fear and consumer confidence dropping to all time lows. As the market often sees, when the herd gets spooked, so follows the stampede. We should have learned valuable lessons from over borrowing. It appears that we, as a society, have not.
  The burst of the housing bubble, as well as the meltdown of financial entities from exposure to too much risk, caused markets to tumble.
  The reaction was "We have to do something!" and "We have to do it now!", leaving only the government in a position to apply "the solution" to the problem. The government answer was to implement a gigantic stimulus package to the tune of 860 Billion Dollars that was to help create jobs and attempt to put back in the economy, the plug that was pulled allowing jobs to drain out. The stimulus has had little lasting effect. Additional short term moves such as implementing a 3% cut in social security taxes withheld from tax payers, which was most recently (January 2013) allowed to expire, have only added to the debt and when taken away, citizens change their buying habits to accommodate the change in pay.
  I have words of advice that are unlikely to be heard or revered. Never apply a short term solution to a long term problem, or a long term solution to a short term problem.
 
  My prediction for the 2013 US economy, is that we will slowly slip into another recession, and that the value of the dollar will continue to decline through deflationary measures, that will eventually (within 5 years ) lead to a significant financial collapse of the US economy.

  In future blog posts I will explain in more detail why I believe this to be true, and what effect the economies of China, Japan, Europe, and Russia will have on the US economy and the global economy. I will also go into more detail regarding the inability to raise interest rates, and the effects of more domestic energy production and its effects on the markets.