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    November econ newsletter_lvrec November econ newsletter_lvrec Document Transcript

    • Las Vegas Real Estate Club ISSUE: NOVEMBER 2010 $59.97 Economy Report An integrated approach to nurturing your wealth and achieving your financial goals. U.S. PoliticS Affect GlobAl economic moveS So much has happened since last month’s economic update. Here are just a few things that I will discuss this month: • The Republicans made huge gains in the recent I will also provide updates on what is happening in elections. What does that mean to investors? Is Obama Canada as well as discussion on the next economic now a Lame Duck President? Superpower China. • The Feds announced another $600 billion spending • Finally, we have to discuss what investors do in this spree on 10-year government Treasuries. What does current environment to maximize returns or prevent that mean for stocks and gold? losses. • The housing market still shows no sign of recovery “The reason that stocks soared is the U.S. dollar with the latest drop in listing contracts. dropped - and stocks almost always rally when the U.S. dollar drops – this is because stocks become cheaper to • Unemployment numbers came in better than international purchasers.” expected. Strong job numbers may actually send the markets downward. How is this possible? “As further positive news for Gold Bulls, Goldman Sachs announced the Fed could end up spending up to • The currency war is well underway and if it escalates $2 trillion of additional stimulus.” this will be bad for the global community. • What is the outlook for gold in the near and long term? • Are stocks overvalued at this time with the recent huge run up in stock prices? • U.S. banks are facing hundreds of billions in lawsuits. Will new laws lobbied by Republicans save them? • We have many Canadian subscribers, so of course Inside This Issue: PAGE 2: Election Results May Stall U.S. Forward Motion PAGE 3: More Quantitative Easing from the Federal Reserve Mike Lathigee PAGE 4: Housing Weakness Continues in Face of Foreclosure Moratoriums President And Much More... Las Vegas Real Estate Club
    • grow. protect. invest. election ReSUltS mAy StAll U.S. foRwARd motion “This is a worldwide trend as many emerging nations are experiencing double digit growth while Western nations are doing little better than a few percentage points. In America we are experiencing a slow recovery, while many countries in the world are having an economic boom.” The midterm U.S. elections showed there in the United States important decisions the size of government. was a stark voter rejection of President are made based on how they impact the Obama last week. Republicans seized two and four year reelection cycles of the This is because Tea Party Republicans control of the House of Representatives party in power. This means the people in want to see government spending cut and winning 60 seats, which is the largest government make policy decisions based the debt brought under control with less swing of seats since 1948. The on what will get them reelected rather government intervention. If we start to Republicans also gained six seats in the than on what is best for the country over see Obama move in this direction, due to Senate, however, the Democrats still the long term. the fact that he will need to start making remain in control of the deals with the Republicans, then we will Senate. In China the ruling party see a possible rise again in the U.S. dollar is able to make decisions and a drop in gold prices. I am not optimistic based on what is best for about seeing cooperation their country over a much This happens because gold prices rise between the partisan longer period of time – even as the U.S. currency becomes devalued. groups, because in the 50 years or more. This has Inversely, gold prices fall as the U.S. House of Representatives proven to be a huge advantage dollar rises. Policy changes that move 60 people with strong to China as it continues its towards controlling the debt will cause ties to the Tea Party were journey to becoming the next the U.S. dollar to rally and as the U.S. elected, and I believe that Superpower. Remember, dollar becomes stronger, then gold prices those in that party with China’s economy continues will fall. Also, as the U.S. dollar becomes extreme right wing views to grow every year by double stronger, U.S. stock prices will decline. will have no interest in digits, while the U.S. is cooperating with the Democrats. As a looking for GDP growth of In addition, the Obama Administration result, we may be looking at American less than 2% this year. has cooled down its rhetoric about raising politics where very little gets done due to taxes on the rich. Obama will now need constant partisan bickering over the next This is a worldwide trend as many to reach out to Republicans and find a 2 years. This is of grave concern given emerging nations are experiencing double middle ground that does not attack high America’s deep economic problems digit growth while Western nations are income earners. coupled with the dilemma of Afghanistan doing little better than a few percentage These are just some of the key and Islamic terrorism. points. In America we are experiencing developments investors want to watch a slow recovery, while many countries in for in light of the recent elections and its Unfortunately, the American system of the world are having an economic boom. sweeping Republican victories. democracy allows such a situation to occur where we may see two years where One possible advantage Obama may For instance, the bank stocks have been Democrats and Republicans will not gain from the perceived extremism of rebounding since election night. This cooperate and very little gets done. some new Tea Party members in the is because the market perceives that Meanwhile, China will continue Republican Party, may come from the with the Republicans in a much stronger its forward progress. Its one party fact that they may make Obama appear position we will see new lobbying for government focuses constantly on to be the only calm and rational option legislation to protect the banks. progress as opposed to the U.S.A., which in the 2012 elections especially if Sarah is caught up in moving political agendas Palin is the one running against him. The big losers in this recent election have forward rather than moving the nation’s (unlikely but possible) It is because of been carbon emission capture companies economy forward. these perceived radical Republicans that and there will be no Green Capture Tax. I am of the opinion we are looking at a This is a sector that all investors should In the past, I have discussed in lengthy Lame Duck Presidency for the next two avoid. terms the flaws in a democracy that years. There is no way the newly elected gives a competitive advantage to other Tea Party politicians will agree with any countries, such as China. For example, vote that increases the debt or increases
    • MORE QUANTITATIVE EASING FROM THE FEDERAL RESERVE “The economy is in its present state because individuals spent beyond their means and governing institutions allowed them to do it. The Feds believe that keeping interest rates low will stimulate borrowing and will help avoid the continuing economic slowdown.“ In addition to the momentum caused by the election, stocks soared on the news of the Fed’s $600 billion buy back of 10-year Treasury Notes. The Fed reasons that such a move will keep interest rates low to allow more time for the economy to recover. At the same time, the Feds will be creating more demand for their U.S. Treasury Notes and interest rates will not have to be increased to attract buyers. So, the Fed announced that every month it will buy $75 billion in U.S. Treasury Notes to keep interest rates low. This is now referred to as the “Quantitative Easing 2” Program. But what really sent the market soaring was the Fed’s announcement that they had the option to repeat this process. Thus we may be looking forward to a “Quantitative Easing 3” Program if the recovery is not fast enough. The reason that stocks soared is the U.S. dollar dropped - and stocks almost always rally when the U.S. dollar drops – this is because stocks become cheaper to international purchasers. Investors liked the Fed’s announcement, because this Fed policy locks interest into lower rates for a protracted period of time and gives the U.S. time to recover. The Feds did this because of the elections last week. They expect the Democrats and Republicans to be in gridlock, so they are taking economic matters into their own hands. The economic recovery has been too slow for the American public in terms of output and employment. Therefore, the Federal Reserve made a unilateral decision that a new stimulus is the best bet. The reason this announcement came so suddenly is because Bernanke is sure that with the Republicans controlling the house it was unlikely that another stimulus program will ever be passed. So, the Central Bank simply will simply print and inject another $600 billion of money into the system and buy long-term treasury bonds in the market. The economy is in its present state because individuals spent beyond their means and governing institutions allowed them to do it. The Feds believe that keeping interest rates low will stimulate borrowing and will help avoid the continuing economic slowdown. When the Feds made this announcement gold surpassed $1,380 an ounce and silver hit $25.50 per ounce, this is a 30-year high for silver. Precious metal bulls believe that more bond purchases by the Fed are aimed at driving up inflation and will weaken the U.S. dollar, which will lead to higher consumer prices. All of this increases gold’s appeal as an inflation hedge and an alternative investment to the greenback. As further positive news for Gold Bulls, Goldman Sachs announced the Fed could end up spending up to $2 trillion of additional stimulus. Given the current wins of the Republicans I disagree, but this announcement also created more upward momentum in the stock markets.
    • HOUSING WEAkNESS CONTINUES IN FACE OF FORECLOSURE MORATORIUMS “The economy is in its present state because individuals spent beyond their means and governing institutions allowed them to do it. The Feds believe that keeping interest rates low will stimulate borrowing and will help avoid the continuing economic slowdown.“ News on the housing front continues to look grim as the number of people who signed contracts to buy homes fell in September after two months of gains. This is possibly fallout from the foreclosure moratoriums, which have disrupted activity in the housing market. Last Friday, the National Association of Realtors said sales agreements for previously occupied homes dropped 1.8% in September. The setback highlights the continued problems facing the housing industry as it struggles to mount a recovery from the worst recession since the Great Depression. It is very likely that some of this September weakness is caused by moratoriums imposed by banks on mortgage foreclosures. Banks halted tens of thousands of foreclosures as they investigated allegations that some foreclosure proceedings had involved flawed legal documents. This weakness in the housing market is yet another reason for the Fed’s announcement to use $600 billion to purchase 10-year Treasury Notes as a method to keep interest rates low. The number of deals going to contract will continue to fall as worried banks continue to slow down or stop foreclosures. If the lawsuits against some of these banks are successful we could see them collapse. For example, Bank of America has $375 billion in lawsuits against it, which would bankrupt the bank. This year we are holding an event called the Global Economic Outlook Summit. This Summit will host several top financial forecasters and economists from all over the world. The theme of the Summit is to understand what is happening in the world and what people should do at an individual level to protect themselves, as well as what action steps they can take to make money for themselves. This Summit replaces our traditional Investfest event. Tickets are $997 and if you buy a ticket your spouse or business partner can come with you for free. This offer expires November 15th. If you would like to purchase a ticket simply send an email to education@allianceinvestor.com and we will send you back an enrollment form. Those who currently have Investfest tickets will still be able to attend this event without paying the additional charge.
    • grow. protect. invest. betteR thAn exPected emPloyment nUmbeRS “The market right now is rallying almost entirely on the basis that the U.S. dollar will continue its sharp decline. The largest holder of bond funds on the planet, Pimco, stated that the U.S. dollar would drop another 20 percent. ” Besides watching the housing market, the would drop another 20 percent. investments, which have contributed in a other key economic indicator that I watch rise in that country’s currency. closely is unemployment. I remain of If the announced job numbers had been the opinion that it is impossible to have bad we would have seen the U.S. dollar As countries around the world continue a jobless recovery and have been saying fall further and stocks and gold surge up their struggles to recover from the global that since the U.S. fell into this deep even further. financial crisis, worries are mounting that recession. policy makers in these countries could There have been international become more aggressive in protecting So, on the employment front we do see consequences to a dropping U.S. dollar. their nation’s business interests. In fact, some good news. During the month of On Friday the Canadian dollar actually “protectionism” is a very big concern October the U.S. added 151,000 jobs, was above par to the U.S. dollar. and with the U.S. election over, the focus which is more than double, and nearly It was only a few months ago during may be back on a pending international triple the expected 65,000 jobs for that the Greek Debt Crisis that we were currency war. period. concerned about the collapse of the European Union and the Euro. Now the In one bold move the Japanese Also, September’s employment figure Euro is at $1.43 against the U.S. dollar. government sold $20 billion worth of its was revised to show a smaller loss in currency in one day to push its currency jobs. September’s numbers moved down Of course, all of this is causing higher lower. Other countries such as Taiwan, from 95,000 jobs lost to only 41,000 prices for food and energy. For example, South korea, Thailand, Brazil, Colombia, jobs lost. It was the first positive hiring last week oil hit $86 a barrel and does not and Peru are taking similar steps. In the month since May of this year. look like it will slow down on its climb to U.S. the focus of the attack is on China, $100 a barrel. which it says is keeping its currency at Now, I want all my subscribers to be artificially low levels in order to boost its aware of a very interesting theory that The Pending Trade and exports. may or may not prove true. That theory Currency Wars is that if we continue to see continued I believe the currency war will be led by job growth in the United States this could But of course the side effect of all this Brazil, because of its upcoming elections. actually be bearish for both gold and action is the development of currency The major issue in that country is the stocks. wars. fact that its strong currency is hurting its ability to compete. This is an issue I will Here’s the reasoning behind my theory. Tensions are growing in the global closely monitor. The Feds are going to spend $75 billion currency markets as political rhetoric a month buying 10-year Treasury Notes. heats up and countries battle to protect However, if they start to see economic their exporters, raising concerns about recovery and job growth then they will potentially damaging trade wars. stop this stimulus and we definitely would not see a Quantitative Easing 3 At least half a dozen countries are program go into action. actively trying to push down the value of their currencies. Japan is the most active, An economic recovery would lead to a having seen a 14 percent increase in its stronger U.S. dollar and thus cause gold currency value since May. and stocks to drop. In the U.S., Congress has been The market right now is rallying almost considering a law that targets China entirely on the basis that the U.S. dollar for keeping its currency artificially low will continue its sharp decline. The and in Brazil, the head of the central largest holder of bond funds on the bank said the country may impose a planet, Pimco, stated that the U.S. dollar tax on some short-term fixed income
    • grow. protect. invest. Gold AGAin, AGAin And AGAin “So, for the most part I remain bullish on a continued run up in stocks and gold, but this can reverse course if we see improving job numbers and a recovery in the U.S. dollar. “ I am sure that my many subscribers, who downward. a tour of a specific Real Estate Project. have listened to me over the years, now Tickets to the tour are $197 each and understand why I guided investors buy On the other hand, if the economy include a gourmet lunch. If you would heavily into gold at $300 an ounce. I continues to see stagnant growth and like a ticket send an email to education@ repeated this guidance to buy gold many the Feds take additional stimulus action, allianceinvestor.com and we will contact times long before gold experienced the then we will see gold soar to much higher you with details. current frenzy and buying mania. In levels. all cases this is something I stated you The Inflation Elephant in the Living should definitely had to discuss with As investors we must watch what Room your licensed financial advisor. Many happens in the macro markets. We have of you profited hugely from this strategy to be tuned into the market indicators. As One major problem that I see possibly of buying early on and so you deserve I’ve explained, there are arguments the happening that no one is discussing right congratulations. support gold going either way, either to now is the potential for soaring inflation. higher levels or to lower levels. Everyone knows that the best offense to Unless we see a change in U.S. policy rising inflation is raising interest rates in that pays down the debt and curbs It is ultimately up to each one of us to defense. stimulus programs the U.S. dollar will follow what is happening, and up to continue to collapse and gold and stocks each one of us to be accountable for our But if we see inflation start to creep up, will move higher. response to what is happening. That and the Fed can’t raise interest rates due is why I give these monthly updates. to other circumstances, then the bond However, if we see unemployment We are seeing complex relationships market will collapse. rates improve and the U.S. dollar grow become even more complex. That is why stronger then the Feds may reverse I encourage you to – at the very least For example, no one is going to buy their thinking on a Quantitative Easing - tune in each month to follow what is a bond paying 3% if inflation is at 3 program and may even call a stop happening and learn the likely impact of 3.5%. This circumstance would make it midway through the Quantitative Easing events on your investing decisions. impossible for the Feds to sell Treasury 2 program and its $600 billion stimulus. Bonds. Thus the Feds would be forced This would see an end to the bull market Understanding How Macro Economics to raise rates in order to fund the debt on gold prices and a huge short term Impact Micro Economics by selling the treasury bonds at higher correction in stock prices. interest rates to attract buyers. For those of you who want a deeper If the economy continued to see understanding of these complex issues, This potential situation is not getting improving indicators then the markets I am holding a one-day economic boot much attention, but much higher interest would continue to move up over the long camp on December 10th in Las Vegas. rates could derail any economic recovery term based upon strong U.S. economic The purpose of the day is to focus on in progress. If we see rising inflation fundamentals and not simply the result of global economics and based on what is then it will be impossible for the Feds the teeter-totter relationship that sees the happening in the world I will discuss to implement any Quantitative Easing market move up because the U.S. dollar what are your options that you should program and the result will be an end to moves down. discuss with your licensed financial any quick economic recovery. advisor about your own portfolio. So, for the most part I remain bullish on a continued run up in stocks and gold, The one-day boot camp will discuss but this can reverse course if we see macro economics and use Las Vegas as a improving job numbers and a recovery in case study about what happened during the U.S. dollar. If we see the economy the recent financial crisis. The morning improve the Feds will not have to take will start with a tour of Las Vegas and action with additional Quantitative what is currently happening in the city to Easing and this would send gold prices Real Estate values. The day will end with
    • grow. protect. invest. bASe yoUR deciSionS on comPlete infoRmAtion “In the U.S. we are seeing a few key economic indicators that are positive. Manufacturing numbers have improved and retail sales have remained steady. The double dip Recession that many people, including myself, feared will not happen. However, the story is still that the U.S. recovery will continue to be very slow.” As I was thinking this month about the analysis he does not look far enough. output. After World War II the U.S. economy I was struck by the idea that He does not look at what is happening generated over 50% of world economic temporary Bull markets make geniuses in other economies. For instance, seven output. Now the U.S. generates of many people in their own minds. Yet, weeks ago he recommended that people approximately 25% of the whole. I agree there are always circumstances that can sell all stocks. And of course, we’ve seen that is still huge amount, but that portion change, and those altered circumstances the market perform well in those seven declines each year. can cause other things to transform very weeks and is up almost 15%. quickly. China will eventually take over as the The reason I even mention this is remind dominant economic superpower in the I guess my point is that today’s genius you that even high profile economists can world with India rising quickly to the top, might have been yesterday’s pariah, and give the wrong guidance. Rosenberg has too. vice versa. done it many times, so don’t be too hard on yourself when you are wrong. Show, or at Least Lend Me the Money For example, there is one individual I call a Talking Head, who is always Are Stocks Overpriced? The citizens of America are very upset on television promoting why gold that Obama only focused on big banks is going much higher. He manages Stocks have seen an impressive run up that assisted the large Wall Street banking a multi-billion dollar fund and is a over the past seven week and investors firms. Many smaller and medium sized former speaker at Investfest. However, are wondering if stocks are now banks that funded small homeowners before the recent gold run his fund was overpriced. I would say, “Not really.” are now out of business and received no down dramatically and investors lost bailout monies. Meantime the larger a fortunate with him. At that point in The reason I say this is because earnings banks have been recovering by raising his career he was not a friend to many of major companies have also soared and credit card interest rates and squeezing investors. the Price Earnings Multiples are still low. consumers, but for the most part, are still If you are in stocks take some profits, but not lending money. Yet, now we’ve seen gold skyrocket and you can maintain a healthy position as he has turned into an icon of success long as we see the Feds policy of keeping Instead, they use their profits to offset and is on the media everyday. Now, I interest rates low and forcing the dollar future loses on bad mortgages. In other know him to be a smart guy, but I feel downward is still in place. words, tax payers bailed them out, but he never gives a balanced answer on these banks don’t look like they will lend the fundamentals of gold and only talks The United States is No Longer the money any time in the future. And what’s about why gold prices are going higher. Center of the Economic Universe worse, they will continue to squeeze the very taxpayers who bailed them out, in I think investors need all the information, In the U.S. we are seeing a few key order to garner every cent of profit they not just one side of the story. Still, economic indicators that are positive. can. having access to all the information Manufacturing numbers have improved doesn’t necessarily mean we use it. Here and retail sales have remained steady. is another example of what I mean. The double dip Recession that many One widely followed Economist, who people, including myself, feared will not has been wrong many times in terms of happen. However, the story is still that the guidance he gives, is former Chief the U.S. recovery will continue to be very Economist for Merrill Lynch David slow. Rosenberg. We must now realize that the United Now, a lot of people listen to Mr. States is no longer the center of the Rosenberg, yet part of the problem I find economic universe. Since World War II with his guidance is that he is too focused the U.S. has steadily become smaller and on the United States. When doing his smaller in relation to world economic
    • grow. protect. invest. on the cAnAdiAn fRont “China continues its double digit growth and the Chinese Government is slowly raising interest rates in an effort to curb inflation. The Chinese economy has completely extricated itself from the downturn risk that emerged after the outbreak of the global financial crisis in 2008.” Protecting Jobs: In Canada the big Interest Rates: Last month it looked Under these circumstances, property economic story is that the BHP Billiton like the Bank of Canada was on track prices have kept skyrocketing, costs proposed takeover of Potash Corporation to raise interest rates, but interest rates which will inevitably be passed along of Saskatchewan will not be allowed by in Canada will continue to stay at 1% through the price of consumer goods. the Province of Saskatchewan and the due to slowness in Real Estate and the Canadian Federal government. The downgraded expectations of the global The Chinese will have to take steps to two governments felt that over time the economy. reel in this predicted inflation, make jobs would be shipped outside of Canada efforts to contain the Real Estate bubbles and erode that country’s tax base. This The economy in Canada is running at a occurring in many cities, and rein in is a focus of my discussion on Canada slower pace than it had expected. The excess liquidity. In America we have this month as this company is one of Bank of Canada will only look at raising seen the dire consequences when credit is Canada’s largest. interest rates when both the Canadian too easy to obtain and this is the potential and U.S. economies are on a sustained situation that might blind side China. As a capitalist I am saddened by this and stronger recovery path. The reason news, but as a Canadian I am happy, Canada bases its economic policy on What should investors do? because Canada over time would simply what is happening in the United States is become a shell for its commodities because Canada, which is a major export Any information here should be and it would have no major companies nation, still exports 80% of its goods and discussed with your licensed financial impacting the economy left. This services to the United States. Therefore, advisor. In broad terms if the Feds in the decision clearly sent a message to foreign recovery in Canada is directly related to US continue with their stimulus programs buyers that other companies such as recovery in the United States until such to weaken the US dollar then stay the AGRIUM and Research In Motion are time as Canada exports much more of course. Agriculture and oil both make also off limits to foreign buyers. The its goods and services to other countries sense due to the upward pressure of extra message is: Canada is not for sale. such as China. dollars being created causing inflation. Gold and silver will also continue to Commodities: We also see that the On the Asian Front move up as long as the Feds don’t stop Canadian economy is polarized at this their Quantitative Easing Programs. I time. The commodity sector is exploding China continues its double digit growth actually prefer silver over gold as silver with activity and the manufacturing and the Chinese Government is slowly tends to move up as a percentage more and export sector is being hurt. The raising interest rates in an effort to curb than gold when commodities in general low U.S. dollar is making commodities inflation. The Chinese economy has are moving higher. The emerging less expensive, due to the fact that completely extricated itself from the markets continue to look strong and commodities are priced in U.S. dollars downturn risk that emerged after the discussion with your financial advisor and it takes fewer U.S. dollars to buy the outbreak of the global financial crisis about Emerging Market Funds that have same amount of commodities. in 2008. The economy is growing by a currency hedge is a prudent strategy at 10.6 percent in the first three quarters this time. This has caused a boom in demand with of the year, which overshadows all Canada being a beneficiary. However, other Western countries and even some If you are already heavily invested in the the problem is that the Canadian dollar is emerging nations. market begin to look at taking profits and now at par with the U.S. dollar and that is if you are not yet in the market we are in destroying the manufacturing and export The one major problem that China is a period of elevated risk due to the run up market in Central Canada, particularly having is due to the fact that the banks of stocks almost 15% in the last 8 weeks. Quebec and Ontario. At the same time have been unrestrained in their lending. the housing market remains flat in the Despite the government’s vigilance over major cities like Vancouver, Toronto and credit over-expansion and the series of Calgary. measures it has taken to rein in fluidity, the credit distribution is still on a large scale this year, fueling excessive fluidity.
    • in SUmmARy The economic outlook continues Please, use the comments I’ve to become more complex as made here as starting points and global players seek advantages do your own research and speak to strengthen their own nations. with your licensed financial We will see many changes in advisor. the coming days, which make it imperative that you No one, not even stay informed. me, can tell you what to do because For those who wish there is no one- to learn more about size-fits-all solution Mike Lathigee the mortgage crisis to our financial President in America and the challenges. Only Las Vegas Real Estate Club overall economy I you know what is in lvReAleStAteclUb.com just made a video your best interest. and posted it on Until next time, YOUTUBE called stay alert, trust your “Las Vegas Real own judgment and Estate: Profit from remain flexible. the Crisis”. This will give you a more comprehensive overview of what is happening in the US Real Estate Market.