Trump has record fundraising month, but still falls short

The Trump campaign announced over the weekend that they had set a campaign record for fundraising in September. According to a statement on DonaldJTrump.com, the campaign took in $100 million dollars last month. According to the statement, the Trump campaign has received more than $360 million dollars from 2.6 million people since it began. USA Today reports that the Republican National Committee raised an additional $39 million. Like Trump’s claim that he got more votes than any other candidate in any Republican primary, there is both good and bad news associated with the fundraising claim.

While impressive, the $100 million take is alarming when taken in the full context of the campaign. The most obvious problem is that the figure includes a monthly contribution of $2 million by Mr. Trump himself. Trump’s contribution “more than covered the costs of any reimbursements to him (or his related entities) for his plane and office rent; which the law mandates to be reimbursed,” the statement said.

Even more alarming is the fact that Trump’s fundraising lags behind Hillary Clinton as well as that of Mitt Romney four years ago. Politico reports that the Clinton campaign raised more than $154 million during September. This includes $84 million by Hillary for America and $70 million by the Democratic National Committee.

Unlike Clinton, who can count on assistance from the DNC, the Trump campaign may be on its own. After the release of the “Access Hollywood” tape, Politico obtained an email from the Republican National Committee stopping production on Trump campaign materials paid for by the GOP “Victory” fund. It is uncertain at this point whether the RNC is financially supporting the Trump campaign or for how long the campaign can count on its support as Trump falls in the polls.

Trump and Clinton both lag far behind Mitt Romney’s fundraising from 2012. The L.A. Times reported four years ago that Romney had raised $170 million, which was short of the $181 million raised by Obama. At this point in the campaign, Romney had raised $839 million, more than double the receipts of the Trump campaign.

The $100 million figure may also be offset by refunds. Fortune reports that some GOP donors are asking for their money back in the wake of the sexual assault scandal. It is unknown whether the Trump campaign will return any funds, but donor displeasure with Trump will almost certainly impact his fundraising going forward.

On the plus side, Trump has set Republican records with small donors. “I’ve never seen anything like this,” a Republican fundraising operative told Politico. “He’s the Republican Obama in terms of online fundraising.”

That small donor success has come at the cost of losing larger donors though. Many traditional GOP fundraisers have not supported the nontraditional nominee. Some donors, such as megadonor Sheldon Adelson, are focusing on support for congressional races rather than contributing to the RNC or Trump campaigns, said USA Today.

Much of the Clinton advantage in fundraising comes from her Wall Street connections and other wealthy donors.  Fortune found that Clinton is outraising Trump among billionaires by 20 to one. In fact, another Fortune article reports that no Fortune 500 CEOs are supporting Donald Trump, even though almost a third of them supported Mitt Romney. It is surprising that a candidate who based his campaign on his business acumen doesn’t garner support from his fellow business leaders.

In spite of a good month in September, Trump’s fundraising may well have reached its peak. Trump’s populist rhetoric and bombastic personality have hurt his ability to raise funds throughout the campaign. Now, it is likely that scandals will be a financial drag for the last few weeks before the election. The fundraising deficit will make it difficult for Trump to overcome negative attacks and reverse his decline in the polls.

Originally published on the Resurgent

Will next economic collapse start one year from today?

What if there is a pattern going back more than a decade in American history that shows that the last two economic crises occurred on a predictable seven year cycle? What if this pattern occurred at the same time as many other indications became evident, giving reason to believe that the pattern itself was not a coincidence? Would it be possible to predict when the next economic crisis would occur and prepare for it?

Rabbi Jonathan Cahn believes that he has discovered just such a pattern within recent American history that stretches back before the September 11 attacks of 2001. Cahn, the author of the best-selling book, “The Harbinger,” discovered the astounding fact that the financial crashes of 2001 and 2008 both occurred on the same day of Jewish calendar. What’s more, that date was the very day and year of the Jewish calendar on which ancient Biblical law called for debts to be erased.

“The Harbinger” gained immediate popularity, but was also the subject of fierce criticism from some theologians. Cahn had answered much of this criticism is interviews. Additionally, Jose Bernal has written a valuable book answering the critics of “The Harbinger.” Bernal’s book is “The Truth About the Harbinger.”

Cahn’s discovery centers around the Shemitah years on the Jewish calendar. The Shemitah (Sabbath or sabbatical) year was established in Deuteronomy 15:1-2 when the ancient Israelites were instructed, “At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord’s release.”

The traditional day to forgive debts was Elul 29, the last day of the Jewish year. In 2001, this date occurred on September 17, the largest single day crash of the stock market in U.S. history according to rankings by the Wall St. Journal. The crash occurred as financial markets reopened in the wake of the September 11 terrorist attacks. Seven years later, the Elul 29 of 2008 was on September 29. This date superseded September 17, 2001 as the largest stock market crash as prices collapsed after the House of Representatives voted down a bipartisan plan to bail out banks with tainted “toxic” mortgage securities.

Now Cahn has released a new book, “The Mystery of the Shemitah.” Charisma News says the new book details Cahn’s new discoveries about the Shemitah cycle that extend farther back in American history more than 100 years. World Net Daily notes that the book debuted at number five on Amazon’s Top 100 list. This is in spite of the fact that Cahn fell ill as the book was published and could not go on a promotional tour.

Cahn’s theory does not merely hinge on the fact that dates on the Jewish calendar match up to catastrophic events in American history. In “The Harbinger,” Cahn points out many other parallels between recent events in the United States to events thousands of years ago just prior to the destruction of ancient Israel at the hands of the Assyrians, the ancestors of today’s radical Islamists. Cahn asserts that these specific parallels, including specific words, dates and actions, mean that God is shaking Americans in attempt to warn them about impending judgment if the country remains on its current course. The specific details of the parallels are too numerous to discuss here, but were addressed in a previous Examiner review of “The Harbinger.”

In “The Harbinger,” Cahn makes the point that the September 11 attacks were similar to an early attack by the Assyrians on ancient Israel. Rather than accepting the attack as a warning and a call to repentance, the Israelites made a vow of defiance, echoed in Isaiah 9:10. Interestingly, two prominent American elected officials referenced this obscure verse in the wake of the September 11 attacks and President Obama paraphrased it in reference to the 2008 financial collapse.

Cahn goes on to describe how the September 11 attacks led to both record-breaking stock market crashes which occurred exactly seven years apart on the Jewish calendar. One of the main tools used to stave off a recession in the wake of the attacks was a cut in interest rates. With interest rates at abnormally low levels, saving was discouraged and people were motivated to take advantage of cheap loans to buy houses. The increased demand for real estate inflated a bubble that eventually burst in 2008, causing the financial crisis.

The process by which a nation attempts to defy God’s plans for judgment and call for repentance by using its own devices to resolve the crisis is referred to as the Isaiah 9:10 effect by Rabbi Cahn. The irony is that the action of the nation under judgment instead “sets about a chain of events that brings about the very calamity that it sought to avert,” as Cahn wrote in “Harbinger.”

On September 13, 2015, one year from today, will come the next Elul 29 of a Shemitah year. The Shemitah year begins on the evening of September 24, 2014 according to American calendars. September 25 is Rosh Hashanah, Tishrei 1 of the Jewish year 5775. The entire year is Shemitah, but Cahn writes in “The Mystery of the Shemitah” that “it is at the Shemitah’s end (September 13, 2015) and its wake that the most dramatic repercussions are felt.”

In a 2013 interview, Examiner asked Rabbi Cahn whether he believed that September 13, 2015 would be the date of another “shaking” or judgment. “I haven’t been led to be dogmatic concerning what may or may not happen,” he answered, “but I think it’s wise to keep our eyes open.”

In “The Mystery of the Shemitah” he goes further. Cahn points out that since September 13, 2015 is on Sunday, American financial markets will not be open that day, but “there is the possibility of a trigger event that takes place outside the time of the markets’ openings that could bring about a market collapse – as in the case of 9/11.” He also notes that the last day that markets will be open prior to Elul 29 will be Friday, September 11, 2015.

Cahn also points out that there will be two solar eclipses in 2015. The first will be on the exact center point of the Shemitah, March 20. The other will occur on the last day of the Shemitah: Elul 29 or September 13.

Nevertheless, he writes, “Nothing significant has to happen…. The phenomenon may manifest itself in one cycle, not in another, and then again in the next. And the focus of the message is not date-setting but the call of God to repentance and return. At the same time, something of significance could take place, and it is wise to note the times.”

Whether a shaking and judgment occurs in this Shemitah or not, Cahn leaves no doubt that, without repentance, it will occur. “No nation,” he writes, “can defy the ways and will of Him who is its source of blessings and expect those blessings to continue.”

Although he has no specific message on what lies ahead, Cahn does have advice for believers. He speculates that the timing of the completion of the new tower on the World Trade Center site may be of note. One World Trade Center, often called the Freedom Tower, is expected to open in 2014 after numerous construction delays. The first tower in the complex, 4 World Trade Center, officially opened on November 13, 2013.

Cahn also suggests that “it would be wise to take note of America’s crossing of key thresholds in its spiritual and moral descent.” This could possibly suggest a link to a ruling on same-sex marriage, support for Israel, persecution of Christian believers, or a variety of other issues that deal with Christianity that are being discussed in the public square today. Cahn cites “the offering of their sons and daughters in the fires of Baal and Molech” as the “sin that would bring about the nation [of Israel]’s destruction.” The parallel in the United States might be sacrifice of more than one million Americans annually through abortion.

In the end, although Cahn is uncertain about the nature of judgment as well as its timing, he writes, “I believe a great shaking is coming to this nation and to the world. I believe that this shaking will involve economic and financial collapse, though it will not necessarily be confined or limited to those realms.”

Given the current state of the American economy and the world, Americans, regardless of their spiritual beliefs, would do well to prepare for hard times.

Read the full article on Atlanta Conservative Examiner

What a Greek default could mean for you

 

The Greek government has been in a financial crisis for the past several years. There have been several attempts to restructure Greek debts and pass “austerity budgets” with draconian cuts to government spending, but the nation is edging ever closer to a default on its national debts. The situation has deteriorated to the point where Bloomberg estimates that there is a 98 percent chance that Greece will default within five years.

The fundamental problem is that Greece has spending much more than it earns in revenues. It has been making up the shortfall in revenues with loans, primarily from European banks. The problem for the European banks is similar to the U.S. banking crisis of 2008. In the U.S., the crisis was caused by the epidemic of mortgage defaults, which led to freezing of capital markets. Banks could not lend because no one knew the extent of the “toxic assets” in their holdings. They were forced to keep their cash on hand to cover possible defaults.

In Europe, the problem is several orders of magnitude larger. Instead of homeowners defaulting, the prospect is that entire nations will default on their loans. Greece is merely the first. Beyond Greece, there is also the possibility that Ireland, Portugal, Italy, and Spain will default. CNN Money notes that while Greece has over $400 billion in loans, the combined total for all five nations is $3.8 trillion.

Although most of the loans at risk are held by European banks, that does not mean that the United States is immune from the financial crisis. Nations around the world are interconnected through trade and a European financial crisis could easily spread across the Atlantic.

The panic of 2008 was set off when one company, Lehman Brothers, went bankrupt. Investors knew that the same systemic problems affected many other companies as well and reacted accordingly. Similarly, if Greece defaults, the ripples will be felt throughout the European and world economies. Dexia, a Belgian bank that failed and was nationalized in early October due to its large exposure to Greek and Italian debt, may be the Bear Stearns of the European crisis. Bear Stearns failed in March 2008 and was bought by J.P. Morgan Chase at a bargain-basement price in a deal orchestrated by the federal government.

American banks may not have many loans that are directly at risk in the crisis, but American companies do business in Europe. If the European economy crashes, it will affect the bottom line of American companies who have operations in Europe. European manufacturers would likely be caught in a credit crunch forcing a slowdown of operations and massive layoffs. Georgia companies such as Coca-Cola, Gulfstream Aerospace, Delta Air Lines, and UPS that are heavily involved in international business might be among the first American businesses to feel the effects of the crisis.

The crisis would quickly spread to the American Main Street as European investment evaporated and imports from Europe slow to a trickle. With the weak U.S. economy already verging on a double-dip recession, the crisis would likely spread quickly. Americans could soon be experiencing an economic crisis as bad or worse than the 2008 crash. Companies that depend on exports to Europe would quickly find their markets closed, leading to more layoffs and higher unemployment rates.

As in 2008, the effects would then ripple throughout the economy. As more workers lose their jobs, demand for goods and services would plummet, causing layoffs in other companies. The crisis would spread from country to country and company to company until many of the world’s economies were stricken.

In 2008, the federal government’s solution was TARP, the Troubled Asset Relief Program. TARP was essentially a bank bailout in which the federal government made loans and took equity stakes (purchased stock) in banks to provide an infusion of capital and liquidity. Although much criticized on both sides of the political spectrum, the original TARP did stem the crisis.

A program modeled on TARP for European banks and debtor countries might be a viable solution to the crisis. One potential problem is that Europe is 17 nations instead of one. A bailout deal must be approved by multiple national legislatures. As in the United States, bailouts of banks are not always popular in Europe and there may find significant political resistance to bailout plans.

A second problem is that the European Central Bank may not be up to the task. A Columbia University study cited in the Wall Street Journal suggests that the bank holds enough risky bonds that its own survival may be at stake. Instead of allowing the Greeks to write off as much as 50 percent of their debts, the ECB may elect to enact their own “quantitative easing” by printing money and allowing Greece to pay its debts with inflated euros.

A Greek default of some sort is almost guaranteed. Once the defaults start, no one knows for sure how fast and far it will spread, but given the weak economic situation in the United States, it is likely that European defaults would cause the American economy to slip back into recession. An old adage states that “when America sneezes, the world catches cold.” In this case, it is likely that a Greek sneeze will cause America to contract the Greek flu.

Read this article on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/what-a-greek-default-could-mean-for-you

Obama's war on jobs

It is much easier for the government to screw up the economy than to fix it. This is a fact that that President Obama is probably coming to appreciate as he reaches the close of his second year in office. Although Obama almost certainly means well, the effects of his policies are what count. Overall the effect is similar to what would happen if President Obama had declared war on the national economy.

The financial reform legislation passed this week is only the most recent anti-business legislation passed by the Obama Administration. The new law guarantees future bailouts by giving the government the right to seize businesses to prevent their collapse. It also establishes new layers of federal bureaucracy to create new rules for banks and financial companies (with the notable exception of auto finance companies). The new law adds costs of compliance to business and makes credit harder to obtain in the midst of credit crisis while simultaneously failing to address the problem of Fannie Mae and Freddie Mac, the quasi-government entities widely credited as being a root cause of the sub-prime mortgage crisis.

The war on jobs began shortly after Obama took office with the passage of the stimulus package. Obama claimed that the passage of the American Recovery and Reinvestment Act would keep unemployment below 8% (http://www.time.com/time/business/article/0,8599,1910208,00.html). In reality the spending package spurred unemployment to continue rising to the 10% range, where it remains today. In Georgia, the unemployment rate has been even higher than the national average at over 10% (http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LASST13000003).

The number of jobs created by the stimulus is disputed, but the fact is that when stimulus funds run out, so do the stimulus jobs. Jobs created by the $787 billion stimulus reportedly cost an average of $117,933 per job to create (http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1857) while not creating a lasting boon to the economy.

The second assault on the economy was in the form of government interference in the auto industry. The Obama Administration pumped billions of dollars into General Motors and Chrysler in an unsuccessful attempt to prevent the companies from restructuring in bankruptcy. During this process, Obama not only interfered with the control of private companies, he also short-circuited the bankruptcy process and contract law. Obama’s bailout deal placed unions above secured creditors of the companies (http://www.cbsnews.com/stories/2009/05/07/politics/otherpeoplesmoney/main4997900.shtml, http://online.wsj.com/article/SB124109550079373043.html). Ultimately, the Obama Administration even forced the CEOs of both companies out and gained the right to appoint members to the boards (http://www.worldcarfans.com/109050119091/chrysler-bankruptcy-announced-by-obama---ceo-nardelli-to-step-down, http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033101521.html). When the US government arbitrarily usurps contract law, it makes businesses less likely to engage in contracts that they are not sure will be honored. This ultimately costs jobs.

The third assault against the job market was the passage of Obamacare. Like the new finance reform law, Obamacare requires many new costly reports, including the new requirement that businesses issue a 1099 to every business or individual from whom they purchase more than $600 in goods or services (http://money.cnn.com/2010/07/09/smallbusiness/irs_1099_flood/index.htm). Additionally, Obamacare is already health care more expensive to businesses (http://www.businessinsider.com/henry-blodget-obamacare-already-jacking-up-health-insurance-costs-for-businesses-2010-3). As a result, businesses are cutting benefits to workers and hiring as few new employees as possible. Some companies are also considering additional layoffs to cut the new costs.

The next attack on jobs will likely come soon. It could be an attempt to ram through the carbon cap-and-trade tax bill that will dramatically increase energy costs. Hopefully, there will not be time to pass this bill before the election.

More likely, it will come in the form of the expiration of President Bush’s tax cuts. These across-the-board tax cuts that affected all Americans are set to expire at the end of 2010 unless Congress acts. If the cuts expire and taxes increase, it might suck as much as a $1 trillion from an economy that is struggling to recover. In spite of the fact that Democrats usually refer to them as “Bush’s tax cuts for the wealthiest Americans,” taxes were cut for all American and if they expire everyone’s taxes will increase (http://www.smartmoney.com/personal-finance/taxes/how-the-expiring-bush-tax-cuts-affect-you/). There will be less money for consumers to spend and less money for businesses to hire new employees.

One possible cause of these anti-business and anti-job policies is that President Obama doesn’t have a single person in his administration that has ever run a business (http://www.weeklystandard.com/Content/Public/Articles/000/000/016/619dvjlm.asp). They don’t know that their ideas are hurting the job market because they have never run a business. Obama appointees come almost exclusively from government and academic circles. They don’t understand free markets and have no idea what they are doing. The uncertainty derived from sweeping anti-business reforms certainly has a chilling effect on the economy as business owners hunker down to see what will happen next.

Sources:
http://www.time.com/time/business/article/0,8599,1910208,00.html
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LASST13000003
http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1857
http://www.cbsnews.com/stories/2009/05/07/politics/otherpeoplesmoney/main4997900.shtml
http://online.wsj.com/article/SB124109550079373043.html
http://www.worldcarfans.com/109050119091/chrysler-bankruptcy-announced-by-obama---ceo-nardelli-to-step-down
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033101521.html
http://money.cnn.com/2010/07/09/smallbusiness/irs_1099_flood/index.htm
http://www.businessinsider.com/henry-blodget-obamacare-already-jacking-up-health-insurance-costs-for-businesses-2010-3
http://www.smartmoney.com/personal-finance/taxes/how-the-expiring-bush-tax-cuts-affect-you/
http://www.weeklystandard.com/Content/Public/Articles/000/000/016/619dvjlm.asp

July 17, 2010
Bedford, MA



Photo credit:
graur razvan ionut
http://www.freedigitalphotos.net/images/view_photog.php?photogid=987

Greek Ruins

Greece is in crisis. Recent reports have shown rioting and told of the bombing deaths of Greek bank employees. For most Americans, the reports from Greece probably come as a shock. What happened to Greece and how did they get into this situation?

Greece certainly suffered from the global economic downturn that began in 2008, but its problems began long before that. In simple terms, Greece spent too much money. Like other social democracies, much of the money went to government salaries, pensions, and welfare state programs. By some estimates, government workers account for as much as 40% of the Greek economy [http://bit.ly/9dxUHB]. These government workers earn lavish salaries (they are paid for 14 months of work each year) and pensions. The Greek economy is also slowed by high levels of corruption, nepotism and tax evasion. Further, Greece also hosted the 2004 Olympic Games in Athens. The Olympics is always an expensive, and usually money-losing, proposition for the host country.

In the past, when Greece or other countries ran up high levels of debt, they would simply print more of the national currency. This would devalue the currency, the drachma in this case, and cause inflation. The government would then pay its debts in cheaper drachmas and repeat the cycle.

This changed in 2001 when Greece joined the euro zone and adopted the euro as its national currency. The more stable euro allowed Greece to finance its spending with lower interest rates and the country ran deficits to pay for its expensive public sector workers.

It wasn’t long before Greece began to have problems. Rules for the European Union specify that member nations are not permitted to run deficits larger than 3% of GDP (gross domestic product) [http://bit.ly/9Xxgsb ]. However, in 2004 it was revealed that Greece’s deficits had not been below 3% of GDP since before 1999. How did they manage to join the EU with larger deficits? They lied [http://bit.ly/cEXepN].

At that point, Greek voters ousted the socialists and installed a right-wing government in an attempt to restore fiscal sanity. The new government raised taxes on alcohol and tobacco, as well as increasing the VAT (value added tax) and, for a time, the Greek economy appeared to improve [http://bit.ly/cEXepN].

The next bill began to come due in 2008 with the crash of the global economy. As with most of the rest of the world, the Greek economy entered a recession. As the economy shrank, the deficit increased as a percentage of GDP. To make matters worse, the national debt had also increased by approximately 100 billion euros since 2004. The socialists returned to power in 2009 and announced sharp cuts to government spending to combat the crisis [http://bit.ly/5IkjZA].

It wasn’t enough. Greek bond ratings were revised downward and the Greek deficit for 2009, which had been estimated at 6%, was revealed to be as high as 13.6% as history repeated itself and Greek financial reports to the EU turned out to be less than accurate [http://huff.to/9euNoD]. Greek bonds soon reached junk bond status.

The Greek government imposed an austerity package of spending cuts and higher taxes on the nation. As a result, government union workers and anarchists opposed to multinational corporations began rioting in the streets. Three bank employees were killed when their bank was firebombed by rioters.

At this point, it appears that other European nations and the International Monetary Fund (IMF) will have to bail out Greece to prevent a national bankruptcy. According to the most recent reports, the EU and the IMF plan to loan Greece an additional $145 billion, of which $39 billion will be supplied by the IMF [ http://bit.ly/9sLtRM]. Some of the IMF money will be supplied by the United States.

Part of the danger of the Greek debt crisis is that it could spread to other parts of the EU and from there to the world. Other EU nations such as Spain, Portugal, and Italy also have debt crises, although not to the extent of the Greeks. Greek debt is worth approximately $400 billion and a default could cause a domino effect on banks, companies, and nations around the world [http://bit.ly/9Xxgsb]. Additionally, the crisis is already shaking investor confidence in the euro, causing its value, as well as stock markets around the world, to decline.

Many analysts are also pointing out that Greece might be a “canary in the coal mine” for many other western nations. The recession has caused many nations to run up deficits as they attempt to stimulate their national economies. Around the world, countries are finding that they can no longer afford expensive social programs and lavish salaries for public workers. As European research institute GaveKal noted, “If Greece was the birthplace of democracy, the question now is whether it will be the graveyard of social democracy” [http://bit.ly/9aVNzu].

The total Greek debt is now estimated to be at approximately 125% GDP [http://bit.ly/cD5ghY]. That means that Greece owes more than it can produce in one and one-fourth years. The Greek deficit is currently estimated at 13.6% GDP.

How does that contrast with the United States? The US debt is at 87.3% GDP and will soon reach 90%, the point at which the debt’s drag on the economy will increase markedly [http://bit.ly/c7EuJM]. The US is not far behind Greece in budget deficits. The federal budget deficit for 2009 was 9.9% [http://bit.ly/4riOem]. Given the spending habits of the current administration and congress, the US deficit and debt are both likely to continue increasing. As the numbers of federal employees increase, along with increasing federal pay rates and generous government pensions, the US is headed down the Greek road.

The US does enjoy several advantages over Greece. One is that US debt ratings are still good enough to garner low interest rates. There have been indications, however, that the US is in danger of being downgraded to a riskier status. Additionally, the US controls its own money supply. Unlike Greece, the US can print more money to pay its debts, although this would result in inflation (devalued and cheaper dollars).

The situation is different for many of the states, however. California, one of the leading basket case economies in the US, bears a striking resemblance to Greece. California is plagued by expensive government employee wages and pensions as well as costly social services. Government employee unions resist attempts to cut spending. Nevertheless, in 2009 California passed its own “austerity package” of tax hikes and spending cuts after it was forced to resort to paying state debts with IOUs. Like Greece, California also cannot manipulate its money supply since it uses the dollar. California’s 2010 budget shortfall was 56% of its total budget [http://bit.ly/5GfiaO]. If the situation does not improve, California may ultimately face the stark choice of begging for a federal bailout or a state bankruptcy.

In our own state of Georgia, we have also been hit hard by the economy. Georgia faces a budget deficit and shortfall as well. Georgia’s estimated budget shortfall for 2010 is 26% of the general budget. The state government is enacting deep budget cuts in education, transportation and health care.

Faced with a huge financial crisis, the states are adopting the Greek method of austerity measures while also relying on assistance from the federal government. In contrast, the federal government continues to grow and spend at a rate that dwarfs historical precedent. Ultimately, the bills will also come due to the federal government and the nation will face the painful realization that nothing is for free, including government services.

Sources:
1 http://www.stanforddaily.com/2010/04/30/a-greek-tragedy/
2 http://www.guardian.co.uk/business/2010/may/05/greece-debt-crisis-timeline
3 http://ec.europa.eu/news/economy/090324_1_en.htm
4 http://www.guardian.co.uk/world/2009/dec/14/greece-unveils-reforms-to-public-finances
5 http://www.huffingtonpost.com/2010/04/22/greek-debt-crisis-gets-wo_n_547604.html
6 http://online.wsj.com/article/SB10001424052748704866204575224421086866944.html
7 http://ec.europa.eu/news/economy/090324_1_en.htm
8 http://www.detnews.com/article/20100510/OPINION01/5100306/1008/Editorial--Greece-debt-a-warning-to-U.S.
9 http://www.data360.org/dsg.aspx?Data_Set_Group_Id=409
10 http://www.nytimes.com/2010/03/16/business/global/16rating.html
11 http://www.nytimes.com/2009/06/22/us/22calif.html?_r=1&pagewanted=all
12 http://www.statehealthfacts.org/comparemapreport.jsp?rep=49&cat=1
13 http://www.wsws.org/articles/2010/mar2010/geor-m09.shtml
14 http://online.wsj.com/article/SB10001424052748703648304575212490148430912.html


Chicago IL
May 10, 2010

Investing in the Obama Economy

Whether we voted for him or not, we must realize that Barack Obama is going to change the face of the United States and its economy. Radical changes in numerous areas of our economy are causing upheaval in the stock market and investment portfolios. To make the best investment choices, we should look at what Obama plans to do and the likely effects of his policies.

A big question on the minds of most investors is whether to ride out the crashing market or to try and salvage what remains of their portfolios. Since the financial crisis began in September 2008, the Dow Jones Industrial Average has fallen from a high above 13,000 to below 6,800 in trading today (3/2/09). If you are still in the market, you have probably seen a loss of approximately half the value of your portfolio.

A good strategy depends on the length of time that you have to recoup your losses. Historically, the stock market always shows a profit over time. Even in the stock market crash of 1929, when the Dow fell from 380 to 42 as the US entered the Great Depression, the stocks eventually regained their value. The down side is that this takes time. The market did not recover to its pre-1929 values until the late 1950s.

President Obama is following a set of policies that is very similar to those enacted by President Roosevelt in the 1930s and the government of Japan in the 1990s. In both cases, the increased government spending, higher taxes, and increased regulation led to a deeper recession and a slow recovery that took in excess of ten years. What we can learn from this is that, in all likelihood, we may not recover our past losses until 2030.

President Obama’s stimulus and bailouts have not stopped Wall Street’s freefall. With every new bailout and nationalization, the market falls further. Since there is no end in sight to government dabbling in the economy, there is also no bottom in sight to market losses.

If you are someone who needs your investment money in the short term, up to ten years from now, my recommendation is that you consider cutting your losses and get out of the stock market. Your current losses will become permanent, but you will preserve what you have left.

On the other hand, if you will not need your money for twenty to thirty years and are somewhat risk tolerant, you should consider staying in the market. The economy is cyclical and, in spite of everything that we can throw against it, it will recover in time. If a substantial change in government policy occurs over the next few years, the recovery might be sooner and sharper than anyone imagines.

For investors with a middle range outlook, from ten to twenty years, you should talk with your investment advisor about moving at least part of your portfolio to more conservative, less risky investments. You will lock in some losses, but you will also preserve more of your cash in the event of a long recovery.

The next question is what does constitute a safe and conservative investment in this economic climate. To answer this, we should look at what President Obama has announced as his intentions as well as what he has already done in his first six weeks in office. His banking polices, including government purchases of bank stock, have caused the value of bank stocks to crash. Auto stocks have fallen amid government bailouts and increased government control of the industry. Obama’s cap-and-trade energy tax will likely hurt traditional energy companies as well as the many businesses whose operations require energy to produce and transport their products. Health care is likely to be a target for nationalization or price controls in the near future. All of these sectors are likely to be poor investments for the next few years.

In past recessions, investors were able to invest in foreign markets when the domestic economy slowed. The current crisis, however, is worldwide. In spite of the poor performance of the US economy, it still leads that of most of other nations. Russia, Venezuela, and other oil producers have been hit hard by the collapse of oil prices. European nations have banking problems similar to ours and many are constructing their own bailout plans. Countries that depend heavily on US imports, such as China, are suffering from diminished US consumer demand.

On the other hand, a slowing economy does offer some opportunities. As more Americans make do with less, discount retailers are likely to do well. Family Dollar (FDO) is currently trading near its 52 week high, as is Dollar Tree (DLTR). McDonalds (MCD) is another company that has thus far done well in the crisis as people forgo expensive restaurants for the dollar menu.

Another likely growth sector is green energy. Obama’s energy policy will be to force a change from traditional sources of energy to new ones such as wind and solar. Carbon based energy, such as coal and oil, will be targeted by the federal government. During the campaign, Obama himself predicted that his policies would bankrupt companies that try to operate coal power plants. Similarly, companies that focus on ethanol, fuel cells, and hybrid technologies will be good bets. Even if they are not profitable on their own terms, they will be likely to receive substantial government subsidies and contracts.

To make wise investment choices, we must also consider the likelihood of either deflation or inflation. Currently, with a backlog of production, rising unemployment, and flagging consumer confidence, deflation is a threat. Increased government spending can also cause deflation since the government is competing with the private sector for money and, in effect, reducing the money supply.

Deflation occurs when people stop spending, causing the value of goods and services to decline. This may seem like a good thing when prices start to decline until you realize that the value of your property and your savings is declining as well. As goods pile up, companies cut production and lay off workers. Since consumers have less money to spend, they buy even less and more goods pile up. The cycle is a vicious one that can be hard to break. Deflation plagued both the US under the New Deal and Japan in the 1990s.

If the economy does slide into deflation, the values of almost all investments will decline. In a deflationary economy, real estate, commodities, stocks, and bonds are all poor investments. The best investment choice for a deflationary economy is to hold on to your cash.

On the other hand, inflation occurs when prices rise. Many economists believe that inflation is likely in the long term due to large government spending programs funded by debt. To service the interest on this massive debt, the government is likely to have problems generating enough revenue from the sale of government bonds. Other countries, such as China, that buy our debt have their own financial problems. Likewise, US citizens are also saddled with debt and have little left over to invest. If the government cannot raise cash through the sale of bonds, they will be left with little choice but to print more money or default on their loans.

When the government prints more money, basic economics tells us that as the money supply increases, the price (value) of the dollar will decrease. A dollar will buy less and the price of goods will increase. In our recent history, the 1970s was a time of rising inflation and, due to the high cost of capital, stagnant growth. The combination was referred to as “stagflation.” Inflation and unemployment figures were combined into a “misery index” that topped 20% by the time President Carter left office.

While deflation is likely in the short term, it is likely that we will face inflation in the long term. While an inflated dollar might make it easier to repay loans, it also erodes the value of savings and investments. People on fixed incomes are also hurt because their cash flow stream may not be indexed for the real rate of inflation.

In times of inflation, since prices tend to rise, the best investment strategy is to buy things. This strategy works from household items to real estate and commodities. For example, if you know that prices are going to rise and you know that your children will need new clothes and shoes for school next year, you would be better off to buy now before the price rises. Similarly, buying a house at the onset of an inflationary period will see an increase in the value of the house due to the inflationary decline of the dollar.

Commodities, particularly gold, are a traditional refuge during times of inflation. Gold is touted as a hedge against inflation, but because it is a high profile commodity often carries an extra expense. The price of gold is also sometimes manipulated by governments because it is often seen as a referendum on the economy.

Oil is another commodity that traditionally does well during times of inflation. Oil is currently trading at $44 per barrel, down from a high of nearly $150 per barrel in the summer of 2008. A big part of oil’s collapse was due to declining demand as the world’s economy began grinding to a halt. As the recovery eventually begins, demand will increase and the price of oil will recover. Regardless of Obama’s push for alternate energy, most of the world will run on oil for a long time to come.

One final consideration for investing during Obama’s tenure is taxes. Obama has been open about his plans to raise taxes on upper-income taxpayers and it is extremely likely that middle-income families will soon face an increased tax burden as well. Investors should take this into account. Individual Retirement Accounts (IRAs) offer a common means of deferring taxes. Investors should also keep in mind that there are likely to be drastic changes to the tax code. Many tax shelters and deductions are likely to be eliminated as the government tries to increase revenue.

Regardless of how the economy performs, one smart use of your money is to get yourself out of debt. With fewer monthly obligations to meet, you will have more disposable income with which to handle whatever life throws at you. Instead of paying interest to a lender, you’ll either be able to collect interest on investments or buy goods that will appreciate in value. In a time of uncertainty, preparation and savings is the smartest investment.

Disclaimer: I am not a licensed financial advisor. Consult your professional financial advisor before making changes to your portfolio.

Sources:
www.Inflationdata.com

3/2/09
Newark NJ