The latest negative market conditions for investors include slowing gross domestic product (GDP) growth and poor employment reports in the United States, as well as bad news in Europe.
GDP growth in the United States edged down to just an annual rate of 2.2% during the first quarter of 2012, compared to 3% at the end of last year, according to preliminary data. Also worrisome is a reduction in business investment. Businesses spent more money on equipment but far less on infrastructure. Do not be misled by those who contend that consumers drive economic growth, since business investment is an important indicator, too.
Weaker-than-expected U.S. jobs numbers are another bad sign for the economy and investors. Only 115,000 new jobs were netted in April, rather than the expected 162,000 jobs, according to the latest government data. Of further concern is that hundreds of thousands of Americans appeared to give up looking for work, so they technically would not be part of the unemployment numbers but still represent people who want jobs but cannot find positions.
In Europe, the people of France seemed to take a dim view of fiscal discipline when they elected socialist Francois Hollande, who demands that the European treaty on budget cuts be re-negotiated. Hollande wants more government stimulus, which only can make the debt crisis worse in France and Europe in general. The election also jeopardizes the alliance that France’s defeated President Nicolas Sarkozy formed with Germany to lead the European Union’s financial bailout of debt-laden countries such as Greece.
Fresh opposition to austerity measures also surfaced in Greece, where voters there rejected the two incumbent political parties in a preliminary election. Instead, the Greeks favored smaller, far-left and far-right parties. Combined with previous social unrest in that country about government efforts to trim its budget deficit, Greece appears to be at risk for losing its carefully crafted financial backing. As a result, investors could bail out of stocks in increased numbers.
Also last week, I attended the Milken conference, where the buzz phrase was “fiscal cliff.” From the sessions I attended, it became clear that both the United States and Europe face financial disaster unless they adopt austerity measures and rein in their overly generous welfare systems.
In addition, Don Luskin, famed investment advisor on CNBC’s “Kudlow Report,” added another bombshell. In The Wall Street Journal, he warned: “On December 31, trillions of dollars in tax cuts will expire, trillions more in new tax hikes under ObamaCare will kick in, and a trillion in spending cuts will begin.” Don Luskin will be addressing the “fiscal cliff” at the World Economic Summit, to be held the first day of FreedomFest, on Thursday, July 12, at the Bally’s Events Center. He will join our “All Star Prediction” panelists Bert Dohmen, Rick Rule and Ty Andros. Come join us by calling Tami Holland, 1-866/266-5101, or go to www.freedomfest.com. We are offering a free American eagle silver dollar (valued at $35 each) if you register this week.
Sharply higher taxes on investments raise the specter of another sell-off on Wall Street. How should you protect yourself? One way is to subscribe to my Forecasts & Strategies investment newsletter. I recently made a new recommendation that should do well, even with the market’s uncertainty.
Be sure to read my feature “You Blew It!” I’ll plan to have a new one for you every week. The purpose is to point out a bad decision, a foolish action or an ill-fated statement by a public official, business leader or investment guru. I have used the phrase within my family for years and they once printed t-shirts for a reunion with those exact words on each one. They learned to take my constructive criticism with a sense of humor and I hope you do, too. My intent is not to ridicule anyone but to point out a mistake that could be corrected, much as advice from a trainer or a coach can turn a faltering athlete into a world champion.
You Blew It: Boone Pickens Blames Koch Brothers for No Energy Plan
“The biggest deterrent to an energy plan in America is Koch Industries. They [Charles and David Koch] do not want an energy plan for America because they have the cheapest natural gas price they’ve ever had, and they’re in the fertilizer business and they’re in the chemical business. So their margins are huge. And they do not want you to have an energy plan, because if you had a plan, then natural gas prices would come up.”
–T. Boone Pickens to Yahoo Finance
I learned some important things last week at the famous Milken conference in Los Angeles, where top CEOs and political leaders gather. I was amused by an interview held by Aaron Task, of Yahoo Finance. Energy guru T. Boone Pickens offered the reporter a number of economic myths. First, Pickens insisted that America needs an “energy plan.” But the market is the plan. In a free economy, producers and consumers plan what they produce and consume. Do we need a food plan? A retirement plan? A telecommunications plan? Individuals, “yes,” but the government just needs to get out of the way.
Second, Pickens self-servingly attacked the Koch Brothers for opposing Pickens’ plan to subsidize natural gas, because Koch Industries benefits from lower natural gas prices.
Here I blame the reporter for not seeing through Pickens’ argument. Isn’t Pickens just as selfish in his desire to see higher natural gas prices? He even owns a publicly traded company in natural gas, so he would benefit from higher natural gas prices. (His company Clean Energy Fuels Corp. has endured a 40% drop in its stock price this year because of falling gas prices.) He also owns a bunch of wind farms that create an ugly blight in the Midwest.
Years ago, I had lunch with Boone Pickens. But he apparently didn’t remember much about my lessons in free market economics. See my textbook, “Economic Logic.”
Yours for peace, prosperity, and liberty, AEIOU,
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