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Larry Kudlow Says Don’t Panic – Dan Mangru Market Commentary August 28, 2011

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Larry Kudlow says don’t panic


Posted: August 10, 2011
8:19 pm Eastern

© 2011 WND

Wow! I can’t believe this guy.

People are losing their retirements, their savings, their nest egg. Investors are now starting to realize that the U.S. is built on a deck of debt cards and they are starting to fall.

The United States has a current debt-to-GDP ratio of 100 percent just like the other Third World nations out there. It also has future liabilities in excess of $110 trillion (an amount that no other country can even fathom).

All the while, the U.S. dollar is losing strength and the cost of living and feeding a family continues to go up.

But Larry Kudlow says don’t worry.

See his article here:

While Kudlow points out that lower commodity prices should spur economic development, he misses out on several key factors that are needed to properly evaluate the market.

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First, this isn’t a short-term pullback, this is a market correction. When the Dow Jones Industrial Average (Dow) went down to 6547.05 on March 9, 2009, we were supposed to retrace the low to roughly 50 percent. What this means is that our stock market should have faced some major resistance to move beyond the 9750 mark on the Dow. Instead by 2010 we had blown by it, and with the slight exception of the May 2010 flash crash, we never looked back. 

Make no mistake, speculation fueled the market. Case in point, look where we are now. When QE2 (Quantitative Easing 2) was implemented by the Fed last December, the Dow was hovering around 11,000. During April the Dow surged to 12,928. Everything seemed great.

Except it wasn’t.

With continual Federal Reserve (Fed) stimulus (low interest rates, and QE2), traders, black box traders in particular, were given cart-blanche to trade financial markets knowing that they would be flush with cheap Fed cash.

Since the cash was always there, traders didn’t care what the economic news was for the day. They were concerned with liquidity and how they could exploit liquidity to make a profit.

That’s why things such as a high debt to GDP ratio, poor housing numbers, and high deficit spending didn’t seem to register on Wall Street’s radar.

However, once the Fed pulled out their cash and ended QE2, traders started to run for the hills. They began to start dumping stocks. In fact, even sophisticated hedge fund managers such as Carl Icahn and George Soros proclaimed that they were disbanding their hedge funds, returning money to investors, and leaving the market at professional managers.

That should tell you something.

Between the top money guys leaving and the Fed pulling out cash, the fix was in. We were all fed the line that once we did the debt deal that financial markets would rally. And they did … for about an hour.

But that’s when reality hit.

Since then financial markets are starting to realize that the United States has no real end in sight to its flagrant spending ways, and astronomical long-term debt. Without Fed easy money to spur buying, investors are treating the U.S. economy for what it currently is … a sell.

Second, Kudlow points to rising corporate profits as being an indicator that the U.S. economy is still healthy. What Kudlow fails to recognize is that corporate profit guidance is being lowered for the second half of this year. Even Goldman Sachs lowered their guidance for the second half of this year.

Large corporations will see that margins are going down and that after enduring a major stock market correction, consumers are not running around the store waving their credit cards dying to spend. Consumers will not consume as much.

Savings rates are going up. The most recent data from the St. Louis Fed shows the U.S. personal savings rate is at 5.4 percent. Compare that with our April 2005 rate of 1 percent, and you can see that Americans are worried that the economy will fall and they will need their money.

That translates to economic slowdown. When individuals do not spend and start to save more, that slows down production and consumption, which in turn slows down the entire economy.

Third, Kudlow believes that there is a big overreaction going on to the problems in Europe. Keep in mind, Kudlow, along with fellow CNBCer Jim Cramer, thought Lehman Brothers was a good buy before it went bankrupt and wiped out investors.

The easiest way to understand the Europe problem is to think of economies of scale. Greece, which in relative terms is very small country, cost over $1 trillion to bail out.

One small country took all of the financial might and muscle of Europe’s top banks and governments to bail out.

Now think of Italy, the newest country on the brink. Italy’s debt crisis is 10 times the size of Greece. I’ll put it to you this way, the European Union cannot afford $10 trillion.

The entire GDP of the European Union is $16 trillion, so $10 trillion is too big to bail out. An additional problem with Italy is that a huge chunk of its debt is due within the next two years. So this isn’t a problem that can be shoved under the rug.

Combine this with a sluggish Euro and a European Union that is dealing with a global economic slowdown and the recipe is not good. With all of the weakness in Europe, the EU’s stronger countries (Germany and France) should start to see some of their strength erode as they are continually forced to bail out smaller players. By the EU charter, the EU guarantees all of the debt of its member nations. Hence, Germany and France will end up paying the bill for Greece, Italy, Spain, and all of the other countries who have overspent and are nearing bankruptcy.

Finally, Kudlow fails to point out several key ticking time bombs in the United States. First is the real estate market. With shadow inventories and foreclosures, home inventories should skyrocket to all-time high levels in the United States.

Second, student debt in America is at an all-time high. Fueled by government loans, universities have been charging students higher rates every year, regardless of what the stock market or the economy is doing. Current student debt in this country is estimated at $1 trillion. Just so you know, that was the amount of money that was needed to bail out our banks.

Third, municipal debt is a major issue. If cities and states start to go bankrupt, all hell could break loose. Remember, less than a year ago, California (the world’s 9th largest economy) could have gone under. The effects of a default of that size would cripple the domestic and global financial economy.

So Mr. Kudlow, in times like these, while panic may not be the right feeling, all is not well. Investors should be very concerned. They should be safeguarding their assets against a major stock market drop and planning for the future.

But then again, maybe that message isn’t one that the talking heads want to hear or give.

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Interview with Edward Gonzalez – Candidate for U.S. Congress November 3, 2010

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Update: Edward Gonzalez made a strong showing as a libertarian candidate with 7% in his district.

*** Edward Gonzalez is a candidate for U.S. Congress in California’s 16th District.

Edward Gonzalez for Congress Website


Below is the transcript of Dan Mangru’s exclusive interview with Edward Gonzalez.
Mangru: The problem with many third party candidates is that they never win, so people are reluctant to vote for them.  What do you think needs to be done to change that mindset?
Gonzalez: Americans are begging for a small government, pro U.S. Constitution party.  While the GOP claims to stand for freedom, their actions show otherwise.  If the establishment Republicans do not fight to reduce the size of government, I think we will see a huge majority of people voting for a third party.  I think the mindset is already starting to change.
Mangru: The Tea Party has been a major force in America.  But instead of becoming an organized political movement it has migrated into the Republican Party.  Do you think this is a smart move, seeing as how third parties face huge hurdles such as ballot access, notoriety, etc?
Gonzalez: We need a legitimate “small government” party.  The Republicans talk about small government when they are out of power, but the moment they are in control, they push ahead with large government programs and deficit spending.  The Tea Party movement is trying to make the Republican Party into a true small government party.  They may succeed.  I hope they do succeed, but I am not optimistic.  I think there is a greater likelihood that the Republican Party will disappoint the small government movement.  At that point the Tea Party may move to form its own party, or join the small government party that already exists:  The Libertarian Party.
Mangru: California has always been an experimental testing ground for may policies.  What is your stance on recreational marijuana and do we need to advance items that make Americans less productive in the middle of a recession?
Gonzalez: I own my body.  You own your body.  I decide what goes into mine and you in yours, not the government.  No politician has the right to tell me what I can or cannot put in my own body.
The “War on Drugs” has been a total disaster with unintended consequences such as increased street violence and serious gang violence in our inner cities and at the southern border.  Legalizing marijuana would solve the moral dilemma, remove funding from organized crime, and provide cash strapped local governments with an additional revenue source.
Many conservatives disagree with my assessment.  To them I always ask the same question, “If the government can tell us what we can and cannot put in our own bodies, where is the so-called “limit” on government?”
Mangru: People point to the health care system in Canada as a model for how health care in America could be.  Canadians are satisfied with their level of care and the prices are relatively low even prompting Americans to get lower priced drugs from Canada.  Do we have something to learn from Canada and can a similar system be implemented in America?
Gonzalez: We can certainly learn from programs that work in other areas of the world.  Relaxing our restrictions on prescription drugs made outside the U.S. comes to mind immediately.  The problem with any socialized system is that there is going to be government imposed rationing.  I am sure young healthy people are happy with their level of care in Canada, but talk to a mother whose son needs an immediate life saving surgery but the wait time is 18 months.  She is probably not “satisfied” with her level of care.
As is with all industries, the most efficient and productive method for health care would be direct patient/doctor relationships where the patient paid the doctor directly.  Insurance, which should not be mandatory, would only come into play in the case of catastrophic accidents.  If this were the case, patients would think twice before paying for the numerous and expensive tests doctors now perform, and doctors would have to compete against each other based on cost.
Mangru: While it’s easy to say that pension reform can help California’s budget, it’s not easy to tell people that their pensions are being reduced or taken away by the government.  Is pension reform in California non-negotiable?
Gonzalez: Absolutely not.  One of the measures on the ballot in San Jose will reduce the pensions of all new police and firefighters hired.  That is a step that should be implemented across all of CA.  As far as raising the retirement age or reducing benefits in other ways, California will have to enact some of these measures or face bankruptcies.  There are those who advocate raising taxes to make of the difference, but that is not a viable solution because businesses and people would just pick up and move.

 

The Mangru Moment on No Money Down Homes…AGAIN – Episode 14 – The Mangru Report October 6, 2010

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Just when you thought that finally the government had learned it’s lesson, you hear about stuff like this and remember why you have so little faith in Washington D.C. 

Watch Dan Mangru from Episode 14 of The Mangru Report discuss the federal government giving away no money down loans again in the midst of the biggest subprime financial crisis in history and how our friends at Fannie Mae and Freddie Mac are making it all happen.

Bert Dohmen Freedom Fest 2010 Interview – The Mangru Report on Fox Business September 22, 2010

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After a long wait, it’s finally here online, Bert Dohmen’s exclusive interview with Dan Mangru from Freedom Fest 2010 in Las Vegas.  In this interview, Dohmen discusses the prospects of a V-shaped recovery or whether the United States is headed for what George Soros calls “Act II of the Crisis”.  He also shares his views on the financial reform bill, a Chinese bubble, and whether the U.S. can save China if it goes under.  Bert Dohmen is the founder of the Dohmen Capital Research Institute and the author of the award winning Wellington Letter.

Watch Steve Forbes, Peter Schiff, & More This Saturday And Sunday On Our Special Freedom Fest 2010 Episode July 26, 2010

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The wait is over.  This weekend, The Mangru Report will be airing its highly anticipated Freedom Fest 2010 episode.

You’ll be able to watch Dan Mangru’s exclusive one-on-one interviews with Steve Forbes, Chairman and CEO of Forbes Inc., and Peter Schiff, President of Euro-Pacific Capital and current U.S. Senate Candidate from Connecticut.

We will also feature expert panel commentary from:

Adrian Day, Adrian Day Asset Management
Jack Dzierwa, U.S. Global Investors
Lou Petrossi, Wealth Research Institute
Frank Trotter, Everbank

Even The French Get It – Dan Mangru & Jim Rogers in French Moneyweek Magazine July 12, 2010

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While mainstream media continues to ignore the municipal debt problem here in America, the world is slowly realizing the silent killer that is brewing.

In the latest issue of the popular French magazine MoneyWeek, Dan Mangru and Jim Rogers are mentioned in a scathing article regarding Los Angeles’ municipal debt problem.

In Dan Mangru’s most recent interview with Jim Rogers, they discussed the impending municipal debt crisis and how a municipal default could trigger another massive bailout or worldwide economic depression.  To watch the most recent interview between Dan Mangru and Jim Rogers please see below.

“More Of” Or “Moron” Segment – The Mangru Report – Episode 2 May 11, 2010

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The Mangru Report Panel of Experts comprised of John Browne (Euro-Pacific Capital), Anthony Pulieri ( United Bullion Group ), and Nicholas Brack (Aduro Asset Group) discuss Senator Chris Dodd’s Financial Reform Bill, Yale Professor Dr. Robert Shiller’s views on housing, and Ben Bernanke’s payment to taxpayers on this “More of” or “Moron” segment of The Mangru Report, hosted by Dan Mangru.

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