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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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Dan Mangru on What It Means to Be Free – The Mangru Moment – The Mangru Report on Fox Business February 7, 2011

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At the conclusion of The Mangru Report’s coverage of Freedom Fest, Dan Mangru sits down for an introspective look on what it means to be free and how Americans should be exercising the right that so many gave their lives for.

Bonus:

Steve Forbes FreedomFest Interview:

Regulation Nation – Outsourcing in America – The Mangru Report Episode 21 October 26, 2010

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As election season is in full gear, and politicians ramp up the political rhetoric on how outsourcing has killed jobs in America, The Mangru Report Panel of experts takes a hard look at whether outsourcing is a negative or a positive thing for America.

The Mangru Report Panel of Experts composed of Anthony Pulieri (Joseph Glenn Commodities), John Browne (Euro Pacific Capital), and Jim Knight (The Knight Group) discuss the differences in wages in foreign countries, the influence of unions, unfair government subsidies from foreign nations, the difference in technical skills between the U.S. workforce and countries like China & India, backwards tax incentives that keep U.S. jobs overseas for fear of high U.S. taxation, the influence of cheaper goods and it’s effect on the U.S. standard of living, and why companies are moving more of their operations overseas.

This segment was sponsored by First Hour Trading, you can download their FREE Report, “How to make enough money in the first 59 minutes of the market” by CLICKING HERE NOW.

More Links:

Worried About Your Wealth? – Read This TODAY

New Poll: Was George W. Bush a better President than Barack  Obama? – CLICK HERE TO VOTE

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Healthy School Lunches – Taxation By Representation – The Mangru Report on Fox Business October 12, 2010

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As Congress continues to debate a new bill to implement healthy school lunches across the country (HR 5504, Improving Nutrition for America’s Children Act), The Mangru Report panel of experts composed of John Browne (Euro-Pacific Capital), Anthony Pulieri (United Bullion Group), and Jim Knight (The Knight Group) discusses the merits of the bill and whether this is solving an epidemic problem or just more government spending.

The panel also weighs whether the healthy school lunches should be income based as opposed to being distributed to all students, whether food stamps should be cut to pay for it, whether physical fitness programs should accompany the healthy lunches, and whether the government should be intruding further into our lives.


More Links:

Worried About Your Wealth? – Read This TODAY

New Poll: Was George W. Bush a better President than Barack  Obama? – CLICK HERE TO VOTE

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Commodity Corner – Brazil’s Big Oil Bet – The Mangru Report on Fox Business – Episode 20 October 10, 2010

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While most people in America have been focusing on an upcoming General Motors (GM) IPO that was supposed to be some $70 billion dollars, it seems that Brazil has beat us to the punch. Recently, state-run Brazilian oil giant Petrobras (NYSE: PBR) raised some $70-75 billion in a secondary stock offering that was completed late September to finance the company’s growth and expansion, in particular new offshore deposits of oil found off the coast of Brazil.

Watch Dan Mangru and the Mangru Report Panel of Experts composed of John Browne (Euro-Pacific Capital), Anthony Pulieri (United Bullion Group), and Michael Solomon (Author, Where Did My America Go?) discuss whether the $75 billion was a good bet on Petrobras, whether the incoming Brazilian government will take Petrobras in a more socialist direction, and how the U.S. is invested in offshore oil in Brazil but not in America.

 

Important Links:

No Promises, just sound advice

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New Poll: Was George W. Bush a better President than Barack  Obama? – CLICK HERE TO VOTE

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Dr. Larry Kotlikoff Interview with Dan Mangru – The Mangru Report on Fox Business October 9, 2010

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As the debate goes on as to whether the U.S. banking system is stable and secure, Boston University Professor of Economics Dr. Larry Kotiikoff is proposing new solutions to change the way that we bank in his new book, “Jimmy Stewart is Dead”.  Watch Kotlikoff and Dan Mangru discuss limited purpose banking, how it can be implemented in our current system, how the government is exacerbating the problem, and how much money we really owe in debt and obligations.

Links:
Worried About Your Wealth? – Read This TODAY

New Poll: Was George W. Bush a better President than Barack  Obama? – CLICK HERE TO VOTE

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War On Your Dollar – Bernanke’s September Surprise – The Mangru Report on Fox Business – Episode 20 October 7, 2010

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Federal Reserve Chairman Ben Bernanke recently announced that the recovery was not as strong as originally thought, the U.S. did not have enough inflation, and that the Fed would increase it’s debt purchases & inject more money into the system.

Watch Dan Mangru, John Browne (Euro-Pacific Capital), Anthony Pulieri (United Bullion Group), and Michael Solomon (Author, Where Did My America Go?) discuss how the dollar is being devalued, how Bernanke has created the perfect storm for gold, why China is not buying U.S. debt, and whether there is too much hype and excitement in the gold market.

Links:
Worried About Your Wealth? – Read This TODAY

New Poll: Is the Tea Party Legitimate? – CLICK HERE TO VOTE

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Lou Pritchett Interview with Dan Mangru – The Mangru Report on Fox Business – Episode 20 October 6, 2010

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Retired Corporate Executive Lou Pritchett set off a national firestorm with his eloquent “You Scare Me” open letter to President Barack Obama.  Since he wrote it millions of Americans have passed it along online and it has made Lou a Tea Party favorite. 

As one of the pioneers of partnering and a major business partner of Sam Walton of Wal-Mart, Lou Pritchett discusses why it’s important to have business experience in government.  Pritchett also tells Dan Mangru what he would have done if he were president to General Motors, how America can use it’s intellectual resources to be better, how to operate a small business in a recession, small business outsourcing, and whether the Tea Party should just “amuse” President Obama. 

Also vote on our poll of the day on the Tea Party.

The Unseen Costs of Obamacare – Guest Commentary by Richard S. Bernstein October 5, 2010

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The Unseen Costs of Obamacare

By Richard S. Bernstein

Chief Executive Officer,

Richard S. Bernstein & Associates Inc.

Last week, I received two visits from employees, both with the same question:  “You mean I’m going to have to pay income tax next year on the health insurance benefits you give me?”

The only answer I was able to give them was: Not yet.

It has been six months since Congress passed the Patient Protection and Affordable Care Act, yet still, we continue to find and learn new things about how the “Obamacare” health care bill will affect the average American.

What my two employees recently learned was that, beginning in January 2011, every American who receives health insurance through his or her employer will see that insurance benefits show up in his or her W-2 form. For the time being, that doesn’t mean they are paying taxes on this benefit – only that they are disclosing the value of that benefit to the government.

Raise your hand if you believe this won’t lead to a new tax? After the midterm election, of course.

Meanwhile, many of the Americans who can least afford a new expense arelikely to see one, unless Congress repeals another facet of Obamacare. McDonald’s Corp. this week announced plans to drop the low-cost, effective health care plan it offers to nearly 30,000 hourly restaurant workers if that clause – which mandates that a certain percentage of revenue has to go to claims rather than administrative costs – is waived. If that happens, those hourly workers – all of whom likely fall into the group of Americans that Obama promised not to raise taxes on, as they make less than $250,000 a year – will find themselves paying significantly more for health insurance.

While this isn’t precisely a tax increase, it creates the same effect: it takes money from Americans’ pockets, many of whom are living paycheck-to-paycheck.

This is a real effect of Obamacare that will affect their quality of life; even more than that, it is a real effect of Obamacare that will decrease Americans’ spendable income – and that will be felt throughout our economy.

I say this as a person who works in the insurance industry, and who strongly believes that our nation’s health care system rode off the tracks many years ago. In some places, Obamacare will help put us back on track: that the bill has removed lifetime limits on insurance coverage; that it has prohibited insurance companies from rescinding coverage, or from discriminating against Americans with pre-existing conditions – these are good things that have been a long time coming.

But, like a young woman preparing for the prom, the cost of changing our health care system isn’t as simple as paying for the ticket. That young woman needs

a dress, shoes, accessories – all things that come with an extra cost. The same is true of our health care bill – everything comes with an extra cost.

And before Americans go to the polls this November – where most will, without a doubt, have health care on the brain – they should understand those costs.

They should understand that employers like McDonald’s Corp could drop their affordable health care plans.

They should understand that the cost of both drugs and hospital visits have gone up since Obamacare’s passage, at least partially because drug companies and hospitals don’t know what the future holds, and want to ensure a cash reserve if their finances take a dive under the new health care laws.

They should understand that, if they currently use a Health Savings Account (HSA) to purchase over-the-counter drugs, allowing them to write off those medications on their taxes, that practice will end under Obamacare.

They should understand that taking money from their HSA for non-medical purposes will no longer come with a 10 percent penalty; now, that penalty will be 20 percent.  And they should understand that their Flexible Spending Accounts (FSA) will be capped at $2,500. So the payroll deductions that currently go into Flexible Spending Accounts tax-free will become capped under Obamacare. And in today’s medical world, $2,500 doesn’t go very far.

In all, there are more than 20 examples like this – new, higher taxes that will go into effect under Obamacare, some as soon as January 1, 2011.

And that’s only what we’ve found so far.

Richard S. Bernstein is one of the nation’s top insurance advisors to high net worth individuals, businesses, and charitable organizations.  He’s been featured in many national publications and has joined The Mangru Report on Fox Business as a featured panelist. You can find out more about Mr. Bernstein by visting his corporate website www.rbernstein.com

Freedom Fest Panel – Alternative Investing – The Mangru Report on Fox Business September 24, 2010

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Watch extended coverage from Freedom Fest 2010 with Dan Mangru moderating a special panel on Alternative Investing.  While so many investors are confused as to what that actually is, for the purposes of this panel alternative investing is any type of investment outside of stocks, bonds, options and mutual funds.

The panel features David McAlvany of McAlvany Wealth Management, Van Simmons of David Hall Rare Coins, Jack T. Reed author of How to Protect Your Life Savings, and Terry Coxon of Passport IRA.  They will provide key insights on topics such as gold investing, the currencies most likely to beat the U.S. dollar and why the U.S. dollar might be good to hold in the short run, whether investors should pay down debt as opposed to making new investments, how to buy real estate during hyperinflation, and the importance of liquidity.