The U.S. Federal Budget is suffering deficits again as capital gains taxes and incomes have begun drying up.
States and Municipalities are under huge strain to reduce budgets with California and New York City as glaring examples. Tens of thousands of workers will lose their jobs to balance these budgets.
401K plans have been crushed by the markets and individuals continue to toy with their investment choices to salvage some sort of retirement.
Traditional pensions have been decimated and some will cease to exist in coming months and years. Back in February of this year I wrote of the shenanigans going on in lots of public pension plans, many of which are now grossly underfunded.
Without the expected budget surpluses, you can certainly expect that Social Security and Medicare are going to have to be hurt by all this.
I have been telling you readers for months that real estate prices are hugely overvalued and will begin to drop. Much of the credit for this belongs directly at the feet of Alan Greenspan due to the infusion of new money into the markets that allowed for severe asset inflation. The stock market became a house of cards that I felt VERY strongly would collapse and I feel the EXACT same way about residential real estate right now. The next two collapses you are going to witness up close and personal are the market for houses and the load of consumer debt, which has accumulated during the past five years.
The Federal Reserve is basically out of bullets in this gunfight, which is monetary policy. With the Discount Rate at .75% and the Fed Funds Rate at 1.25% there clearly isn't much room to move on the downside and no one can imagine him raising rates anytime soon and we look a little bit more like Japan every day. I stand fast that I don't think the United States is going down the exact same road that Japan has gone down, but it is, at the very least, a similar one.
Getting rid of Alan Greenspan may not be an immediate cure for all that is currently wrong since actions of three and five years ago are having effects on us right now. I'm just saying that this recent reduction in interest rates by the Fed was pouring just a little more vodka into the economy's punch bowl and the revelers at this party are plenty drunk already. Giving them more money at cheaper rates will only increase the hangover when this credit bubble bursts, as I'm certain it will.
Happy New Year Chairman Greenspan, and goodbye.
THE RESULTS ARE IN
What was funny to me as I review the results of my predictions from last year end is that LOTS of you people wrote to me and told me "you suck", but also expanded on that theme by telling me how overtly negative my predictions were. This is funny because in nearly every circumstance I was not negative enough, and overall I think I did okay, but I'll run them all by you and see what you think.
Prediction - "Dow Jones Industrials - Lower than it is right now. If you make me pick a number, I'll say under 9,000, which would be a 10% decline from here." Reality - Pretty decent if I do say so myself. The Dow Jones is around 8,303 which is just about a 15.5% decline. What made me want to pee my pants was watching Louis Rukeyser's Wall Street on CNBC Friday night. Ms. Alison Deans was the champion of stock picking on the program because she forecasted the Dow Jones would close at 10,000. I wonder when our friend Mr. Rukeyser will decide to leave the JV team at home and call in some varsity players.
Prediction - "NASDAQ - Somewhere around 1,750, also a little over 10% lower." Reality - As negative as I was on the NASDAQ I still wasn't negative enough. With the NASDAQ at around 1,348 it's down almost another 30% in 2002. Do you remember who told you the day it hit 5,000 that it would go down and not return to 5,000 for at least 10 years and that he told you that almost three years ago? Yeah...me neither.
Prediction - "Ten-Year Treasury Note - 4.75%" Reality - Ten-Year Treasury Note - 3.81% and it might actually even get a teeny bit lower too, but I'll leave that until my predictions about next year. Again, most people couldn't believe I was predicting longer rates to get as low as 4.75% and I actually needed to go lower here too.
Prediction - "Fed Funds - 2.00%" Reality - Fed Fund - 1.25% and given my feelings about Chairman Greenspan I continue to be shocked that I was wrong here since I never would have expected the 50 basis points that were cut in November. Without that cut I would have only been off by 25 basis points on this prediction. |
