U.S. government officials — including Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, numerous members of Congress, and presidential candidates John McCain and Barack Obama — seem determined to prolong the ongoing U.S economic slowdown and to fan the flames of inflation.
Those so-called leaders also seem intent on raising taxes and long-term borrowing rates, while destroying both the wealth and income of the average American consumer.
Bernanke and most of the members of the Federal Open Market Committee have repeatedly claimed over the past 10 months that the Fed must significantly lower short-term interest rates in order to prevent a potentially severe economic recession. Yet the only thing they’ve accomplished thus far has been to essentially clobber the exchange value of the U.S. dollar and, in turn, to increase inflationary pressures.
Meanwhile, Paulson and most members of Congress apparently feel that increasing the size of the U.S. budget deficit and potentially burdening households with an enormous tax bill is the right thing to do — as long as that decision allows borrowers to stay in homes that they can’t afford and for privately owned home lenders such as Fannie Mae and Freddie Mac to forego bankruptcy.
To be more specific, the U.S. Senate on Saturday approved the most socialistic government intervention in the housing market since the 1989 response to the savings and loan crisis. It's the most egregious attempt to aid troubled borrowers since the creation of the Home Owners’ Loan Corporation in 1933.
The housing bill — since signed into law — grants the Treasury Department authority to safeguard the nation’s two mortgage finance giants, Fannie Mae and Freddie Mac, by spending potentially tens of billions of dollars in taxpayer funds (or government borrowings) to prevent the collapse of those publicly held companies. Now that President Bush has signed the bill, the Treasury will have the right to buy unlimited stock in Fannie Mae and Freddie Mac.
To accomplish its goal of bailing out the nation's home-mortgage holders, the bill also raises the national debt ceiling to $10.6 trillion — $800 billion higher than the current ceiling.
Not to be outdone in implementing irresponsible government programs, the Bush administration projected this past Monday that the U.S. federal budget deficit will widen to $482 billion next year, which would represent the highest percentage of the nation’s total output of goods and services since the last recession ended in 2001.
The significant increase in the deficit has resulted largely from the cost of funding the war in Iraq and Afghanistan, with military operations there already totaling more than $500 billion.
The so-called economic stimulus package passed earlier this year, which cost taxpayers $168 billion, also has added to our ballooning deficit. Yet, several members of Congress are now calling for another “stimulus” plan. Other than a one-quarter increase in consumer spending, the outcome of the initial so-called stimulus is yet to be determined.
Still, both McCain and Obama are determined to further increase consumers’ debt burdens and to raise their taxes. Although McCain has promised to cut spending, independent studies have shown that McCain’s suggested spending cuts would fail to have a positive impact on the deficit, primarily because of existing entitlement programs, such as Social Security and Medicaid.
Meanwhile, federal budget analysts across the political spectrum have found that Obama’s proposals would do little to curb runaway federal spending and would cause the deficit to expand even further.
According to the Tax Policy Center, a non-partisan group, McCain would increase the debt by $5 trillion by 2018, while Obama would increase the federal debt by $3.4 trillion in the same time period. (Remember, Obama expects to repeal much of the George W. Bush tax cuts, while McCain would extend them. Obama's spending plans presume higher taxes will offset costs.)
As you can see, our so-called leaders have virtually assured investors and consumers alike that they will face higher borrowing rates, higher taxes, and higher rates of inflation during the years ahead. As a result, the short-sighted actions being taken (or suggested) by those political demagogues and policy makers will likely lead to a decline in the average American’s household wealth over the next couple of years and lower the spending power of their income.
So, what’s an investor to do?
Most of the so-called Wall Street experts and mutual fund portfolio managers regularly advise investors to adhere to a long-term, buy-and-hold investment strategy. Well, guess what? Since the beginning of this decade through the end of June, such a strategy would have generated a 0.06 percent average annual return for anyone who invested in a broadly diversified stock portfolio such as an S&P 500 Index fund — that’s right, 0.06 percent.
In other words, after adjusting for inflation, an investor who followed a buy-and-hold strategy over the past eight-and-a-half years would have actually lost money by following the advice of those so-called experts.
The fact of the matter is that buy-and-hold strategies work only in upward trending stock market environments. Unfortunately, my research indicates that stock prices could trade in a volatile sideways pattern for the next couple of years.
On a brighter note, there is a way to profit from the investment environment that I envision going forward by strategically investing in the right sectors of the market at the right time. I’ve successfully used that approach for many years, and I now share that approach with subscribers to my monthly investment newsletter, The ETF Strategist.
The results have been pretty good thus far, with my Aggressive Portfolio recommendations returning 13.9 percent since the inception of The ETF Strategist last September through last Friday’s close.
During that same period, the S&P 500 Index returned negative 13.3 percent. One of my better-performing recommendations, an inverse Oil & Gas ETF, is currently up 29 percent since I first recommended it, on May 27 of this year.
Don’t get me wrong, I’ve also made some mistakes along the way. But, I’ve never misled investors or made excuses for my mistakes, like many of the so-called experts. Click here for a risk-free trial subscription to The ETF Strategist.
© 2017 Newsmax. All rights reserved.