Market is Rising Faster Than Economy - Five Reasons Why

The market has significantly outperformed the economy recently. It seems confusing because of all the headwinds making economic recovery so difficult. For example: housing and commercial real estate continuing to decline, an over-levered consumer, growing unemployment, etc. However, the market does not seem to be concerned about these headwinds (at this time) so what are traders and investors using to bid up this market? You see and read a lot about the recession being over or that we've avoided a depression or consumer attitudes are improving etc. But it appears there are five major reasons the market is outpacing the growth of the real economy.

1. The "economy" is assembled and dissected as a Statistical Model

Remember, most people see the market through the lens of the conventional, statistical model of Gross National Product (GDP.) This model looks at the economy from a consumption point of view: a dollar spent, no matter who spends it, represents a dollar of GDP. This of course is why many people see green shoots all over the place and hear so many declarations from politicians, economists and the media that the positive GDP growth in the third quarter means the recession is over. They don't seem to consider that a dollar spend today (increase in GDP) is a dollar that has to be subtracted (from GDP) through taxes later. Nor do they seem to consider that the dollar will be taken from someone who could probably use it more effectively.

2. U.S. fiscal policy is out of control

Government spending is out of control and congress has every intention of spending more and more. The government will pump in at least $1 trillion (above tax collections) this year and probably each year for the next ten years. That's a lot of GDP "growth." Add to that any new programs that might be enacted like health care spending or cash for clunkers. Also, the $800 billion stimulus package has not worked (business revenues still falling and unemployment has gone from 5% to 10%.) Yet, according to demand side economists (preferred by most politicians) like Paul Krugman at Princeton, we need another, bigger stimulus package if we really want to turn this economy around.

The government may not (at this time, be able to get another big, trillion-dollar stimulus package through Congress. However, they may be able to get a lot of "little, very targeted stimulus packages" through congress like: $11 billion more for home buyers, $33 billion for businesses on tax losses 3-5 years ago, $250 for each Social Security recipient at a cost of $14 billion, how about another "successful" cash for clunkers program because GM needs money, etc. All of this money will push up the GDP.

3. U. S. monetary policy is out of control

The Federal Reserve has reduced interest rates to 0-.25 percent (basically free money for banks); expanded its balance sheet by $1.75 trillion dollars and guaranteed the financial community $4.3 trillion to make sure banks will trade with other banks. The Fed, at its meeting last week, stated again that it intends to keep interest rates low (where they are) for an extended period of time (until the economy turns around or until they see inflation.)

This "liquidity" not only helps the banks recapitalize, it punishes savers and forces them to buy risk assets if they want to earn a return on their money (or simply spend it and help GDP.) All of this liquidity helps consumption, but it also causes malinvestment and the current "carry trade."

4. Stable, low-cost money encourages a Carry Trade

This simply means you capitalize on the returns you can get by borrowing money at low rates in one country and investing the funds in another country for a higher return. Remember reading about this when people were borrowing the Japanese yen at zero percent interest and investing in the U.S. at a higher rate of interest. Well, you can do that right now without leaving the U.S. We are now the carry trade. Banks can borrow from the Federal Reserve at zero percent and buy longer term Treasuries and make the difference. Or, some can short the dollar (it's down over 10 percent this year) and use the money to buy higher risk assets (equities, gold, etc) and make even more.

5. Global funds still streaming into the U.S.

This carry trade is not just being done by Americans, it's global. Countries around the world have more growth than ever and are taking advantage of the declining dollar and the rising assets like equities, commodities, etc. As we saw in the Technology bubble and the housing bubble, the world is awash in money looking for a place it will be treated well.

These are certainly not all of the reasons the market is rising faster than the economy is recovering, but they are some of the more significant reasons. Also they may stay in place until the headwinds become too strong.

Jim Zitek is an Investment Advisor with Feltl & Company. He is also a well regarded speaker on the topics of critical thinking skills and their application to the economy and other important topics. I learned years ago that you must learn how to separate good information from bad information if you are going to make better, more timely decisions. You can get more information at my web site athttp://www.zitek.net and at my blog http://www.paradigmadjustment.blogspot.com Article Source: http://EzineArticles.com/?expert=Jim_D_Zitek http://www.pippoproducts.com/business/index.html

Fed May Have to Extend Debt Purchasing

Chairman of the Federal Reserve Ben Bernanke is confident he can successfully bring a halt to the buying of mortgage backed securities that have helped steady the US housing market. Congress seems to lack that confidence. The central bank will have to put a stop eventually to its stimulus programs before there's a wave of inflation as the recovery continues. At the center of its programs is a plan to purchase $1.25 trillion worth of real estate debt.

Bernanke hopes that private investors will step in when the Fed puts an end to its debt-purchasing program. If they don't the Fed may come under pressure to provide continued housing assistance and credit programs. That pressure would hinder the Fed's capability in conducting independent monetary policies.

In a worst case scenario for the Fed, Congress could step in and attempt to stop the Fed from selling their debt claiming that a full recovery has not yet happened. Several Congressman have already pressured Bernanke to help car companies and create more credit for commercial real estate companies.

Officials with the Fed claim the housing debt purchasing has lowered borrowing costs for homebuyers, providing a spark to the portion of the economy at the center of the crisis. The average interest rate for a 30 year mortgage has gone from 6.45% a year ago to 5.02% last week. This rate could climb as much as a full percentage point by March while the economy gets stronger and the Fed halts its debt purchasing.

New home sales dropped unexpectedly in September as the $8,00 tax credit for first time buyers nears an end. Democrats in the Senate, fearing the housing recovery could be derailed, decided to extend the credit and provide assistance to present homeowners.

The purchasing of mortgage debt are a part of the expansion of the Fed's powers under Bernanke, who took over in 2006. Representative Ron Paul is attempting to pass a bill that would allow Congress to audit the Fed's monetary policies. The bill has over 300 co-sponsors.

Last December, when Congress was deciding on bailout assistance for Chrysler and GM, Bernanke was asked about Fed policy by Congress and the Chairman responded by saying the issue was for Congress to decide. Then in July, members of Congress asked the Fed to aid the commercial mortgage securities market by continuing the Fed's Term Asset-Backed Securities Loan Facility through the end of next year. The Fed partially complied by extending the program through the middle of 2010. They said that plans to extend the program were already in the works before being asked.

Ron Parks has been buying Marin real estate for 27 years. Year after year he is one of Marin's top real estate agents. Ron specializes in all areas of Marin County, including Belvedere and Mill Valley. Article Source: http://EzineArticles.com/?expert=Ron_S_Parks http://www.pippoproducts.com/business/index.html

Book Review - US Citizens Wake Up & Be Afraid

Ben McGowan is an angry man, and his book, U.S. Citizens Wake Up & Be Afraid, delivers that message with sledge hammer-like efficiency starting with the second paragraph of the introduction which states: "I am The Guy Next Door, just one of the silent majority that has sat back too long and allowed our current and past leaders in Washington to lead our nation down a road of disgrace." He goes on to define these leaders as puppet-on-a-string politicians under control of the Democratic and Republican parties, as well as various sects within each party. That's just for starters. "My goal," he says, "is to awaken U.S. citizens to the poor performance of our misguided leaders, who are both elected and appointed to the top positions in the U.S. government."

When it comes to blame for the current state of affairs in our society, McGowan plays no favorites, particularly within the federal government. In an analytical fashion, he analyzes the performance of the Executive, Legislative and Judicial branches, describing how they function, who the main players are, and the mistakes they have made due to mismanagement, greed, or in many cases, heavy handed applications of enlightened self interest. As a retired military officer and Vietnam War veteran, I was particularly interested in his analysis of the Defense Department and the performance of Secretaries of Defense McNamara and Rumsfeld during their respective tenures; and I have to admit I found little to disagree with in his analysis. I should mention that I had forgotten what Ho Chi Minh said about war with the U.S. namely: "It would be like a clash between a tiger and an elephant in open battle. The elephant would crush the tiger. Yet if the tiger every once in a while crept out of the jungle to tear chunks out of the elephant's hide, the elephant would slowly bleed to death." That's pretty much the way it was as I remember it.

U.S. Citizens Wake Up & Be Afraid is not likely to be a topic of discussion among prominent think tanks in Washington anytime soon. McGowan himself admits he has no credentials in the political science arena, his writing is sometimes rambling , always emotional, and definitely in need of proof reading. But does all that matter if his message gets through? I think not. In my mind, McGowan writes like a man who has an urgent message to deliver, with no time for niceties. Think Paul Revere with a word processor instead of a horse. And for what it is worth, I ended up agreeing with most everything he said.

I finished U.S. Citizens Wake Up & Be Afraid on the Fourth of July, a time for reflection for all patriotic Americans. When I read the last page I felt like rushing to the window and, like the character in the movie "Network", shouting, "I'm mad as hell, and I'm not going to take this anymore." Unfortunately, I was in Europe at the time and this act of patriotic defiance would have gained me nothing but a ride to the local police station for disturbing the peace.

U.S. Citizens Wake Up & Be Afraid represents the First Amendment at its finest, written by a man who sincerely loves his country and is trying his best to sound an alarm. I recommend you read the book and see if it makes you mad as hell!

Ron Standerfer is a freelance writer and photographer who is a frequent contributor to Ezine Articles as well as numerous other online news sites. His latest novel, The Eagle's Last Flight chronicles the life of an Air Force fighter pilot during the Cold War and Vietnam years. Details of his book can be found athttp://www.theeagleslastflight.com Article Source: http://EzineArticles.com/?expert=Ronald_Standerfer http://www.pippoproducts.com/products

Milton Friedman on Economic Freedom

Freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself.... Economic freedom is also an indispensable means toward the achievement of political freedom. -- Milton Friedman from Capitalism and Freedom: Fortieth Anniversary Edition [1962], ch.1 also from Bartlett's Familiar Quotations

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Are We in the End Time?

I have this sickening feeling in my gut, a feeling that something horrible is going to happen soon. Could it be because, all I am getting is bad news?

• All the prognostications of cataclysmic world events surrounding the alignment of the earth, the sun and the solar system with the center of the universe in the year 2012 make me very uneasy especially since the news of disease, earthquakes, tsunamis, hurricanes, twisters and fires abound.
• Our economic world is falling apart. There are predictions of depression in this country beginning on or about the year 2012, as suggested by population studies. Currently the unemployment rate is nearing 10% in the United States and our nation's debt is the largest in recorded history.
• Our current Congress's greatest expertise is in spending our hard earned money and the Federal Reserve is printing money faster than I can run the 100 meters and in greater quantities than are imaginable by mankind.
• Mahmoud Ahmadinejad in Iran wants to make us all Muslim, and threatens to annihilate us with a nuclear holocaust, lest we comply. The estimated, time of his nuclear weapons arrival is 18 months.
• The Taliban, al-Qaeda and a many other Muslim extremist groups with unpronounceable names want to wipe us off the face of the earth and don't mind killing themselves in the process.
• The asteroid 2004 MN4 threaten man's extinction in the year 2036 for those of us that make it past the 2012 mark.

And what is our government's top priority? Yes you guessed it, healthcare. (Do you have a headache yet?) No?Good, because there is more bad news. Now is it just me, or has this country lost is sense of priority? If there are cataclysms in the offing would it not be best to prepare in some way for it? It seems to me that fixing our health care system would at least come second to survival. Or is it that all the earth quakes, volcanoes, hurricanes, twisters and tsunamis don't matter because we can't do anything about them anyway. In a period when so much havoc is anticipated we should be conserving instead of spending. We should be preparing for the worst and hoping for the best. Instead we are seeing our wealth depleted, and our security compromised. Folks, whether or not this is Armageddon coming only a fool would not prepare for it. My suggestion is to prepare yourself and your family for survival, as best you can and if you can do nothing else, prepare your soul for judgment. Do not expect any help from the authorities. Many will die and many will suffer. "There will be weeping and gnashing of teeth"

Pray to God that we are spared.

Without an understanding of political, economic and social principles we are inadequate employers unable to discern the proper qualifications for leadership and doomed to lead the ship of state on a course to destruction. Ignorance is our greatest enemy. I encourage you to take a few minutes out of your day to learn more about your countries history and politics. http://www.PippoProducts.com is here to help you discover where we were and where we are going as a country and as a people. Article Source: http://EzineArticles.com/?expert=Joseph_Conigliaro

Book Review - Current Events, Conservative Future, by G A Freiman

Fighting Fear with Knowledge and Vision

Today Americans are faced with unknowns, the uncertainty of the economy, the threat of terrorist attacks, and a concern for our nation's leadership and respect around the world. In his book "Current Events, Conservative Outcomes" G. A. Freiman talks about, and analyzes these fears in light of current events with predictions for America's future. He uses information he has received in the form of a visionary process, meditation and reflection, as well as through life experiences and his own educational opportunities.

Freiman has an innate passion and love for America. This is reflected in his writing. His writing is deeply spiritual, expressive, and logical. Freiman's sets out to help the reader form honest opinions on politics, religion, and social issues. He hypothesizes on political correctness, the threat of terrorism, the impact of global warming, poverty, abortion, and euthanasia with clarity, perception and forthrightness.

I found the questions that accompanied each issue thought provoking, meaningful, and practical. The reader was also shown action steps could take to have an impact on the future, in personal areas, the political arena, or on social issues. Freiman's predictions on American culture provide important insight and are worthy of consideration even for the skeptic of physic phenomena.

Although the book's title may limit its audience, this is a book for liberal and conservative a like. It is a call for positive participation and a dedication to create a better future for our children and for those generations still to come.

Frieman's approach draws the reader into a personal assessment of their faith. He helps them take a fresh look at the meaning of life, at root causes, into global thinking. He invites the reader to consider their relationship with God, His creation, and with all of humanity. "Current Events, Conservative Outcomes" is highly perceptive, entertaining, and thought provoking.

Xulon Press

978-1604775990

As reviewed for Midwest Book Review.

Richard R. Blake, Christian Education Consultant, Book Store Owner Article Source: http://EzineArticles.com/?expert=Richard_R_Blake http://www.pippoproducts.com

32 GOP Bills on the Wall

In the event that the imminent failure of Democrats' socialized medicine bill leads them to some soul-searching-perhaps listening to what their constituents have been telling them all summer or taking GOP advice to start from scratch - it's worth noting that Republicans in the House have introduced 32 health care reform bills since the spring, all stuck at the referral stage.

Many of these lonely bills deal with just one or several aspects of health care reform, rather than presenting grand, sweeping Ten-Year Plans that will change Health Care as we know it. Not all the bills are knockouts; a couple are downright stinkers. But virtually all contain some good ideas, and some of them contain nothing but good ideas-which means that no Democrat will ever for a moment consider any of them.

For those desiring ammunition to counterattack the liberal charge that conservatives criticize everything they hear from Democrats but have no ideas of their own, here's a primer on the legislation prepared by our devoted GOP servants in the House:

• Several bills are flat-out winners: Clifford Stearns' Health Care Tax Deduction Act, Michele Bachmann's Health Care Freedom of Choice Act, and Rodney Alexander's Sunset of Life Protection Act. These laws provide for income tax deductions of health insurance premiums and prescription drugs; medical expenses; and long-term care premiums, respectively. All three bills are so short they could fit onto a cocktail napkin together and still have room for a list of Obama's failed Cabinet nominations. This is not surprising: bills covering what individuals are allowed to do require less verbiage than bills mandating what individuals are required to do for the government.

• Marsha Blackburn's Health Care Choices for Seniors Act and Louis Gohmert's Patient-Controlled Healthcare Protection Act allow seniors to opt out of Medicare and receive vouchers for health savings accounts, an arrangement analogous to school vouchers (another excellent idea liberals oppose). Edward Royce's Flexible Health Savings Act allows individuals to carry over unused health savings account funds from year to year.

• John Shadegg's Health Care Choice Act eliminates restrictions on interstate governing of health insurance, the primary cause of the limited within-state competition among private insurance plans that President Obama keeps bleating about.

• Two bills-John Gingrey's HEALTH Act and Michael Burgess' Medical Justice Act-enact malpractice tort reform by regulating lawsuits for health care injuries or deaths. William Thornberry's Medical Liability Procedural Reform Act sets up state "health care tribunals" or medical courts to adjudicate claims.

• Several unobjectionable but minor bills extend benefits for veterans, reserve members, and their dependents.

• A few bills would amend the State Children's Health Insurance Program to make it more accountable; however, these bills give the costly, bloated SCHIP so much legitimacy that I'm suspicious of their authors' credibility.

• Other bills have good intentions but will lead to more bureaucracy and regulation than they aim to prevent; for example, Thornberry's Health Care Paperwork Reduction and Fraud Prevention Act, which proposes a "Commission on Health Care Billing Codes and Forms Simplification" to standardize billing paperwork. No doubt the government will first need to establish a separate commission just to simplify the Commission's name.

• Thornberry has proposed two more bad bills (why do public officials who want to steal our liberty always invent so many devious ways to do it?). One is the Partnership to Improve Seniors' Access to Medicare Act, which subsidizes student loan repayment for doctors who accept Medicare payments; not specified in the bill is how much of our bountiful federal surplus will be used to cover this provision. Another is the Patient Fairness and Indigent Care Promotion Act, which allows doctors to deduct for tax purposes unrecouped costs from "patient bad debt"-because nothing increases accountability like providing incentives for doctors not to check beforehand whether patients can pay their bills!

Other GOP bills contain other provisions, and many of the bills are a mixed bag; but the point is that they're all better than HR 3200, which is putrid right down to its last period. Considering even a few key GOP bills over the next couple of years would be a sound way to address individual components of health care reform, in a piecemeal fashion, rather than upending our economy right now because Democrats insist on artificial deadlines to maximize their political gain.

In the meantime, the proper response to any liberal who claims conservatives have no ideas of their own on health care reform should be a resounding, "You lie!"

http://www.scottspiegel.com Article Source: http://EzineArticles.com/?expert=Scott_Spiegel http://www.pippoproducts.com/products