Could the Dow soar to 15,000 or higher over the next 12-18 months?
Let’s talk about this possibility because yes, it could happen! After all, the money supply has been more than doubled by the Fed. And the flood of newly printed greenbacks tends to pump up the nominal price of dollar-denominated stocks (even as more cash is needed to buy tangible things such as groceries, gasoline, clothes, gold, silver, lumber, etc.).
To give the Dow’s sugar-high gains even more momentum, President Obama stood before the new House Republican majority during last week’s State of the Union address and sweet talked anxious U.S. investors with visions of boosting corporate competitiveness against lower-tax countries, reining in medical lawsuits, freezing federal spending for five years, and launching of a review of overbearing regulation.
Sounds great, huh? That is, until you take a closer look.
Position Yourself to Benefit from Washington’s Lies
Unfortunately, those ever-hopeful stock promoters who dominate CNBC’s programming just aren’t going to take that closer look. Reality will do its talking only after the sun sets on this False Dawn of American Prosperity. Our country’s fiscal and monetary imbalances are too great.
But if the Federal Reserve pumps the Dow to 15,000 (Chairman Bernanke suggested in the Washington Post recently that rising stock prices was a new goal of the Fed), it will not translate into a true increase in prosperity in real terms. The Dow’s 11% nominal gain in 2010 was actually a 14% decline in terms of gold. Gold’s purchasing power against the Dow will continue to increase, as it has steadily done for over a decade.
Parking your money in real assets: That’s the key to strengthening your financial situation going forward.
Now, let me dismantle some of Washington’s “we are getting better” propaganda. It’s not what it seems…
Obama Cites Facebook Success in State of Union Speech, Inadvertently Illustrates Deep Structural Damage in U.S. Economy
Enter what I see as one of the most shocking moments in President Barack Obama’s State of the Union address: His seeming ignorance about how the economy works. He praised American innovation and specifically mentioned the Internet social-networking giant Facebook as a U.S. success story.
Yet the founders of Facebook and their financial handlers, Goldman Sachs, felt they had little choice but to bar U.S. citizens from investing in Facebook’s recent private placement due to regulatory hurdles and legal exposure. As a consequence, foreign investors now own as much as $1.5 billion of the company. U.S. investors will have to wait for an expected initial public offering (IPO) in 2012, at which time the price of Facebook shares will likely be much higher. Jonathan Macey, a member of the Hoover Institution Task Force on Property Rights, noted in The Wall Street Journal:
“Thanks to SEC regulation and the litigious atmosphere it fosters – not to mention Sarbanes-Oxley’s onerous burden on corporate executives – the whole capital formation process is moving offshore… the U.S. share of total equity raised in the world’s capital markets is shrinking, while the number of U.S. companies listing their shares for trading exclusively in foreign markets has risen steadily for the past five years.”
I have to wonder. Did President Obama knowingly mislead when he cited Facebook as a sign of American innovation – even as the federal government’s own regulatory authorities drove Facebook overseas along with millions of other jobs? Or are he and his teleprompter jockeys really that ignorant of the regulatory jihad they have unleashed against the creation of new industries and existing employers? Whatever the answer, it’s not helping the real economy get back on its feet.
Regulatory Reform Is an Empty Promise
Recently the White House buttered-up Wall Street with a new executive order ostensibly requiring federal regulators to apply a cost-benefit test to all new decrees they issue from Washington. The business community reacted positively to this sign of moderation from the White House. Unfortunately, however, there is more crap than crème in this “gesture” to the nation’s beleaguered employers:
Obama’s proviso is more than just a loophole for regulators. By making wealth redistribution a central plank of federal rule-making (“distributive impacts”), he has given the permanent bureaucracy far more latitude to stick it to the private sector.
Much Ballyhooed New Presidential Economic Advisor
Is a Top-Level Crony Capitalist
Many CNBC analysts are bursting with unjustified enthusiasm over the appointment of former General Electric CEO Jeff Immelt to chair the President’s Council on Jobs and Competitiveness. Yet Immelt, an award-winning CEO according to the likes of Fortune and Barron‘s, is the personification of taxpayer mooching and political cronyism. Consider:
Immelt’s 2009 letter to GE employees spoke openly of his crony relationship with Washington. As Immelt put it, “The intersection between GE’s interests and government action is clearer than ever.” The letter went on to praise the importance of junk science’s “climate change” policies and the full federal funding of the F-136 military jet engine (which the Pentagon does not want, but Congress does).
Immelt’s role as an Obama stooge is already paying off. Last week, the EPA issued its first exemption from its draconian new air-quality rules. At the center of the heretofore-stalled 600-megawatt power plant project in California: massive GE-made turbines and related technology.
So, I ask, is a new age of prosperity really coming to America?
In the real economy, grim news abounds. The Federal Reserve’s own skewed statistics now acknowledge that for the first time in 57 years, Americans have made a net negative withdrawal from savings and investment accounts. The cause of this squeeze? Rampant unemployment and hidden inflation, especially evident in rising food costs! Analyst John Williams of Shadow Government Statistics notes that if inflation was counted exactly the way it was during the inflation-ridden Carter Administration, annual cost-of-living increases would be in excess of 10%.
As for the President’s seemingly dramatic promise of a two-year freeze on salaries for some government workers and a five-year freeze on some domestic government programs, he was only referring to some portions of just the discretionary part of the federal budget – which means that well over 85% of government operations are totally off limits.
So there you have it. That’s a whole lot of smoke and mirrors sparking Wall Street’s jubilation over the White House’s new-found love of the private sector. Add in a heavy dose of inflation, and the Dow might well roar to 15,000 – barring one or more “black swan” events that I will outline for you in a coming bulletin.