Real Wealth #308 05/17/2012
The Growing Danger in Europe!
My staff is upset with this issue of Real Wealth. They argue “even if you’re telling our subscribers the truth, it’s a truth most of our subscribers don’t want to consider”.
They insist most Gold & Energy Advisor readers are conservative Republicans or leaning right independents who will argue every point made in this editorial. Maybe so, but my job is to make sure my subscribers make money, understand the economics ahead and are prepared for any changes in the financial market or world economy.
In fairness, I do have huge problems with Mitt Romney. I think he’s a terrible choice as the Republican standard bearer. For one thing ... I loathe the thought of anyone occupying the White House who thinks Dinosaurs roamed the earth only 6000 years ago and who rejects evolution for creationism. It’s a recipe that will serious impair math and science education in this country. It can only make it much harder for the United States to compete in the world’s markets during the coming decades.
I also object to framing same sex marriage as anything other than a civil rights issue. The separation of Church and State can never be compromised. It’s sacrosanct to the survival of our country. When it comes down to it – the argument against same sex marriage comes down to religious dogma. Still my biggest problem with Romney is his blind following what would be a reckless economic policy that would gut many important social safety nets, gut education, layoff hundreds of thousands of federal, state and local government workers while STILL requiring the Federal Debt ceiling to be raised by a whopping $5.1 Trillion dollars.
If Ronald Regan were President facing the current economic turmoil, he would be looking for both balanced waste cutting of social and military spending combined with enough tax increases to reduce the government’s debt. In effect a less “principled approach” and more reality based approach to the economic ills of our nation.
Dear Gold and Energy Subscriber,
Unless you’re living under a rock you’re already aware that oil has been falling in price the past few weeks as the financial markets have been reacting to the prospect of a European Debt crisis driving the region from recession to an all out depression.
The growing risk of an all out economic meltdown is driving investors to start hedging themselves against reduced demand expectations for crude oil world-wide. A European depression would no doubt crimp oil and energy demand substantially.
Given the raucous election results earlier this month, and the need for a new election in June (thanks to the failure of the Greek body politic to form a new government the danger of a financial crisis and European depression is growing. The risk of uncooperative Greek government rising from the country’s political left in June is very real. The risk to Europe and for that matter the world economy cannot be ignored.
Investors realize that a Greek default could result in a domino effect that would bring about the debt defaults in Spain and Italy which would in turn hammer the European economy into a depression.
Make no mistake about it; a European depression would be catastrophic for the world economy. It could very well trigger a massive deflationary spiral that in turn further aggravates the dangerous unemployment problem growing in Europe. Spain’s unemployment rate has skyrocketed to 24.4%; Portugal is experiencing a record 14% unemployment rate. In fact unemployment in the Euro zone rose to a 15-year high of 10.9% in the latest report.
The austerity measures forced by Germany have resulted in an electoral backlash in France, Greece and even in Germany’s recent local elections. The higher unemployment spikes in Euroland the greater the risk that recession in Europe and Great Britain will result in an economic depression.
A depression in Europe would result in a consumption and demand crisis that would result in oil dropping back to $75 even $65 a barrel.
U.S oil reserves have jumped for the eighth straight time last week, to the highest level since August 1990, according to data from the U.S. Energy Information Administration released earlier today.
Meanwhile there’s a growing risk of a U.S. Depression being triggered by the upcoming U.S. election that would drive oil prices to $45 even $35 a barrel.
Romney’s and the Republicans’ Economic Policy would Plunge the U.S Economy into a Depression
First, both my master and sub headlines above should not be interpreted as a politically charged hyperbole. They are not.
The fact is that as we are seeing in Europe, countries that dramatically cuts their government spending (instead of raising taxes to reduce deficits) find out very quickly that instead of reducing debt, their debt balloons as tax revenues drop and unemployment skyrockets.
Had we not forced spending cuts the past two years in Federal, State and local spending, the unemployment rate would be about 7.1% – a full point lower than it is today. More people working would have resulted in the accrual of less Federal Debt!
Consider the situation in Wisconsin, now 47th in job creation. They made the spending cuts the Republicans wanted to force through that resulted in massive government layoffs, while at the same time pushing through tax cuts to the states riches citizens and corporations. The net result, Wisconsin has the largest deficit of any state, under the so-called generally accepted accounting principles, or GAAP, system of budgeting. Wisconsin’s annual deficit under GAAP - which reflects the imbalance between future spending commitments and expected tax collections - is $2.1 billion.
I am convinced that should Romney and the Republicans win in November, there’s a serious danger of seeing unemployment climbing to 10% or greater –while at the same time seeing GNP falling 3% to 4% in the first 24 months following the November election. Consider the double dip recession now taking hold in England. Austerity measures are compounding the British Isle’s economic problems and not making them better. The lack of economic growth is reducing England’s tax revenue, increasing unemployment and aggravating the government’s debt problem.
Bottom line: My responsibly as the Editor and principal investment strategist for Gold & Energy Advisor is to make sure my investment recommendations via our Oil Stock Model Portfolio are profitable and that you as a subscriber are fully briefed as to the “investing picture” going forward.
It‘s therefore impossible for me to ignore the danger of the Republicans’ and their Presidential nominee’s stated economic policy.
The Republicans’ blind obsession with cutting only spending, while also cutting taxes for the wealthy further, and not increasing revenues is a recipe for an economic catastrophe.
The huge tax cuts passed under President Bush did not result in tackling the Federal Debt or curing unemployment. In fact the Federal Deficit was aggravated by these tax cuts and as a result the Federal Deficit swelled during and after the Bush Presidency as a result of its attempt to bring about prosperity via tax cuts – we lost over 8 million jobs!
As we approach the November election, I will be looking out for the increasing likelihood of a Republican victory and will start making recommendations with that eventuality in mind.
If I believe Romney is going to win I intend to shift my investment recommendations towards a strategy designed to take advantage of falling commodity prices, falling stock market and deflationary economic dislocation world-wide. We can survive and prosper if Romney is elected in November but we have to be realistic about the consequences of his election.
Finally, Speaker Boehner’s (R-Ohio) clearly threatened this past week to stand in the way of raising the debt ceiling unless President Obama and the Democrats agree to cutting spending equal to the $2.1 Trillion the deficit ceiling needs to be increased to pay our existing bills. Although Boehner denied that he was threatening default the next day, the video tape however clearly shows that’s exactly what he has threatened.
The last thing we need is another showdown in Washington over the debt ceiling. Another down grade of America’s credit rating would be devastating – and would risk triggering a staggering financial crisis and several years of worldwide economic misery.
I’m determined to be prepared regardless of the election results in November. If President Obama is re-elected I will recommend oil, energy, gold and rare coin investments that will benefit from a looser more accommodative economic growth scenario. Should Mitt Romney be elected I will be recommending investments geared to profiting from negative growth and economic misery.
Should a debt ceiling showdown occur again I will very aggressively recommend that you subscribe to the Gold & Energy Options Trader -- which took a 48% profit on a gold trade today on a recommendation made just a day earlier. The opportunity to rack up 100%, 200% even 500% on monies you commit to both short and long positions as America is held hostage by another fight over the debt ceiling would be too profitable to ignore.
Either way my Gold & Energy Advisor has one goal – to make you serious money. To date since our inception in March of 2005, our model portfolios have produced recommendations with an average of 29% per year.
James Di Georgia
Editor and Publisher
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