Protests on the streets, talk of anarchy, economic strife…and that’s just in Wisconsin! The Middle East and North Africa are setting the tone for protests everywhere. Even the Greeks are back at it again with confrontations with police over austerity measures. The big story of the week is Libya and how long its dictator for life can hold out.
Could it happen here? The Libyans aren’t the only ones with guns – heck there’s a gun for every man, woman and child floating around the streets of the US and those are just the ones we know about.
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Am I right?
That’s why I’m sending you this urgent bulletin…
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Municipalities and States are approaching the day of reckoning when it comes to finances. All those juicy agreements that were bargained for in “good faith” are now on the verge of repeal. Public Service employees in Wisconsin are being asked to contribute a whopping 30% towards their healthcare costs…up from a mid boggling 8% today. America’s age of the “cushy pensions” for the private sector ended a couple of decades ago…now it’s time for them to end in the public sector and not a moment too soon in my opinion. It boils down to simple economics – there is not enough money coming in to pay out. Now if only the Federal Government was able to grasp such a concept.
Most state budgets are out of balance and there are really only three areas to cut. For the vast majority of states, more than 80% of tax revenues are spent educating, medicating or incarcerating residents. So even if there were deep cuts elsewhere, you’re talking about a pittance in comparison to what needs to be done. Take your pick on the three biggies – no one’s going to be happy with sick people on the streets, or criminal gangs wandering freely. Worse still, who wants uneducated louts wandering the streets causing chaos for the more fortunate of us? We are truly entering an age of tough choices and personal responsibility. The teenage years are over, America has to grow up and grow up quickly.
A New World Disorder
Events in the Middle East are frightening to put it mildly. If there was one region on Earth that didn’t need conflict it’s this one. Dictators are falling like dominos, well the weak ones anyway. But, now we are entering the playground of the more ruthless kind, the kind that will let loose its air forces and military personnel to kill its own people. Worse still, it’s the next dominos that have direct impact on our economic futures. Look at Libya, a minor oil producer, but also the first OPEC member country to come under fire. Oil prices have shot up by 15% almost overnight. I forewarned you this would happen recently. Gold prices have rocketed higher as well. Unlike past spikes, both these ones actually make some sense.
The impact on the US? Not good. The dollar isn’t getting stronger this time, but everything priced in dollars is. With oil over $100 per barrel, the first impacts to be seen will be gas prices topping $4 at your local pump – they’re already over $4 in California. That whole farce about not increasing taxes earlier this year…well so much for that. We are about to experience a 30% tax on anything related to oil. One look at the airline stocks and you can see the direct impact – most are down 20% in just a week.
And, if you thought we were immune from the events in the middle of nowhere, think again. Volatility has increased significantly in the stock market in the past few days and that doesn’t look to end anytime soon. All those profits made back in 2010 look precarious today. Be sure you have an exit strategy in place lest you are faced with doing an impression of a deer in the headlights when or if the real stuff hits the fan. As I mentioned last week, the Big Kahuna is still not on the radar for most people – Pakistan. It’s coming, mark my words.
Gold – well, what can I say? If there’s one recommendation that we’ve made to you over and over again, it’s that yellow metal. Back up over $1,400 per ounce, you are looking pretty smart if you bought the dip. Of course, the objective is not to trade gold, but to have some on hand as a portfolio hedge. Gold stocks are still cheap in relation to the move in the price of the metal. Many were calling for a correction, a nice move down of around 10%, which would have been healthy in a technical sense. Well, it’s not going to happen any time soon…you can bet your bottom dollars on that…if you’re still holding any.
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