Tag Archives: government

End of the World?

Posted October 3, 2013 by admin. tags:Tags: , , , , , ,
Flying American Flag

It is no wonder that investors are concerned about the government shutdown.  Here is an excerpt from today’s press release from the U.S. Treasury Department.  Keep in mind the Treasury is supposed to report the facts and not play partisan political games.

In a Press Release posted on the U.S. Treasury website today they stated:

WASHINGTON – The U.S. Department of the Treasury released a report today on the potential macroeconomic effects of debt ceiling brinksmanship.  The report states that a default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse…..  This introduction was followed by two pages of extreme doom and gloom.

Really?  The word catastrophic was used twice in the press release.  “Could” was used repeatedly.  I have never seen anything this like this from the Treasury Office.  They usually deal
with facts and do not issue press releases based on what might happen if a worst case scenario unfolds.

The market was actually up the first day the shutdown went into effect.  Today, Day 3, it is surprising that the stock market did not drop harder with this type of hyperbole.

Economists are mixed on the outcome of the debt ceiling talks.  Because it is politics no one really knows how this will play out. We have watched our politicians play these games regularly over the last few years. Every time they create a lot of uncertainty and fear but in the end it all seems to work out. It reminds me of the story of “The Little Boy who Cried Wolf.”

In the real world, the markets have been doing well generally.  We are concerned that we have not seen a significant correction for some time. Also, we don’t like that investor sentiment is as positive as it is.  In a perfect world we would see a mild pull back followed by a rally into the end of the year. 

If we could see into the future that would be ideal.  In the mean time we will follow our models and systems and manage your portfolios accordingly.

Written by Dave Young, President and Founder of Paragon Wealth Management.

 

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Savers Beware

Posted July 8, 2011 by admin. tags:Tags: , , , ,
The Fed Building

 photo by cliff1066

Written by Nathan White, Paragon’s Chief Investment Officer
Taken from Paragon’s 2Qtr 2011 print newsletter  

Bond market yields are lower now than when the government was running a surplus a decade ago. Something is wrong with this picture. If you didn’t know otherwise, the low yields might lead you to believe that our national debt is low and sustainable. Further, just looking at the current yields,  you might think that our future budgetary concerns have been resolved due to significant entitlement reform.

THE FEDERAL RESERVE’S INVOLVEMENT

If real reform has not happened, then why hasn’t the bond market called the government’s bluff and reacted negatively to the prospect of future insolvency?

Part of the answer is in the question – future. Currently, everything is working. There is no crisis, and so he market is behaving as such. The government has a habit of only dealing with problems when they become crises. On the other hand, maybe the reason the bond market has not signaled caution is because a rather large participant (and that’s putting it mildly), namely the Federal Reserve, has been buying pretty much all of the debt. A government entity is buying government debt thereby expanding its already massive balance sheet.

I don’t care how you spin it, but something is not right with that picture. 

The Federal Reserve’s second round of quantitative easing ended in June. Ironnically, the ramifications of the program ending, along with a slowdown in economic growth, continued Eurozone soverign debt worries, and the U.S. debt ceiling fight, have caused people to flock to the safety of Treasuries sending yields back down to historic lows.

The Fed plans to continue maintaining its balance sheet by reinvesting principal and interest in an attempt to provide support for the anemic recovery. At this point, all further actions by the Fed produce lower marginal gains for the risks taken. The Fed is in no hurry to reduce its massive balance sheet, and it looks like it will not raise rates until well into 2012 and possibly 2013. I don’t believe the Fed will act until unemployment is significantly lower.

What will they do if the market forces them to act?

The real test of the Fed comes when they need to tighten monetary policy, but the economic and political climate are placing heavy pressure against such a move.

Volcker faced this climate in the late 70’s and early 80’s when inflation was soaring, and he had the guts to make the right move. This caused short-term pain, but long-term prosperity. Will the current Fed do the same when its time comes?

Who will fill the void now that the biggest buyer of new government debt is gone? Will foreigners continue to step up to the plate along with banks and the public? If market participants start to perceive that the U.S. obligations are nearing the tipping point, you will see rates rising ahead of Fed action.

If and when this unfolds is difficult to assess. It could be in a month, a year, five or 20 years from now. 

To be continued next week…

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.  

Unusually Uncertain?

Posted July 22, 2010 by admin. tags:Tags: , , , ,
Protest Sign

 Photo By Shutterstock

Written by Dave Young, President of Paragon Wealth Management

Yesterday, Federal Reserve Board Chairman Ben Bernanke said that the outlook for the economy is “unusually uncertain”.

He stressed that the economy was growing at a moderate pace. He mentioned that employment and consumer retirement sentiment were weak.

When he said, “unusually uncertain” the market sold off. What a surprise.

So why is this recovery “unusually uncertain”? What is unusual about it?

I’ve been through a few economic cycles and have never heard the fed chairman use those words.

I don’t know what he was thinking, but I’ll take a guess. After an economic slowdown/meltdown “usually” the economy goes through a normal cycle of recovery. He said this one is “unusually uncertain” indicating it is not “normal”.

What is “unusual” this time?

I believe it is the impact that politics is having on our economy and the markets. Usually politics do not have that big of an effect on the economy. This time is different.

Is it unusual for government to completely overhaul the private sector health care system, which makes up around 17 percent of our economy? Is it even more unusual to do it during such difficult economic times? Maybe it’s unusual to do it when surveys show that most Americans oppose it.

Or maybe it’s embarking on a complete overhaul of the financial system? Maybe it’s that the financial overhaul is based on the theories of senators like Chris Dodd and Barney Frank that have no “real world” financial experience and therefore those living in the “real world” have no confidence in them. Maybe it is because congress passes these monster bills (2500+) pages on a purely partisan basis without reading them.

Why as he said, is unemployment high and why are consumers scared?

If you are a business that needs to make a profit, (unlike a government agency), there are costs and risks involved in hiring new employees. Maybe you aren’t sure how much the new health care regulations are going to cost your company. Possibly you aren’t sure how much of your money you will still have left to pay a new employee with after the upcoming new tax proposals are implemented. Now that unemployment costs go on for 99 weeks, maybe you don’t want to accept that unknown liability you have if you need to lay someone off in the future. Or maybe it’s simply because as a business owner you have a target on your back that says “Need Money? Tax Me!” and you don’t feel comfortable with that.

Why would you hire a new employee?

Why would you take the risk? You wouldn’t. And most employers aren’t. They are making things work with the employees they have. The government tells us every day they are saving us, but they are actually having the opposite effect. They have created incredible uncertainty. That uncertainty translates into high unemployment and low consumer confidence.

Not to worry.

Today congress cleared the way to spend another $33,000,000,000 (that’s billion) of our grandchildren’s money, and extend unemployment benefits once again. This administration seems to be taking the law on unintended consequences to a whole new level. Maybe higher tax rates and permanent government expansion are not the solution after all.

Maybe we’ll have a chance in the voting booth to start repairing this mess in November. Time will tell. 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

No More Doom and Gloom?

Posted August 20, 2009 by admin. tags:Tags: , , ,
United States Capitol Building

Written by Nathan White, Chief Investment Officer at Paragon Wealth Management


photo by cliff 1066

Lately I’ve spoken to many investors who said they cannot see the markets moving any higher from the current level. They are so shell-shocked by the bear market that they are downright gloomy about our economic situation and don’t think it could actually improve.

Add to that a government that is putting on programs and regulations so fast that our collective heads are spinning, and it’s enough to give even the most ardent optimist some legitimate pause. The future ramifications of all these actions are creating a lot of justifiable concern for the future.

At Paragon Wealth Management, we are monitoring the potential risks and analyzing what the impact on the markets could be in order to give us a game plan if certain situations, such as inflation, should unfold.

In the past I’ve spoken about the recency effect, which is the tendency for people to extrapolate current conditions into the future. It is admittedly hard to have foresight when current conditions are bleak. I believe this behavioral phenomenon is a main reason why many are skeptical of a market advance.

How can we have a clear head and look through the current situation to see what is ahead? How can we prevent current events from unduly clouding our judgment about what the future holds? When it comes to discerning the effects of current government actions I think it is helpful to separate what the impacts are in terms of time.

THE EFFECT OF THE GOVERNMENT

Stimulus Package:
Short-term Effect- Expenditures boost GDP in the near-term and possibly aid/magnify economic rebound.
Cost/future Effect- Drag on future growth as borrowing must be paid off. Lower future GDP growth.

Fed Quantitative Easing
Short-Term Effect- Floods market with liquidity and low interest rates, which help to spur economic activity.
Cost/future Effect- Inflation. Higher interest rates.

Health Care Reform
Short-Term Effect- Cheaper health care provides more discretionary income possibly boosting GDP.
Cost/future Effect- Higher taxes to pay for growing entitlement results in lower GDP growth. Quality issues.

Cap-and-Trade
Short-Term Effect- No immediate negative effect as initials credits given away for “free”.
Cost/future Effect- Higher taxes. If new energy sources unreliable/inefficient and more expensive then GDP growth could suffer. Serious fraud abuse.

Regardless of whether you agree with the government or not, these actions will provide benefits in the short run that must be paid back in the long run.

I don’t think it is a stretch to say that most politicians don’t care about the long run. They almost always focus on providing the goods right now, and that is how they get elected. Government can only spend money by borrowing, taxing, or printing money. Too much of any one of these impedes economic activity. The first two are not inflationary while the latter is the essence of what inflation is.

CONSEQUENCES OF DEBT

There is nothing wrong with borrowing money — as long as you can afford the payments. The mistake that is usually made is that many assume they can make the payments and fail to account for future possible hardships. The other common mistake is that we often keep piling on the debt until we can’t service it anymore.

Government actions are no different. The more it “spends” now the more it has to pay back in the future. Where the breaking points is a matter of great debate. One thing for sure is that future GDP growth will be lower because of the obligations we are taking on now. There is no way around it. Notice that I said GDP growth will be slower, but not that GDP won’t grow. This is where many pessimists miss the boat. They naturally assume the worst from all of the government actions and take the worst case scenario.

For example, all of the monetary easing actions by the Fed have been unprecedented. These actions have the potential to create serious inflation down the road with some suggesting that we could be in for hyperinflation akin to what Germany experienced in the 1920’s (we all know what that led to).

The pessimists assume that this situation is inevitable and there is nothing the Fed can do to stop it. But what if the Fed’s actions can stop inflation or at least mitigate the negative effects from it. Shouldn’t this be considered? When and how any versions of this scenario unfold are too hard to predict. My point is that it doesn’t have to end in disaster!

GOVERNMENT ACTIONS

Now back to the immediate effect of the government actions. However inefficient, the net effect of these actions will be to boost economic activity in the short run.

So how long is the short run? No one knows, but I would say at least one to two years. We have also said that despite all of the confusing government actions, the economy will turn on its own accord because America is a dynamic place, and the natural state of the economy is to grow. People want to improve their economic situations. We might have 10% unemployment, but we still have 90% employment! Imagine what could happen if the economy is turning around right now and then that is coupled with the fiscal stimulus from the government. You could have GDP growth sooner than most expect! That means the stock market could be poised to continue the significant rally off of the March 9th lows.

The scenario that seems the most likely to me is that the economy will snap-back over the next year or so and then plateau with slower growth after hitting the headwinds previously discussed. Right now our economic models are confirming this scenario.

PARAGON’S APPROACH

This doesn’t mean I think the market will go straight up or that I am a “perma-bull” and oblivious to the risk that exist. Market and economic factors are constantly changing. At Paragon Wealth Management, we believe in taking a flexible approach to the market. Right now all of our economic, valuation, momentum and sentiment models are telling us to stay in the market. Until they change we will stay allocated to those areas we feel have the best potential.

Paragon Wealth Management
is a provider of managed portfolios for individuals and institutions.
Although the information included in this report has been obtained from
sources Paragon believes to be reliable, we do not guarantee its
accuracy.  All opinions and estimates included in this report
constitute the judgment as of the dates indicated and are subject to
change without notice.  This report is for informational purposes only
and is not intended as an offer or solicitation with respect to the
purchase or sale of any security.  Past performance is not a guarantee
of future results.   

Government Actions to end the Banking Crisis

Posted March 20, 2009 by admin. tags:Tags: , ,

We thought you would enjoy this short 2 1/2 minute video from Forbes.com. If you can't see the video, visit this link http://video.forbes.com/fvn/talkback/rk_vlog031709.

Feel free to leave comments.

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Are you worried about the stock market and economy? Listen to our free webinars online or at our office.

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R.S.V.P.
Shannon Golladay
801-375-2500
shannon at paragonwealth.com

Investment Strategy Update

Posted February 25, 2009 by admin. tags:Tags: , , , ,
The Catastrophe So Far

Written by Nathan White, CFA

Much of our quantitative work indicates that the stock market is setting itself up for an intermediate term rally that would start to develop over the next few months.

This rally could propel the S&P 500 into the 950-1000 range.

Negative sentiment is running wild with nearly everyone giving into the bear. Emotions are running high. This is a contrarian sign.

One catalyst to begin a rally is to get the White House and Congress to stop giving daily speeches and TV appearances!

It is flat out amazing to see the markets sell off every time the President speaks. The recent sell-off in the markets has been caused by all of the uncertainty created by the government.

NO one knows what the rules of the game will be or what to expect and so the markets continue to pull back. The markets are pushing the government to act and create some sort of credible end game to the financial/credit mess. Government inaction is causing the markets to price in all bad scenarios with the banks.

In light of the current choppy conditions, our Top Flight Portfolio still holds some defensive sectors such as Conservative Staples and Health care.

We have steadily been moving the portfolio towards those areas that would do best in a broad market rally such as Technology, Materials and some emerging markets. If a bull trend develops we will increase our allocation to these areas. If the bear trend resumes, we will take off the more aggressive portions of the portfolio.

Stay tuned…

Paragon Wealth Management Webinar/Seminar Schedule
Are you worried about the stock market and economy? Listen to our free webinars online or at our office.

Tuesday, March 3 (6:00-7:00 p.m. MST)
Thursday, March 19 (12:30-1:30 p.m. MST)
Wednesday, April 8 (6:00-7:00 p.m. MST)
Thursday, April 23 (12:30-1:30 p.m. MST)

R.S.V.P.
Shannon Golladay
801-375-2500
shannon at paragonwealth.com

Are the Clouds About to Break?

Posted October 8, 2008 by admin. tags:Tags: , ,
Sunset over a lake

Written by Nathan White, CFA


photo by Per Ola Wiberg

Central banks across the globe took an unprecedented step today in lowering interest rates in a coordinated move. The price of credit is amazingly cheap. The problem is no one can get it.

It takes time for the government actions to have a real effect on the economy and the liquidity situation.

Right now we are seeing the market price in all of the economic cost of the credit freeze up, and it is not a pretty sight.

The current sell-off indicates that many thought the positive ramifications from the government actions would lift the markets right away. The markets of course like to do the opposite of what the crowd intends and when no instant bounce materialized, everyone rushed for the exits.

Over the course of the next few weeks the government actions to unfreeze the credit markets will start to occur and then we will be able to see if they have any real effect.

Look for the effect it will have on banks willingness to lend to each other.

If credit can start flowing again and at the same time the cost of credit is significantly lower you could very well see market sentiment change very quickly.

Could this current sell-off just be shaking out the impatient people who thought that the “bail-out” bill would spark a large rally?

Once their done selling could the storm be over?

Feel free to leave comments.

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