CBO Doom & Gloom
Research for Online Investors

01/31/12

The Congressional Budget Office (CBO) estimates real GDP growth this year at 2% and the deficit will top $1.1 trillion.  This represents 7% of the U.S. GDP.  The CBO expects unemployment to stay above eight percent for the remainder of this year AND all of next year.

The report was released this morning; you can read it here.  The CBO notes this year’s deficit to GDP is higher than any recorded between the end of WWII and the beginning of President Obama’s administration in 2008.  It is lower than the debt to GDP ratio’s for the first three years of his presidency, which topped out in 2010 at almost 9%.

They project deficits will “decline markedly” in the future IF all of the Bush-era tax cuts to the wealthy and middle class expire this year as scheduled.  These “Bush Tax Cuts” were extended in December 2010 to aid the economy’s recovery.  The CBO expects GDP growth to slow to 1.1% beginning next year if the “Bush Tax Cuts” expire because of the higher tax load and reductions in government spending due to budget limits agreed to last August.

The CBO predicts the unemployment rate “will gradually decline to around 7% by the end of 2015, before dropping to near 5.5% by the end of 2017.  The authors admit the limitations of extended economic predictions with “Many developments could produce economic outcomes that differ from CBO’s forecast.”

CBO numbers are used to account for the impact of present laws.  Their predictions, or forecasts, of future economic growth are taken from available official sources then budget predictions are made under existing legislation.

Venezuela received their last shipment of gold bars on Monday.  We reported the news last fall that Presidente Hugo Chavez was repatriating 160 tons of gold from London, U.S. and Canadian banks.  The president of Venezuela’s Central Bank, Nelson Merentes, was at the airport to meet the last plane with 14 tons of gold bars.  Merentes said, “Venezuela’s gold is now in the hands of Venezuelans, secured by Venezuelans and at the service of all Venezuelans.”  Chavez also moved to nationalize the country’s gold miners when he announced the repatriation.

Repatriating the country’s gold was done to get the gold (money) out of reach of other governments and companies that won judgments against the regime in International Courts for restitution for seized assets.  Moving the gold to Venezuela also removes it from inventory that can be borrowed to make deliveries on “short” contracts.

One of the ways gold and silver owners (central banks) make money on their stash is to “rent” it to dealers and exchanges that must make delivery on maturing contracts.  The precious metals are rented so delivery can be made then replaced thirty days later, or whatever term is agreed to.  There has been much speculation about large short positions held by some of the biggest banks (JPM) in the silver market.

Venezuela just removed 160 tons of gold from the available inventory to cover deliveries.  Gold and Silver took a dip this morning to allow good entry points.  We bought more.  The equity market looks like it wants to charge higher.  The tech sector has been on fire with AAPL setting new all time highs this morning.

We have become used to the NASDAQ leading the markets recently with some days actually split when it would record a gain while the Dow and S&P would record a loss.  An even stranger divergence has occurred the last few days as the Russell 2000 small cap index (IWM etf) has been recording gains while the other markets are consolidating or trading lower.

As fearful as we are of “headline” risk, this market acts like it wants to go higher.

Quote:
When we ground out our cigarettes in the hallway carpet or set our stereos so load that the walls began to shake, we were resisting bourgeois society’s stifling conventions.---B.H. Obama in Dreams of My Father

Editor’s note:  I wonder how he treats the White House...or Air Force One?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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