 The stimulus bill is now law, the auto makers will likely get more relief, and the Federal Reserve is flooding the system with dollars, help, and more promises. Now most of us are wondering what comes next. Concerns are still mounting about the solvency of banks. Many of our nation's leading economists like Alan Greenspan are calling for nationalization of the banks. Basically what this means is the shareholders are removed as owners and the government now becomes the owner which is funded with taxpayer dollars. Is this a good move? Well, I am not sure and neither is anyone else. What is obvious is the banks are in much worse shape than originally thought. Some experts believe that an additional $1 to $2 trillion (we have injected about $800 billion so far) will ultimately be needed to restore banks to health.
If this is so, then it is time to add gold to your holdings. I have been leading the drum beat of gold for several years but now people are starting to believe me. The price of gold has reached $1000 an ounce. Yes this is an all time high and yes, it is going higher! Why? Because dollar bills are losing value faster than banks and automakers!
Gold is not an investment. You read it right. Gold is not an investment. It is your savings account. It is protection from the erosion of the value of the dollar. It is a part of your cash reserves like your checking account, savings account, money market funds and CDs (certificates of deposit). Get out of your mind the idea that gold is an investment to be traded like stocks. Instead it should be a permanent part of your cash reserves. It is now time to diversify your cash reserves.
I offer several sources. I have been very happy buying from Howard at Calaveras Coin. His number is 209-736-2646. He works by phone and mail for those of you in other states. You can also buy gold on the Internet, www.kitco.com. I like numismatic (collector quality) coins too. You can buy these at www.davidhall.com. In the interest of full disclosure, please understand that we have no affiliation with any of these folks. We receive no commissions, no kickbacks, no favors, and no, no and no! The reason I recommend gold is to protect your wealth. Buy it and store it in your safe at home. Do not store it in the bank. In 1933, FDR called in all the gold and IRS agents confiscated gold from people's safe deposit boxes. Banks just aren't safe at all!
There is another crisis brewing. The cost of individual health insurance is skyrocketing. Now that more and more people are losing jobs, they are turning to COBRA when they are terminated. COBRA is a guaranteed plan that allows a worker to keep health insurance. The problem is the cost is prohibitive and many people are dropping it. The stimulus plan will subsidize some COBRA costs to help workers. The insurance companies are doing their part to keep workers in COBRA by raising rates on individual policies.
Those who drop COBRA and get individual coverage are in for a shock. If you currently have an individual policy, you too are in for the shock of your life. More and more people are shopping for policies. UnitedHealth reported sales up 24% in the past two months. eHealthInsurance, an online website says applications are up 18% in the fourth quarter compared with a year ago. To celebrate their good fortune, insurance companies are hoping to reap a windfall.
Anthem Blue Cross has notified about 80% of its 800,000 policy holders of rate increases. All will be double digits with some increases as high as 30%. The company insists that it is due to rising medical costs. On March 1, Regence Blue Cross Blue Shield of Oregon will ratchet up fees for Washington state customers by 27.1%. LifeWise, another Washington company has already raised rates this year by 17.6%. Aetna says that their policies nationwide are increasing from 8% to 22%. But Michigan, beaten, battered and gripped in foreclosures and auto closures will swallow hard when Blue Cross of Michigan sends a bill for an increase of a staggering 56%. They claim that they need to make up for losses because state rules make them the sole insurer required to take all applicants
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The bizarre thing about this "little downturn" is how everyone is responding. The California Legislature just passed their budget, finally. Their solution is to tax us all the death, beat dollars out of our wallets and proclaim victory in solving the budget deficit. They are raising our sales tax, our vehicle tax and adding an income tax surcharge on the wealthy. We did not know that anyone was wealthy anymore. Beverly Hills pawn shops are doing a booming business loaning money to the "wealthy" also known as the nouveau poore!
The trend is raising prices and taxes. President Obama is proposing to trim the budget deficit. He too wants to tax the wealthy. Since no economist believes in raising taxes in a recession, these things are dangerous. During the Depression of the 1930's, taxes were raised and the results were not good. More and more states are raising taxes including sales taxes, alcohol taxes (seems perverse to take advantage of people's misery), gasoline taxes and much, much more. While the Federal government is preaching more consumption, the states are responding by taxing consumption. Clearly there is a disconnect and the only logical outcome is chaos. Consumption is declining and consumers will respond to all of this by cutting back even more. A buyers strike is underway and state governments will help extend it for many more months and possibly years if the trend continues.
There are a few economic reports coming out this week. The impact of these on the financial markets is unknown. Markets seem to be driven by news and the crisis du jour rather than by economic data. For that reason I am not focusing on reports as much as before. Even still there could be some movement this week as the reports come out.
The biggest one will be the GDP (gross domestic product) report on Friday. As the leading indicator of the nation's health, experts think this will be -4.5%. January existing home sales are expected to be disturbing once more and there is still no end in site. New home sales will also be reported. With the supply of homes approaching one year of inventory, there really is not much need for developers to put up more tract housing. Finally, we have some consumer confidence numbers this week. Who knows? Are consumers getting over their fear and returning to their checkbook to stimulate the economy? Probably not and the consumer confidence numbers regardless of what they are will not accurately determine the direction of consumption. This number has been critical for our money management strategy over the past eighteen months but today is of less predictive value.
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