Now Get Ready for an Epic Budget Fight in Washington!
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|Crude Oil||+$1.57 to $49.81|
Epic. An amazing fight from start to finish, with more momentum swings, can’t-miss plays, and unbelievable heroics and blunders than I can remember in years!
That’s how I’d describe Sunday’s Super Bowl. I know my heart skipped more than a few beats, even as the end result — a 28-24 Patriots victory — was exactly what I hoped for thanks to a crazy goal-line interception!
No celebratory duck boat parade for the advertisers, though, as I wasn’t impressed with the quality of the commercials. But I think Katy Perry nailed the halftime show, so kudos to the people who put that one together.
But while the NFL’s knock down, drag out, Super Bowl fight is over, the budget battle in Washington is just getting underway! President Obama submitted his $4 trillion budget proposal today, one that highlights his focus on “middle class economics.” It’s packed chock full of ambitious ideas and goodies for his political base, including …
|Obama wants to spend $3.99 trillion. But he’s projecting only $3.53 trillion in tax revenue, meaning another deficit.|
A massive proposal to spend $478 billion upgrading the nation’s infrastructure — including roads, railroads, and ports …
A new 14 percent tax on hundreds of billions of dollars worth of money that corporations have stockpiled overseas …
The abandonment of the “sequestration” budget cuts adopted as a result of the 2011 debt ceiling debacle …
A cut in the corporate income tax to 28 percent from 35 percent, as well as a 6 percent increase in R&S spending …
A 1.3 percent raise for federal employees, up from last year’s 1 percent rise …
A larger child tax credit – $3,000 per kid — and a $500 tax credit for “second earners” that would apply to working families …
And a free two-year ride at community colleges for students who qualify. The program would cost $60 billion over the next decade.
All told, Obama wants to spend $3.99 trillion — and he’s projecting only $3.53 trillion in tax revenue. So we’re talking about yet another deficit — $474 billion — if Congress were to just rubberstamp his budget.
Now obviously that won’t happen. Congressional Republicans are much less willing to jettison budget discipline, and much more averse to Obama’s redistributionist policies. They may be willing to work with the President on infrastructure spending, but only if he gives more ground on corporate taxes.
|“We will have to watch closely to see which proposals survive the political gauntlet.”|
So now and in the weeks and months ahead, the focus will clearly shift from the gridiron to the marbled hallways in Washington. We will have to watch closely to see which proposals survive the political gauntlet, and to figure out what impact they’ll have on the bottom lines of the companies we invest in.
What thoughts do you have at this early stage? Could heavy equipment makers and companies that produce the raw materials used in bridge and road construction make a killing from Obama’s infrastructure plans?
What about biotechnology or tech firms — will they benefit from greater R&D investment? And how about boosting federal wages at a somewhat quicker pace — will that encourage private companies to start sharing the wealth with regular wage earners?
Make sure you throw your hat in the ring over at the website. You should have some free time considering football season is over, and Spring Training isn’t quite underway!
|Our Readers Speak|
What a crazy, topsy turvy, volatile experience, huh? And I’m not even talking about the Super Bowl! I’m talking about the markets on Friday … and the past several days, for that matter. So where are we going next?
Let’s start with oil, which surged late Friday by more than 8 percent! That was the single-biggest, one-day rise since mid-2012.
Reader E.T.O’L. talked about some of the geopolitical forces that come into play with black gold, and sounded a warning about future stability. His comments:
“It’s easy to dismiss OPEC with four letter words, but that conceals some geopolitical realignments that are profound and cut in a number of directions. It used to be that armies would move if oil supplies to the West were interrupted.
“What if these Mid-East nations found themselves so stressed in a sort of mirror image of what the situation was 50 years ago? I’m concerned about the political stability of a volatile part of the world. I think that we should take NOTHING for granted. The risks are enormous.”
As for what investors can do about it, Reader John said he’s looking for guidance. His questions: “What are your recommendations on playing the market for oil stocks? When can we expect a recommendation on what strategy you plan to employ to take advantage of low oil prices? Do you expect oil prices to remain at current levels or when might we see a change?”
I appreciate the questions, and the feedback. Frankly, I believe this could be the best buying opportunity in the energy sector in at least three decades, if not more! The current environment looks a lot like the environment in 1985-1986, when the Saudis crashed oil prices to fight off competition from other producers.
But after oil prices and oil stocks plunged, production dropped sharply, and weaker companies fell by the wayside, prices bottomed out. The surviving firms took off like rockets, with many doubling or tripling in price.
If you’re looking for specific investment ideas, you might want to check out my Safe Money Report newsletter. I’m starting to see some nice bottoming action in my favorite names there.
Meanwhile, Reader Steven weighed in on interest rates and how lower rates could help support growth in a key sector. His view: “One item those of us in the real estate biz keep an eye on is the 10-year note, which has been declining since Christmas and now is this side of 1 5/8.
“Interest rates on mortgages are tied to this, so I would look for an uptick in sales during the coming selling season as more will be able to qualify, even under the present criteria. Speaking of which, the new rules are working out rather well in preventing the excesses that caused the last meltdown.”
But Reader Matt was less sanguine on where the markets and economy are headed. His take:
“The markets have been good to everyone who has been in them since ’08 — ’09. But I just can’t help but think that the winners in the future will be the ones who hold on to the most of what they’ve got now. Caution and preserve capital … that’s my motto now.”
Thanks guys. Low rates are definitely making it easier to afford a mortgage … but it’s still a real pain to get a loan these days relative to a few years ago. So that’s why the housing industry isn’t doing as well as you might expect if all you knew was the average rate on a 30-year fixed.
As for stocks, we’re seeing the weakness that used to be confined to energy spread out into other sectors. Financials are one troubled group of stocks I’d highlight. Of course, we also can’t get the Russell 2000 to break out to a new high. It’s still trading around a level it first reached more than a year ago.
So what do you think about oil, rates, stocks, or anything else being discussed here? Let me know over at the website.
|Other Developments of the Day|
Looks like the holiday season wasn’t exactly what retailers were hoping for! Consumer spending dropped 0.3 percent in December, worse than the 0.2 percent decline that economists were expecting and the biggest drop since September 2009. One bright spot: Incomes rose 0.3 percent for the second month in a row.
You have to love big, bold market calls, right? That’s what former Shell Oil President John Hofmeister issued on oil. He thinks we’ll go from the mid-to-high-$40s now to $80 … by the fall! He notes that idling rigs, abandoning wells, and other steps will quickly erode the oil surplus that caused prices to fall in the first place.
Speaking of oil, the United Steelworkers Union launched a strike that impacted several U.S. refineries over the weekend. The USW wants bigger pay increases and improved health insurance. We haven’t seen a strike of this magnitude in the oil industry since 1980.
Chicago just got socked with a top-10-of-all-time snowstorm. The Northeast is getting walloped again with snow. And worst of all? Punxsutawney Phil saw his shadow, which means we’re in store for six more weeks of winter.
Better bundle up, grab a DVD of the classic Bill Murray movie Groundhog Day, and watch! While you’re at it, why don’t you also take a few moments to head over to the website and share your thoughts about these stories and more!
Until next time,