The Economy, The Electoral Map & The United Nations

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
September 2, 2008

IN THIS ISSUE:

1.   The Economy Surges Above Expectations

2.   Stocks – Have We Seen The Bottom?

3.   The Electoral Map Remains Very Tight

4.   The Scary Democratic Party Platform!!

5.   Dems Endorse Expansion Of United Nations Power

Introduction

This week we hit a variety of topics.  First, we’ll look at the latest much stronger than expected economic numbers over the last couple of weeks.  I believe it is now safe to say that the US economy will avoid a recession in 2008.  But 2009 may be another story. Details to follow.

The Democratic National Convention came and went with a great deal of glitz, glamour and moving speeches, including the Clintons who surprised some political observers with rousing speeches for Barack Obama.  It appears that Obama got a modest “convention bounce” in the polls, and it remains to be seen if McCain and the Republicans can answer with their convention, especially in light of Hurricane Gustav.

Whether Senator McCain gets his convention bounce or not, at the end of the day it still comes down to the Electoral Map which continues to show that this is a very tight race that could go either way based on the outcomes in just a handful of key swing states.  I’ll break it down and pinpoint the key states you need to watch over the next couple of months.

Finally, the details of the Democratic Party Platform are coming to light.  While there are many things about the Dem’s platform that I disagree with, there are several new developments that ought to trouble all Americans.  First and foremost, the Democrats, and Obama in particular, want to strengthen the United Nations and commit more of our troops to UN-authorized military operations.

You need to know about this and several other very troubling intentions of the Democrats, especially if Obama wins in November. Cliff Kincaid of Accuracy In Media has chronicled the most troubling aspects of the Dem’s platform, and I reprint that eye-opening article near the end below.  Be sure to read it and pass it on.

The Economy Surges Above Expectations

The US economy surged in the 2Q, well above expectations, thereby dashing the notion that we’re now in a recession.  GDP rose a surprising 3.3% in the 2Q, up from just 1.9% in the advance estimate last month, and only 0.9% in the 1Q (details to follow).

The GDP surge in the 2Q was driven primarily by rising exports, consumer spending and government spending at all levels.  Personal consumption spending (PCE) rose an unexpected 1.7% in the 2Q, and was no doubt helped along by the tax rebate checks doled out by the Treasury.  Consumer spending accounts for apprx. 70% of GDP.  

Early estimates suggest that the economy is growing at a rate of 1.8%-2.0% in the 3Q, which is also above earlier expectations for zero to negative growth in the current quarter.  Several other economic reports of late look encouraging, but not all, as I will discuss below.

Given the much stronger than expected growth in the 2Q, and the strong likelihood that the 3Q will be positive as well, I think it’s reasonable to conclude that the US will avoid a recession in 2008.  How the economy holds up next year remains to be seen, but for now, the mainstream media, the Democrats and the gloom-and-doom crowd have been very wrong about the US economy.  What else is new?

Several other recent economic reports were also encouraging.  Consumer confidence finally rebounded strongly in August.  Following a very modest improvement in July, the Consumer Confidence Index jumped from 51.3 to 56.9 last month.  Obviously, the significant drop in oil and gasoline prices played a key role in boosting confidence.

On the manufacturing side, durable goods orders rose 1.3% in July for the second month in a row.  Industrial production rose modestly in both June and July.  Factory orders in June (latest data available) rose 1.7% following a gain of 0.9% in May.  The ISM manufacturing index bottomed out in the 1Q and has now risen back slightly above 50.

There was even a bit of good news in the housing sector.  New and existing home sales rose modestly in June.  But there was also plenty of bad news as well.  Housing starts and building permits continued to decline modestly in June.  The inventory of unsold homes rose to 4.67 million in July, an 11.2 month supply.  The median existing home sale price fell to $212,400, down 7.1% nationally from the same period last year.

The Index of Leading Economic Indicators (LEI) fell more than expected in July, down 0.7%.  The LEI has been down in two of the last three months, which suggests that economic growth will slow in the current quarter (consistent with the 3Q forecasts noted above) and perhaps even more in the final quarter of this year.  But as suggested above, I do not believe we will be in a recession by the end of this year.

Having said that, it will not surprise me if 4Q growth stalls to near zero or even dips slightly into negative territory.  But at this point, I think it is 2009 that we have to worry about.  The housing crunch will continue for all of 2009, and will the credit crunch most likely.  Some of my trusted sources believe that a recession is most likely to unfold in the first half of 2009.

Stocks – Have We Seen The Bottom?

Stocks historically go up in presidential election years, but not so this year, what with oil prices soaring to near $150 per barrel and gas prices spiking above $4.00 across the country.  As this is written, the S&P 500 and the Dow Jones indexes are down apprx. 13% for the year. 

Clients have asked if I think we saw the bottom in July when the Dow fell below 11,000 and the S&P 500 touched 1,200.  The answer is, I don’t know.  A big key will be whether oil and gas prices continue to fall this month with peak summer demand behind us.  If energy prices continue to fall, then the July low may hold, but that remains to be seen.

S&P 500 Chart 

On the other hand, it does appear that we are going to see the economy slow down even more over at least the next six to nine months.  If we are headed for a recession in the first half of 2009, this will be bad news for stocks, and I would expect the July lows to be taken out later this year.

What I do believe strongly is that stock market volatility will remain sky-high for the rest of this year and probably well into 2009.  Most investors are not well suited for this kind of volatility.  I’ve heard from people who bailed out of the stock market over the last couple of months, and are now wondering if they should get back in.

My advice is still the same, especially with this kind of volatility.  In my opinion, most investors would be well served to have a portion of their portfolio allocated to active money managers that have the flexibility to exit the market or hedge long positions as need be.  There are some professional money managers that flourish during periods of high market volatility.  See my June 10 E-Letter to see such an example.  (Past results are no guarantee of future results.)

The Electoral Map Remains Very Tight

It appears that Barack Obama got a modest bump up in the national polls following his Hollywood style convention last week.  It remains to be seen if John McCain will get a similar bounce later this week.  Most analysts have felt like he will, but the hurricane has definitely toned down the GOP convention.  So, maybe McCain gets a bounce, or maybe not.

Interestingly, McCain finally pulled to even or slightly above Obama in several of the national polls just as the Dem’s convention started.  Frankly, he’s doing better than I expected, and that is a good thing – especially when you read the article below regarding the Democratic Party Platform.  But as I have maintained all along, this presidential race is going to boil down to a handful of key states.  Here’s our latest analysis of the Electoral Map.

What a difference a month makes!  The electoral map is coming into focus. The Obama-Biden ticket is very strong in states totaling 259 electoral votes, while the McCain-Palin ticket is strong in states totaling 227 electoral votes.  That leaves 52 votes up for grabs.

Those 52 votes are Ohio (20), Virginia (13), Colorado (9), Nevada (5) and New Mexico (4).   McCain is currently running slightly ahead in Ohio and Nevada, while Obama is running well ahead in New Mexico and slightly ahead in Colorado, with Virginia evenly split.

McCain MUST win Ohio and Virginia, losing either will cost him the election.  Fortunately for McCain, that does not seem implausible, but you can be sure these states will be very hotly contested, with tens of millions spent in each coupled with numerous candidate appearances.

So, let’s assume McCain manages to win both Ohio and Virginia, which will not be easy by any means, but both states historically vote Republican.  If so, that brings him to 260 electoral votes, still 10 short of the 270 needed to win.  McCain must therefore win Colorado and either Nevada or New Mexico.

Since New Mexico’s wildly popular governor Bill Richardson is a big Obama backer, McCain will have to look to Nevada to put him over the top.  This is his best bet as Nevada has gone Republican the last two elections and is trending slightly toward McCain as this is written.

But then that assumes he wins Colorado which is not a safe assumption at all.  While CO went for Bush in 2004, it is currently a dead heat, and it’s a must win state for McCain.  McCain could be forced to spend so much time and money securing Ohio and Virginia that he simply can’t pour the resources needed into the Western states and Colorado in particular.

Keep in mind that McCain will likely have to take federal matching funds, while Obama has chosen to forego federal campaign funds.  McCain will be restricted to a maximum of $84 million in matching funds after the GOP convention, while Obama will have at least twice as much money as McCain to spend.

The Democrats are targeting Colorado, which is why the convention was in Denver, and the Obama campaign will spare no expense to secure the state as they see it as essential to victory, which it is.  Colorado is perhaps THE most important swing state to both candidates.  This looks to be one of the closest elections in history.

We will take another in depth look at the electoral map later this month and again in late October and make our final predictions on the outcome of the election then.

My Thoughts On The Sarah Palin Pick

My phone has been ringing off the hook with calls from friends and clients asking for my take on John McCain’s selection of Sarah Palin, Republican Governor of Alaska, as his running mate.  Here’s what I think happened.  When Obama passed over Hillary and took Joe Biden, this created an opening for McCain to select a woman in the hopes of courting Hillary’s supporters. 

Of the women candidates McCain was rumored to have considered, I think Senator McCain and his senior campaign aides decided that Sarah Palin was the one that could really catch on with voters.  No doubt the selection of Governor Palin was a huge gamble, especially given her limited experience.

Mrs. Palin definitely helps McCain solidify the conservative base, and if she can handle herself well in the next few weeks, she might just catch on with some Hillary supporters and some swing voters.  In that case, McCain’s gamble might just pay off.

As a football coach for many years, I know that sometimes you have to “throw deep” to stretch the defense.  Sarah Palin definitely qualifies as the long ball for McCain.  I’m warming up to the pick, as McCain had to do something bold to have a chance against Obama.  

The Scary Democratic Party Platform!!

I urge EVERY client and subscriber to this E-Letter to read the article that follows.  The mainstream media is NOT talking about these issues.  They don’t want you to know!

According to the latest Democratic Party Platform, they would have us make a huge commitment of additional taxpayer money and US military forces to the United Nations.  Obama and the Democrats would have American taxpayers spending additional billions to improve education worldwide via the U.N., while our own education system is in trouble.

Americans will be called upon to spend more on international abortion “services” and population control via the U.N.  Under Obama, the military would be expanded – including open and active homosexuals – to carry out these new U.N. missions.  There will also be new energy and emissions requirements on the US. 

Last but not least, if Obama wins the Democrats vow to bring back the so-called “Fairness Doctrine” (albeit under a different name), which is designed to reduce conservative talk radio and restrict the ownership of broadcast outlets.

So read what follows from Accuracy In Media very carefully and help get the word out! 

QUOTE:

Dems Endorse Expansion of U.N. Power

AIM Column  |  By Cliff Kincaid  |  August 21, 2008

Our media are running stories about the planks in the new 2008 Democratic Party platform but they’ve missed a big one―expansion of the power of the United Nations, and especially more U.S. involvement in U.N.-authorized military operations.

In another bow to the world organization, the platform indirectly endorses Senator Barack Obama’s controversial pro-U.N. Global Poverty Act. “It is time to make the U.N. Millennium Development Goals, which aim to cut extreme poverty in half by 2015, America’s goals as well,” the document says. It leaves out the estimated cost―$845 billion over 13 years.

This plank is listed under the “Invest in Our Common Humanity” title of the platform. The word “invest” is as deceptive as the legislation. It means to spend taxpayer dollars.

While it may seem strange that the platform would not endorse the legislation by name, this reflects awareness of how controversial the Global Poverty Act (S. 2433) and its federal commitment to the U.N.’s Millennium Development Goals have become. Increased foreign aid spending is not popular with the hard-pressed American taxpayer. So the one piece of legislation actually introduced by Senator Barack Obama (which passed the House and Senator Joseph Biden’s Foreign Relations committee by voice vote without hearings) is mentioned only indirectly.

A section titled, “Revitalize Global Institutions,” is more direct. It declares the need for “stronger international institutions” on “issues from weapons proliferation to climate change.” While admitting that the U.N. is in need of “reform,” the organization is said to be “indispensable” and the U.S. must rededicate itself “to the organization and its mission.” This inevitably means more money for the world body.

Even though the U.S. public school system is rotting from within because of unaccountability and incompetence, the platform calls for more spending on educational systems in other parts of the world. It urges a $2 billion Global Education Fund that will “bring the world together in eliminating the global education deficit with the goal of supporting a free, quality, basic education for every child in the world.”

On another international matter, the Democrats declare that “We will repeal the global gag rule and reinstate funding to the United Nations Population Fund (UNFPA).” This means that Americans will be called upon to spend more on international abortion “services” and population control. In this context, the platform urges support for “Health Infrastructure 2020,” which is described as “a global effort to work with developing countries to invest in the full range of infrastructure needed to improve and protect both American and global health.” No cost is put on this effort.

Similarly, we are not told about how much it will cost to launch the “collective action” needed to confront the “global challenge” of climate change. But we are told that it will require a “Global Energy Forum that will lay the foundation for the next generation of climate protocols.” It declares the need for a “global response to climate change that includes binding and enforceable commitments to reducing emissions…” This means more U.N. treaties impinging on our freedom and sovereignty.

It may surprise some “progressives” to learn that while Obama wants to withdraw U.S. forces from Iraq, he has no plan to reduce the size of the U.S. Armed Forces. Instead, “We support plans to increase the size of the Army by 65,000 troops and the Marines by 27,000 troops,” it says.

If these troops are not going to be in Iraq, where will they be going? "We believe we must also be willing to consider using military force in circumstances beyond self-defense in order to provide for the common security that underpins global stability―to support friends, participate in stability and reconstruction operations, or confront mass atrocities."

Phrases such as “beyond self-defense” and “common security” constitute an endorsement of the U.N. doctrine of the “Responsibility to Protect.” Since the platform declares that U.N. “peacekeeping” operations are “overextended,” this means U.S. forces will have to be redeployed from Iraq and other areas to address civil wars and problems in other countries that pose no direct security threat to the U.S.

Meanwhile, the platform says the U.S. Armed Forces under President Obama will be expanded to include open and active homosexuals, despite its obvious negative impact on morale and recruitment. If normal heterosexuals leave the Armed Forces as a result of this policy, Obama may be forced to reinstitute the military draft to create the bigger military he seeks. 

Thanks to conservative talk radio and other such outlets, the shocking facts about the Democratic Party platform will be provided to the American people. The conservative media have been a thorn in the side of the liberal establishment ever since President Reagan’s Federal Communications Commission (FCC) began the deregulation of the media and new voices started emerging.

But the Democrats, whose base of support is in the old media, which are losing viewers and readers, want more, not less, regulation.

“We will encourage diversity in the ownership of broadcast media, promote the development of new media outlets for expression of diverse viewpoints, and clarify the public interest obligations of broadcasters who occupy the nation’s spectrum,” the Democratic platform says.

While this may sound appealing, terms like “diversity” and “diverse viewpoints” are liberal code words for using the power of the federal government to muzzle conservative talk radio and turning over broadcast properties and airtime to “progressives.” This is the goal of George Soros-funded groups like the Free Press, which puts on an annual National Conference for Media Reform. As I reported in June, at this year’s event, the conference turned into an Obama for president rally.

Translated into ordinary language, the term “we” in the context of the Democratic platform plank on the media means more federal government interference.

As explained by Tim Wu, a Columbia Law School Professor and chairman of Free Press, the U.S. Constitution is flawed because the founders did not anticipate the problem of “the abuse of private power.” The Bill of Rights was merely designed to protect people against government and the founders were concerned about the exercise of “public power,” he explained to the National Conference for Media Reform.

In direct contradiction to the intent and precise wording of the First Amendment to the Constitution, in terms of prohibiting Congressional abridgement of freedom of speech, this grant of massive authority to Congress and the federal government means that the FCC will decide what constitutes “diversity” and the “public interest” in broadcasting. Hence, the FCC, rather than market forces and the people, will decide who gets on the air, who can own media properties, and even who gets Internet access. 

Meanwhile, the Democratic Congress can be counted on to increase U.S. taxpayer support for public TV and radio. 

Conservative FCC Commissioner Robert McDowell recently warned that the Fairness Doctrine, which allows federal bureaucrats to monitor and dictate broadcast editorial content, may be brought back under a different name. “I think it won’t be called the Fairness Doctrine by folks who are promoting it. I think it will be called something else and I think it’ll be intertwined into the net neutrality debate,” he told the Media Research Center. The term “net neutrality,” as defined by George Soros-funded “progressive” organizations, means that federal authorities will monitor and regulate Internet networks, rather than letting private competitive forces operate on their own without governmental interference.

But other powerful “progressive” individuals and groups want the Fairness Doctrine back directly and immediately. The public should know that Democratic control of the White House would result in a 3-2 liberal majority in the FCC and the possible return of the Fairness Doctrine through administrative and executive action without any congressional approval required. House Speaker Nancy Pelosi has already declared she is in favor of it. That’s why she refuses to bring the Broadcaster Freedom Act to a vote in the House. The Broadcaster Freedom Act (H.R. 2905) would prevent the FCC from unilaterally imposing the Fairness Doctrine on broadcasters.

The Democratic platform, in short, calls for more and bigger government on the domestic and international levels. This is the real story that the mainstream media won’t tell.
END QUOTE

Here is the direct link to the story above:

http://www.aim.org/aim-column/dems-endorse-expansion-of-un-power/

I would encourage readers to forward this around to as many people as possible to get the word out.

There are apparently plenty of readers of this E-Letter that are leaning toward or committed to voting for Barack Obama.  Obviously, millions of Americans don’t mind Obama’s liberal policies and/or intentions on such things as taxes, abortion, nationalized health care, protectionism, Supreme Court judges, gun control, etc., etc.

They apparently also don’t mind that he not only opposes offshore drilling, but also that he opposes exploration that would finally quantify just how much oil and natural gas that is in the ground offshore.  What, you haven’t heard that?  Then read this:

http://www.ibdeditorial.com/IBDArticles.aspx?id=303344360938478

Unfortunately, I doubt if many of Obama’s supporters know what he and the Democrats have in mind for the United Nations, our military and our taxpayer dollars.  Obama is spearheading this effort!

Ditto for the return of the Fairness Doctrine.  Liberals complain that conservatives like Rush Limbaugh dominate the airwaves.  Yet liberal talk radio programs have fallen flat on their faces time after time.  Obviously, tens of millions of Americans PREFER conservative programs.

It’s called the FREE MARKET.  But since liberal programming can’t compete, the Democrats would like to not only restrict conservative programming, but also restrict who can own the various broadcast outlets.

Let’s get the word out fast.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Why McCain Still Has a Chance To Win
http://online.wsj.com/article/SB122031196249888759.html?mod=opinion_main_commentaries

Palin – What the Heck is McCain Up to?
http://www.realclearpolitics.com/horseraceblog/2008/09/what_the_heck_is_mccain_up_to.html

Dems Shouldn’t Underestimate Palin (written by a Democrat)
http://www.realclearpolitics.com/articles/2008/09/dems_shouldnt_underestimate_pa.html


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert, Mike Posey (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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