The Jobless Recovery

Sometimes bad news is actually good news. That’s the case for those who are heavily invested in gold stocks and commodity stocks. The recent U.S. job numbers is a case in point. The U.S. job numbers came out and were disappointing. Economists expected 150,000 new jobs in the United States, but the actual number was 39,000. This is about one-quarter of the expected jobs. We also saw the unemployment rate rose from 9.6% to 9.8%.

The impact of this announcement is that the Feds now have no choice but to continue their policy of low interest rates and quantitative easing. As you know, quantitative easing is the Federal Reserve’s program of creating money out of thin air. This of course is great news for gold buffs as this policy puts downward pressure on the U.S. dollar and as the U.S. dollar moves downward we see gold and commodities prices, which are priced in U.S. dollars move upward.

Until the Federal Reserve changes this policy or shifts its direction on low interest rates and quantitative easing we are going to see commodities and gold continue to rise. Thus, this is an area all investors must continue to consider for their portfolio.

As many subscribers are from Canada, a brief update on that economy is in order. In Canada there were 15,200 additional people employed last month and the Canadian unemployment rate has fallen from

7.9% to 7.6%. However, the job growth fell short of expectations. We are in a jobless recovery. The economy continues to improve even though unemployment remains very high in the United States. This is really is a tale of two worlds.

For those who are unemployed the situation is getting worse and for those who are employed they are spending at levels that compare to levels before the Great Recession and that spending is what is driving the economy.

It really is amazing. The American recovery is well underway. The economy grew faster in the third quarter than originally reported and consumer spending has been surprisingly strong. We are seeing an economic recovery showing up everywhere except in the place it matters most, which is in the labor markets.

Currently, the United States has over 15 million people who are officially categorized as unemployed and this does not include those that are “under employed” or who have stopped looking for work. With such weak job numbers I was surprised that all other indicators were so strong showing the economy continues to improve.

Mike LathigeePresident, Las Vegas Real Estate Club

Stay the CourSe and Keep your eyeS open

ISSUE: DECEMBER 2010

This month the best thing you can do is stay the course. Stay the course for all the reasons I have described in many of my past many newsletters and webcasts. Right now commodities remain strong led by precious metals and the most recent economic indicators are showing that the current bull market rally is likely to continue. That said, it is still always wise to continue discussing these strategies with your financial advisor as they are working!

An integrated approach to nurturing your wealth and achieving your financial goals.

Inside This Issue:

Economy ReportLas Vegas Real Estate Club

PAGE 2: Economic Indicators Favor RecoveryPAGE 3: U.S. Real Estate Continues to be TroublesomePAGE 4: The Impacts of China’s Currency Policy And Much More...

Retail numbers, which are a gauge of consumer confidence and drive 70% of the U.S. economy and 50% of the Canadian economy, recently surprised everyone in a positive way. The retail results for November, which includes the biggest shopping day of the year known as “Black Friday,” beat the sales numbers from November, 2009 by 6%.

We are seeing very strong corporate earnings, which is a very important indicator of a recovering economy. However, corporate America is not reinvesting those profits into its workers. Companies still seem to be much more focused on reducing debts and expanding their business than on hiring new workers. Also, it is not unusual for companies to hold back spending on new workers after a recession; especially a downturn of the magnitude we have just experienced.

The weak U.S. dollar is helping U.S. companies to grab international market share. As the U.S. dollar weakens U.S. goods and services that are priced in U.S. dollars become less expensive and as a result, we see more purchases from foreign buyers. This is a sore point with many other nations, who state the declining value of the U.S. dollar is impacting their ability to compete. These nations have threatened a currency war if the United States continues to devalue its dollar.

The Recession ended in the second quarter of 2009, yet it could still be many months before businesses develop enough confidence to start new ventures that will ignite new hiring. Studies of many past recessions show that businesses tend to hoard cash for up to a few years after a Recession. I believe businesses are even more cautious now,

because of the severity of this past Recession.

Having said that, I believe the outlook for job growth is positive. But it will take time. Over the next few years the unemployment rate is in a downward trend. Overall the economy is moving in the right direction. Low interest rates, stronger than expected retail sales, strong corporate earnings, and a downward trend in unemployment rates all point to an economy that will continue to improve.

U.S. Real Estate Continues to be Troublesome

Of course no discussion of economic recovery is complete without comments about the housing market. In a nutshell, foreclosures are up, home prices are down and new home sales are at record lows.

Nationally U.S. housing prices fell 1.5% over the last 12 months. The end of tax incentives for new buyers and the number of active foreclosures are weighing down the U.S. Real Estate market. In many cities, particularly those in Florida, Arizona, California and Nevada, supply

far exceeds demand even though the banks artificially hold supply out of the marketplace. Thus, we could see further price declines in certain areas.

The big concern around this situation is that housing is one of the mainstays of the U.S. economy and accounts for one fifth of gross domestic product. Falling housing prices negatively impact consumer confidence, because it means the wealth of consumers is eroding and they do not wish to spend as much. The bottom line is that we are a long way from a recovery in the U.S. housing market and, unlike U.S. jobs markets where the trend is upward this is not necessarily true for the housing market. The housing market is the weakest economic indicator not showing any signs of recovery in the near term.

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eConomiC indiCatorS Favor reCovery“The weak U.S. dollar is helping U.S. companies to grab international market share. As the U.S. dollar weakens U.S. goods and services that are priced in U.S. dollars become less expensive and as a result, we see more purchases from foreign buyers. ”

THE IMPACTS OF CHINA’S CURRENCy POLICy “If China successfully cools down its economy this will lessen the demand for commodities and we would definitely see the bull market rally in commodities slow down and possibly end.”

China’s economy has an impact on all investors. For a huge number of Canadians, who have been making money in the recent commodities bull market, much of this positive growth is a result of the continuing double digit economic growth in China and the country’s demand for commodities. However, investors must be aware that as China changes its monetary policies we may see a shift that could dampen demand for commodities. Given the high inflation rates in China, the loose lending practices of banks and housing prices that continue to skyrocket, the Chinese are formulating new policies to control growth in their economy.

At this time inflation in China is at 4.4%, however, it is important to remember that there are more than 1 billion poor people in China and an increase in their living expenses could cause social unrest. Thus, the most likely move the Chinese government will make will be to raise interest rates.

Raising interest rates is the greatest protection against rising inflation and out-of-control bank lending. Raising interest rates is also a way to slow a housing market that is showing no signs of slowing down on its own.

If China successfully cools down its economy this will lessen the demand for commodities and we would definitely see the bull market rally in commodities slow down and possibly end. This would impact those investors heavily invested in the commodities market.

I know that a large number of my Canadian subscribers, especially those in Western Canada, are heavily invested in commodities. Thus, it is imperative that we carefully watch what is happening in China.

The Two Economies of Canada

In Canada it is estimated that over the next 20 years the economy will expand by an average of 2.5% per year in real terms. This is lower than the 3% growth rate over the last 20 years. The main reason for this lowered expectation is Canada’s strong geographical and economic tie to the United States.

The only way I see Canada outperforming its 2.5% projected growth per year over the next two decades is if Canada creates much higher exposure to China and other emerging markets. This exposure would develop stronger trade relations with other nations and reduce Canada’s heavy dependence on the United States for its economic health.

Internally, Canada remains a country of two economies. On one hand, we see a booming commodities sector resulting largely from the dropping U.S. dollar. On the other hand, we see a decimated manufacturing and export sector in Central Canada due to the fact that the Canadian dollar is too strong.

This shift in economic power from Central to Western Canada will have other impacts as well. As Western Canada becomes much stronger due to the commodity boom and Central Canada continues to weaken due to its dependence on the manufacturing and export market, we will gradually see the political power in Canada shift away from Central Canada and toward Western Canada. This political shift will take many decades.

SECTOR GROWTH IN THE UNITED STATES“Investors are looking for banks to raise dividends in 2011 and as a result this has caused a rally in banks stocks. I am still too cautious to buy bank stocks, but for the more assertive investor this could be a good trade to discuss with your financial advisor.”

In the United States we are seeing certain new sectors beginning to move upward and investors must take note of this movement. As the economy improves so does international trade. There is more need to purchase container and cargo ships and for this reason we are seeing the shipping sector begin to move higher.

I am still very concerned about the banking industry in the United States. This is because banks still have enormous numbers of bad loans that still must be written off and the mark to market rules continue to allow accounting shenanigans with bank financial statements. I have discussed this many times. However, I am smart enough not to “stand in front of a freight train” and it is likely banks are going to see a rally and move upward.

In other words, investors are looking for banks to raise dividends in 2011 and as a result this has caused a rally in banks stocks. I am still too cautious to buy bank stocks, but for the more assertive investor this could be a good trade to discuss with your financial advisor.

Junior Commodities a Good Strategy Again

A low U.S. dollar, low interest rates, quantitative easing and impressive growth of emerging nations around the world have contributed to the continuous rise in junior market commodity stocks, including gold stocks, that we have seen for the last several months. This trend will continue until there is a change in fiscal policy. Thus, investing in junior commodity stocks appears to be a good strategy once again and something to discuss with your financial advisor.

There is no reason to sell off gold and oil positions at this time. However, it is always prudent to take profits as you are making money. Natural Gas has yet to show any significant increase, but is one area with a lot of upside potential. A colder than normal winter is causing increased heating demand. In keeping with our theme of cash flow, which I have been focusing on over the last four months, things are going extremely well. Any investor who followed the cash flow strategy we’ve been discussing and taken action has been wise.

Overall, the many types of cash flow investments we’ve discussed are doing well. In general, companies with increasing dividends are rising. The corporate bond market, which pays a yield of 6.6% to 7% for AAA bonds is not only producing good cash flow, but the prices of the bonds are also rising. So, this looks to be an area where investors should continue to focus. As a strategy, covered calls are also working well.

Continue to listen to my economic webcasts and read my newsletters as the discussions I am presenting would have led you in the right direction to make money.

I remain most bullish on beaten down Real Estate that is producing positive cash flow. As an example, we have been buying dozens of Real Estate properties in Las Vegas for $30,000 to $50,000 and are seeing them generate $700 to $900 per month in rent. Plus, we are seeing a waiting list of tenants.

For those who are interested to learn more about the overall economy with a focus on the Las Vegas Real Estate market as a case study, I strongly recommend that you join me on a future Economic Bootcamp. Tickets are just $197 per person and that includes all fieldtrip expenses including a gourmet lunch. Send an email to education@allianceinvestor.com if you would like more details.

This fieldtrip should be of particular interest to Canadian investors right now. The Canadian dollar is essentially on par with the U.S. dollar. Combine that with the downward movement in U.S. Real Estate prices and your buying power is more than 30% stronger than it was just five years ago!

Also on March 17 to 20 I am attending an economic summit called the Powerteam Financial Economic Summit which will feature some of the top financial forecaster on the planet. The theme of the event will be to determine what trends are underway and where you can get the highest returns. If you would like to find out more and receive information about getting tickets once again just send an email to education@allianceinvestor.com.

The Impacts of Global Debt

Finally, we have to discuss a few geopolitical events that could impact worldwide economics. Investors must

pay close attention to these situations. The biggest and most important story remains the European Debt Crisis. With the most recent debt crisis in Ireland and concern over the solvency of European banks the situation could lead to a full scale liquidity catastrophe.

The inability of some European governments to service their national debt first manifested itself in Greece where a 100-billion Euro bailout was required and funded by the European Central Bank. European countries hoped that the contagion would be contained by this bailout, which would give the Greek government time to recover by imposing severe austerity measures.

Such is not the case. Ireland is now unable to meet its debt obligations and The ECB has approved an 85-billion bailout to try and restore Ireland’s banking system.

Ireland and Greece are smaller economies, but we are also looking at similar problems in Portugal, Spain and Italy where bond rates have risen dramatically to reflect much higher risk. According to the Libor numbers, even the ECB lending rate to Britain has almost doubled due to concerns about Britain’s creditworthiness.

Now, here is the best way to interpret the consequences of this European debt crisis.

Unless measures are taken to address the fears about European nations defaulting on their debts, the financial system in Europe could freeze as banks and investors become unwilling to lend money. In a worst case scenario, lending would come to a halt and governments would default on their debt and interest rates would skyrocket and unemployment

rates would move well into double digits causing social unrest.

For Canadians and Americans our export market would radically decline and this crisis could spread into other areas, some of which we are currently unaware. you can see why we must watch how this global debt situation evolves.

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real eState For CaSh Flow“The inability of some European governments to service their national debt first manifested itself in Greece where a 100-billion Euro bailout was required and funded by the European Central Bank.”

The other major story all investors must follow is the North Korea Crisis. Last month North Korea raised tensions in East Asia when is shelled a small South Korean military base killing four people. South Korea said it was conducting military exercises at the time, but insists test firings were not directed toward North Korea.

The problem is not getting any worse, but if something were to cause an escalation in tension in that region, North Korea could become the tipping point that triggers the involvement of other players such as Russia, China, Japan and the United States. If this happens investors will likely see the price of gold and silver rise due to extreme uncertainty.

A Hidden Message Behind Qatar?

I’d like to bring up just one last bit of information that I find very interesting. We all know that soccer is the world’s most popular sport. Both the United States and Britain were heavy favorites to host either of the 2018 or 2022 World Cups. yet, in a shocking announcement, the international football association known as FIFA, announced that Russia

would host the 2018 tournament and Qatar would host the 2022 World Cup.

This announcement was a huge letdown for both the U.S. and Britain as both countries have the complete infrastructure necessary to host the event. The decision really did not make sense to many people and it causes one to wonder if the decision was in fact a way for the international community to rebuff the West.

In closing, let me just state the obvious, which is that we are seeing a great many changes in our world and will see a great many more in the days ahead. The world is definitely becoming a much smaller place as more and more evidence of our interwoven economies and policies come to light.

As investors, we must stay informed about how these changing conditions impact our financial strategies. As always, I strongly recommend that you discuss any investment ideas with your financial advisor and be vigilant about your current investments. Also when the economy webcast arrives in your mailbox forward it to a friend and recommend they subscribe.

grow. protect. invest.north Korea aS a potential tipping point

“We are seeing a great many changes in our world and will see a great many more in the days ahead. The world is definitely becoming a much smaller place as more and more evidence of our interwoven economies and policies come to light.”

Mike LathigeePresident, Las Vegas Real Estate Club

LVRealEstateClub.com