Daily Gains Letter

government spending

The Sector That Will Bounce Back Once the Government Shutdown Is Over

By for Daily Gains Letter | Oct 8, 2013

Sector Bounce Back Government Shutdown OverThe U.S. government shutdown has turned some federal agencies into ghost towns, like NASA (with 97% of its workforce furloughed), the Department of Housing and Urban Development (96%), and the Department of Education (94%). Still, some agencies, like the Departments of Defense and Homeland Security—with just 18% and 14% of their staff on furlough, respectively—are considered more essential than others.

That said, those Department of Defense numbers may be a little misleading; military and contractor personnel were not affected by the U.S. government shutdown. Half of the Department of Defense’s civilian population of roughly 400,000 were furloughed without pay on October 1.

As a result, companies doing business with the Department of Defense will feel an immediate pinch to their bottom line. That’s in part because of civilian Department of Defense personnel performing audits and certifying military products and services—which they can’t do if they’re not working. An extended furlough also means government acquisition personnel cannot keep the military lifecycle going.

In light of the fact that roughly 10% of the manufacturing workforce in the U.S. is engaged in some form of defense production, the U.S. government shutdown could impact the U.S. economy on a larger scale than some imagine.

That said, the impact of the U.S. government shutdown on defense stocks will vary from company to company, depending on funding and other regulations. While smaller defense stocks tend to rely on government contracts for a larger percentage of their revenue than the biggest defense contractors, that doesn’t mean either will escape the U.S. government shutdown unscathed.

For example, The Boeing Company (NYSE/BA) warned that deliveries of some of its … Read More

America’s Middle Class on the Chopping Block

By for Daily Gains Letter | Mar 5, 2013

050313_DL_clarkThe U.S. economy is going to be low and slow for quite a long time. Cuts to government spending, persistent unemployment, and stagnant incomes all make for a real age of austerity at both the sovereign and individual levels. And there is inflation in this economy, and it’s keeping disposable incomes down. In an economy that is about 70% based on consumer spending, this is not good.

I’ve never been bearish on the U.S. economy, because no other country on the planet is able to pull up its bootstraps and move forward as quickly. But times have changed and after experiencing persistent financial crises (savings and loan, tech bubble, subprime mortgage crisis) and unreasonable government spending, I fear the system can no longer recover from these shocks like it used to. The reason for this is the lack of financial flexibility caused by too much government spending and a lack of will on the part of policymakers to enact ongoing, practical solutions to keep the ship sailing.

And the lack of financial flexibility is present in all the levels of government, particularly following the troubles in the real estate market after the subprime mortgage bubble had burst. I hate to say this, but government spending is a large part of gross domestic product (GDP) in all Western countries. This is why the eurozone is in such trouble, and it’s also why that region is destined for economic mediocrity for years to come.

I fear that the U.S. economy is going down the same path, and breaking out of this cycle is going to be extremely difficult. The single greatest strength … Read More