Daily Gains Letter

U.S. Debt

Since the financial crisis of 2008, the U.S. debt has spiraled out of control and shows no signs of abating. The U.S. has become a family that spends more than it earns—and continues to borrow.

Since November 2008, the Federal Reserve has initiated three rounds of quantitative easing, and has printed off trillions of dollars; and it continues to print off money at an alarming rate.

Will there be a fourth round of quantitative easing? Probably not. But that’s only because the third round is open-ended. You could even call it “quantitative easing eternity.” However, eventually the house of cards will collapse. What will happen to the U.S. when it does is anyone’s guess.

The extra dollars pumped into the economy are supposed to spur growth. It also has the reverse effect; shrinking the buying power of each dollar…which is the driving force of inflation. Since July of 2012, the U.S. dollar index has gone down almost six percent. As the U.S. dollar declines in value against other world currencies, goods imported into the U.S. become more expensive.

The influx of $3.0 trillion into the U.S. was supposed to increase lending, create more jobs, and lower the unemployment rate. Instead, banks are sitting on a pile of cash and remain tight-fisted, fewer jobs have been created, and the unemployment rate remains high.

What’s keeping the U.S. economy afloat? The Federal Reserve is artificially propping up the entire U.S. economy by buying a majority the government debt issued by the Treasury Department. As a result, the U.S. government has become dependent on borrowing (creating money) to finance itself.

Where does the U.S. government get the money to buy the bonds? It borrows from the Federal Reserve…which creates money out of thin air.

This is a dangerous, unsustainable trend that cannot continue, and one Ponzi scheme that will eventually come to a crashing end. The U.S. cannot continue to issue government debt and then have money printed to pay off the debt.

How to Prepare for the “October Effect” in Key Stock Indices

Key Stock IndicesOctober has just begun, and it’s one of the most interesting months for key stock indices. In the past, some of the major crashes occurred during this month. For example, on October 19, 1987, key stock indices, like the Dow Jones Industrial Average and the S&P 500, witnessed one of the biggest daily declines. But that’s not all: we also saw a pullback in October of 1989, followed by another glitch in October 2002. And who could forget October 2008? As you can see, October isn’t only scary for those who go out trick-or-treating; investors are fearful as well. Looking at historical data ... Read More