LOOK FOR U.S. STOCKS TO RISE ON NEWS FROM ASIA

With news from China showing inflation not as bad as expected and the economy slowing, Asian and European stocks rose overnight.  I look for U.S. stocks to follow suit today.  Although stocks will most likely rise some today, I wouldn't expect this to point towards any kind of return of a bull market.  I fully expect the markets to continue to lag throughout the summer, with small increases here and there depending on economic news from around the world.  

As far as a sustainable recovery, I don't really see that happening until jobs recover.  While there may be a bit of a recovery in the fall, as long as the jobs picture remains bleak, the stock market isn't likely to make any sustainable advances.  Government intervention has proven ineffective at creating jobs, so it will most likely be up to the private sector.  The big corporations will eventually have to see it as an advantage to create more jobs, boosting the economy, by putting some of the massive stockpiles of cash they have right now to work.  If a company can no longer invest extra cash profitably, they traditionally returned the cash to shareholders in the form of dividends or share buy backs.  However, as much as I like dividends, I'd rather see some of the money put to work creating jobs.  More jobs mean more consumers with expendable cash, leading to increased business and profits.  An increase in business profits from a growing economy is the only real way to sustain a long term recovery of the stock market and the absolute best way to reduce massive government debt by resultant increased tax revenues.

Is this likely to happen?  Eventually, I think it might, but for now I think companies will continue to stockpile cash as a protection from poor liquidity in the credit markets.  When money is not available in the form of loans, the companies who have a large cash reserve will fair better than those who depend on loans for day to day business expenses.

INFLATION The Ugly Side of Obama's Spending

With all the hoopla and manufactured sense of urgency from the Obama administration, main street seems to be forgetting the ugly side effect of massive government spending programs. INFLATION! While the Democrats are so busy patting each other on the back over their bank, auto and insurance bailouts, their greenhouse gas reduction plans and the looming health care reform, what will they really have accomplished. If you make peoples lives better through health care reform and, at the same time, create skyrocketing inflation on everything else, in my opinion you've accomplished nothing. As soon as government spending kicks in, demand for oil and other commodities will see major increases leading to higher prices. At the same time, new debt to fund these programs will lead to a weakening dollar causing prices to go up even more. If they are truly interested in helping the poor and middle class, how can they possibly justify passing legislation that will ultimately lead to more taxes and higher prices? The only conclusion I can draw from what I've seen so far is, the current administration could care less about the people of main street.

I'm sure they'd argue, we needed to save the banks, the major auto manufacturers and AIG. As far as global warming goes, I'm still not convinced that it isn't a naturally occurring phenomena, nature's way of re-balancing the planet. Even if I'm wrong, which is entirely possible, scientists have already stated that unilateral implementation of green house gas controls by the United States may have marginal to no effect on global warming. Don't get me wrong, I'm all for solar and wind energy and reducing pollutants in our atmosphere, I just don't think we need to destroy our economy to do it. I think more can be accomplished by grass roots programs. Getting people to think more about recycling, cutting back on energy usage, switching to more efficient appliances and lighting would make a tremendous difference in our carbon footprint as a nation. We don't need ever expanding government to implement more control over our lives or to burden us with more taxes.

I know there are people who will read this and say "your no expert." That is entirely true, but you don't have to look to far to see what the experts are saying about coming inflation. The July issue of Smart Money magazine has an interesting article entitled "Stocks That Beat Inflation." In it, they quote George Schwartz, head of the Ave Maria Catholic Values fund, as saying, "You can't run the printing press and spend like drunken sailors without consequences." They also say in the article, "a small but growing number of investment pros are betting inflation will return much faster than the conventional wisdom anticipates, and when it does, it will be far more widespread and potent than we've seen in years."

Lastly, when Roosevelt's administration passed legislation, similar to the current administration, it did not end the Great Depression. The economy never fully recovered from the depression until World War II. So if it didn't work then, why should we expect it to work now.

Should You Be Buying Gold?

I just finished reading an article on one of the major news media sites talking about the recent decline in oil prices and the rise in the value of the dollar. Both of which I predicted back in October of last year. Overall, it was a very good and positive article, but of course they couldn't stop at that. They had guest commentary from an "economic expert" who said that high oil prices should not be the only consideration when addressing inflation. O.K., I agree with that, it should not be the only consideration. However, he then talked about the high food prices around the world and rising unemployment, both valid subjects for consideration in addressing inflation, but he somehow managed to segue that in to a justification for buying gold as an investment and hedge against inflation. What?

I'm no expert, but common sense would tell you that high oil prices and the low value of the dollar drive prices higher in food and gold. If oil and gas prices are dropping so are the costs of producing and transporting food. If the value of the dollar is rising, it makes our agricultural products more expensive to foreign buyers, leading to demand destruction in exports of our food products. Add to that the increasing unemployment in the U.S., which further reduces demand for high priced food items and the simple rule of supply and demand kicks in. Which all adds up to falling or stagnant food prices. All these things should lead to a halt to the inflationary spiral we've been in for the first 7 months of this year.

So, should it make any sense to anyone to be buying gold right now? Not as far as I'm concerned. When inflation begins to ebb, gold prices drop, as they have been doing recently. If you are considering any investment in precious metals, silver is a more likely candidate. Most of the gold that has been mined throughout human history is still in existence to this day. However, silver is being consumed at an ever increasing rate and as a non-renewable resource, this would present a much better investment opportunity than gold. Gold would have been a good investment when it was selling between $300 and $400 per ounce, that is, as long as you were selling when the price was over $900 an ounce. But now, I don't think so.