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Posts Tagged ‘small-business’

Why Changes In Tax Law Will Devastate Our Economy

November 20th, 2012

Michael Snyder: If you have a farm or a small business, would you like to pass it on to your children when you die?  Well, unless Congress does something, it is going to become much, Read more…

Economy, Government, Markets

Economy: Hostess Adds To The Massive Tsunami of Post-Election Layoffs

November 18th, 2012

Michael Snyder: Can you hear that sound?  It is the sound of the air being let out of the economy.  Since the election, there has been a massive tsunami of layoffs and business failures.  Read more…

Economy, Government, Markets

Economy: Post-Election Firings and Layoffs Surge

November 10th, 2012

 The victory by Barack Obama on election night has resulted in a huge wave of firings and layoffs all over America.  A large number of businesses seem to have suddenly Read more…

Uncategorized

Think About This Investment Before You File Your Taxes

March 10th, 2011

Think About This Investment Before You File Your Taxes

I spent a number of years as a freelance writer.

And I have to admit, there were some benefits in being my own boss. I definitely prefer a pair of jeans to a pair of pantyhose. Also, slipping out to the grocery store during the day cut my shopping time in half. My daily commute? Just a short walk down the hall to my office.

However, there's one thing I don't miss about freelancing — the paperwork.

Monthly invoices had to be issued to all my clients and payments had to be accounted for. Depending on the client, that involved tracking bank wire and PayPal account transfers, depositing checks and, in some cases, waiting weeks for checks issued in foreign currencies to clear.

Records of every penny spent on office supplies, postage, software, business trips and meals had to be maintained. Writing an annual check to the IRS is bad enough. As a freelancer, I was obligated to pay estimated taxes quarterly. At the end of the tax year, a few of my clients issued 1099 tax forms, while others didn't. And, of course, all my income had to be properly accounted for.

It didn't take me long to realize the benefit of owning a good business accounting software program.

The demand for paperwork gets kicked up a notch
I was reminded of my accounting escapades the other day, after reading an article about a proposed new tax law. Starting in 2012, some lawmakers are trying to get small businesses, freelancers and independent contractors to generate even more paperwork: They will have to issue 1099 tax forms to any vendor on which they spend $600 or more annually.

So for instance, if a small business occasionally buys pizza for its employees, it may have to issue a 1099 form to the local pizza parlor at the end of the year.

I started to envision what my records would look like if I were still freelancing. Would I have to issue 1099s for my hat and bubble gum expenditures?

Regardless of whether this proposed tax law is enacted or not, we're living in an increasingly entrepreneurial age, as experienced workers strive to start their own firms.

Uncategorized

Why Small Businesses are Worried About Double Taxation

March 1st, 2011

Treasury Secretary Tim Geithner is urging Congress to “revisit” the tax code… and how the code treats small business owners. Amen. It’s about time.

Hong Kong’s tax form is a 3

OPTIONS, Uncategorized

Count Down to Quantitative Easing Removal

February 15th, 2011

Front and center this morning, Sweden’s Riksbank did raise interest rates as expected by 25 Basis Points (1/4%) to an internal rate of 1.5%… As you would expect, the Swedish krona (SEK) has taken off versus the dollar. You know, Norway may have been the first European Country to raise rates, but Sweden has caught up in a hurry, while Norway’s Norges Bank dilly dallies around, the Riksbank catches up… And that’s one of the BIG reasons why the Swedish krona is the best performing (major currency) the last three months, six months, and second best performing currency for 12 months…

And you have to like the Riksbank Governor who said that he “sees a stronger krona”… Glad he sees what we’ve seen for some time now. Guess he doesn’t need to get his eyes checked, eh?

In fact, as I look at the currency returns (for major currencies) for the past 12 months… Most are green, which means they are up versus the dollar, and even the poor, beaten, beleaguered, and downtrodden, euro (EUR) is basically flat versus the dollar in the past 12 months… And as I explained to the audience last week when talking about diversification, as long as you view diversification as something that an investment portfolio demands, then your diversification outside of the dollar should be viewed as “insurance” against the potential of a further declining dollar. It doesn’t mean the currency will soar to the moon (unless the dollar falls through the trap door)… And as long as your diversification remains steady, it is doing what it’s supposed to.

OK… I just checked the last 24 hours of trading for the euro, and it looks like a roller coaster ride that my son, Alex, would enjoy. The single unit has pushed higher to 1.3540, and fallen to 1.3460, and then back up and back down…all night. Pretty strange moves within those two figures, and all points in between!

Gold and silver healed a bit yesterday, and the price action overnight is picking up some steam. This would be about the first two-day, back-to-back rally in these two precious metals, in about a month of Sundays! Or, at least that’s what it feels like, eh? I put our monthly newsletter, The Review & Focus, to bed yesterday… And in it I talk a bit about how I feel gold and silver have had a nice correction, and are forming a new base from which to launch… It’s all my opinion, of course, but fundamentally speaking, I don’t see how it could be any other way!

So… Did you see that China’s GDP last year was 10.3%… Now, I ask this question without a smirk on my face, but would very much like to… Where are all those writers, analysts, and economists who said that China’s economy was going to collapse in 2010? OK… I’m not going to rub their collective noses in China’s 10.3% GDP in 2010… Last night, China reported their latest inflation data, which showed a slight decline in consumer prices, which indicates that the rate hikes, rise of reserve requirements, and other steps the Chinese have made to moderate their economy, and stem inflation, just might be working!

Which would be unlike the quantitative easing that the CABAL (Fed) have been subjecting our economy to… The CABAL chairman told us when he implemented QE1 and Q2, that it was for the good of the economy, to spur economic growth, job creation, and keep interest rates down… Well… That’s strike one, two and three… Go grab some bench, Mr. CABAL Chairman! And that’s all I can say about that right here, right now, as this is the kinder, gentler me! HAHAHAHAHAHA!

Since the CABAL introduced quantitative easing in March of 2009, inflation has taken off, just as I told you back almost two years ago that it would… No, we’re not seeing wage inflation, or housing inflation… But get a load of these things that have increased phenomenally since March 2009.

The average price of gas is up 69%… The price of oil is up 135%… Corn is up 78%… Sugar is up 164%… And I could go on, but I think you get the picture. Now, on the other side of the employment that was supposed to improve with QE, the number of unemployed people is up 25%… The number of food stamps recipients is up 35%… The national debt is up 32%… And then the last thing they told us would improve or remain steady was interest rates… Hmmm… Well, the 10-year Treasury is up 100 basis points in the past three months alone! Sorry to be the one that had to tell you these things, but if you only watched cable media, you wouldn’t know about these things, and when the Conference Board called to survey you about how confident you were about the economy, you would be singing the praises of the CABAL for all they had done for you!

Should I go on? I don’t think so… Like I said, it’s a kinder, gentler me!

Well… Getting back to China for a minute… 10.3% GDP growth, and falling consumer prices means it’s “GAME ON” , Wayne and Garth-style, for the commodities, and commodity currencies… And the currency best suited to benefit from China is Australia… Remember last week, when I sent a note to Mike about what I was seeing with regard to the possible return of the carry trade? Well… It’s happening, folks… The Aussie dollar (AUD) is gaining versus the yen (JPY) to the strongest level since last May! So… Like the old traditional carry trade style… Investors sell yen, and buy Aussie dollars… You see the yen get weaker, and the Aussie dollar get stronger… Talk about a two-pronged fork with one tine dedicated to commodity growth, and the other dedicated to the carry trade… It should be all good for the Aussie dollar… But again, that’s just how I see it, folks…

OK… Back to the euro for a minute… We’re climbing higher again on the roller coaster, and this time the euro is getting a boost from the latest report from the German think tank, ZEW on German Investor Confidence, which rose for the 4th consecutive month.

You know… I gave a presentation last week illustrating that for each of the past three years, we’ve seen the year begin with dollar strength, and all the rosy forecasts for the US economy, only to see it all fade by late spring… This year is beginning to take on that same pattern, as we all know the forecasts for 2011 are even more enthusiastic for this year than ever! But let me remind you of a little deadline that’s approaching… It’s the deadline that the CABAL put on itself, to end quantitative easing… June… After June, who’s going to buy all the Treasuries we need to finance the ever-increasing deficit spending? A customer, reader, and friend, attended a presentation in Florida at the Money Show, and told me that the presenter was a “true bond guy” who told the crowd that they had until June to unload their Treasuries… Sounds like this guy has been reading the Pfennig and Currency Capitalist!

But you don’t have to listen to me or the “true bond guy”… How about Bill Gross, who heads the largest bond fund in the world? Well… Pacific Investment Management, managed by Bill Gross, reduced its holdings of US government debt from 22% of assets in December to 12% in January. Gross said investors should sell debt issued by the US and the UK and buy higher-yielding securities issued by emerging nations.

Then there was this… In yesterday’s essay “Aussie and Canadian Dollars Remain Above Parity” I said, “The new budget proposal includes tax hikes, which if I were a real mathematician I would probably figure out that the tax hikes are probably where the $100 billion comes from each year, so that, in reality, there are no spending cuts at all!”

Well… According to the Americans For Tax Reform (AFTR)…there are 15 taxes in the budget that were part of the plan to cut spending by $1.1 trillion over the next 10 years… The people at AFTR believe that this budget is as much about tax cuts as it is spending cuts…

Here are a couple of the tax increases in the plan…

  • Raising the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%. This is a $709 billion/10 year tax hike
  • Raising the capital gains and dividends rate from 15% to 20%
  • Raising the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike

I told you yesterday that this was going to be the case, just like I told the audiences at the Orlando Money Show last week… And then… Whoomp There It Is!

To recap… The Riksbank hiked rates 25 BPS to 1.50% this morning, pushing the best performing currency (krona) for the past six months even higher. The euro has been on a roller coaster ride, up, down, and all points in between, but mostly up versus the dollar, overnight and this morning. ZEW German Investor Confidence printed stronger for the fourth consecutive month, giving the euro a boost this morning. It’s looking more and more like the carry trade is returning with yen weakening and Aussie dollars gaining… And Chuck goes postal on QE once again…

Chuck Butler
for The Daily Reckoning

Count Down to Quantitative Easing Removal originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

Read more here:
Count Down to Quantitative Easing Removal




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, OPTIONS, Uncategorized

Searching for Lenny Skutnik: Small Business Owners and the State of the Union

January 25th, 2011

The president delivers his State of the Union message tonight. We’re told he’s going to say some things about the economy. We don’t yet know what those things will be…but for clues, we’ve checked out this year’s list of Lenny Skutniks.

You probably don’t remember, and neither did we, till we looked it up: Lenny Skutnik became momentarily famous in 1982 after an Air Florida plane crashed into the icy Potomac River in Washington, DC.

He dove into the river to save a passenger. Days later, Skutnik sat in the gallery for the State of the Union. President Reagan pointed him out by name and commended him.

Thus began a tiresome tradition – the president pointing to “everyday Americans” in the gallery as an example of heroism – or, more typically, as an example of why their policies are so swell.

If a president hopes to launch some new signature program, then some potential beneficiary of that program is sure to be sitting in the gallery during the State of the Union.

Lenny Skutnik

Looking over this year’s Lenny Skutnik list, we see 25 invited guests. They are…

  • The vice president’s wife
  • The president’s chief liaison to Congress
  • Two corporate CEOs
  • Four people connected to the shootings in Tucson
  • Three service members, and one service member’s spouse
  • Five students, either high school or college
  • A cancer patient we’re told is benefiting from the new health care law
  • Seven small business owners

So one out of four guests is a small business owner. This might lead us to wonder if the president will call a truce in the War on Small Business we’ve explored in this space from time to time. Maybe he’ll launch an initiative to address issues like these…

  • Companies with 20 or fewer employees pay more than $10,500 per employee to comply with federal regulations, according to the Small Business Administration’s advocacy office
  • Companies with 500 or more employees pay less than $7,500 per employee
  • That gap will surely grow next year with the infamous “1099 provision” of the new health care law – requiring business owners to send IRS 1099 forms to everyone from whom they buy $600 or more in goods or services each year.

Sadly, no. Two of the invited small business owners got $500,000 in federal money to retool their part of a roofing business into a solar panel factory. Two more got $250,000 to open an organic ice cream shop.

Another supposedly saved $10,000 in health insurance premiums for his employees thanks to tax credits tucked into the health care law. And the last two own the company whose technology helped rescue the trapped miners in Chile.

Conclusion: Unless you manage to be part of a feel-good story or you’ve taken a handout for some politically correct cause, you don’t count. The War on Small Business is still on.

Addison Wiggin
for The Daily Reckoning

Searching for Lenny Skutnik: Small Business Owners and the State of the Union originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Searching for Lenny Skutnik: Small Business Owners and the State of the Union




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

These Two Important Dates Could Set the Tone for the First Half of 2011

January 5th, 2011

These Two Important Dates Could Set the Tone for the First Half of 2011

While you were away celebrating the holidays, the economy sprang to life. I can't blame you for not noticing. After all, the holidays are supposed to be a festive time. And the U.S. economy has been stuck in the mud for an extended period.

Sure, we're out of the recession, but there's little reason for cheer either, especially for the estimated 17% of the U.S. population that is either officially or unofficially counted as unemployed. There were signs of life in the economy last spring, but those “green shoots” turned brown by summer.

Yet while many investors took a respite from the stock market, a curious thing happened in the final days of December: Those green shoots re-appeared. In various corners of the economy, activity is starting to pick up, and if it can be sustained, a virtuous cycle may ensue whereby modest growth begets more robust growth as confidence builds.

What you missed
The U.S. economy starts and ends with jobs. Any improvement in the employment picture would provide a tangible boost to many sectors of the economy. So it's helpful to see jobless claims start to fall. New unemployment claims fell by 34,000 last week to levels last seen nearly 30 months ago. It may be a statistical blip due to the holiday-shortened week, but the less volatile 4-week moving average also is starting to look healthier.

Uncategorized

The Tale of André Prenner, a Parable for our Times (Part Two of Two)

November 14th, 2010

Today, we take a brief pause from our normal economic and financial market commentary with this tale of common sense economic calculation and action. And no, we do not believe that the world is any more complex than we present it here. If you want to understand economics, you need first understand two things: That the human condition is one of scarcity and uncertainty; and that absent rational economic calculation and a certain degree of passionate risk-taking, nothing good can ever come of it.

Continued from here…

At least there was still plenty of demand for basic bread, which provided for a reliable if less profitable business. This period lasted nearly two years. Yeoville Bakers was never at serious risk of bankruptcy, in large part due to Andrés swift reaction to the downturn. But it had been a hard time nonetheless and taught André some important lessons. When he felt the time was right and sensed rising demand once again, he returned to his passion of baking gourmet European breads and re-hired most of his former employees, several of whom had made do with odd jobs in the interim. Business began to grow again, but André was a bit more of a businessman now and a bit less of a passionate visionary. Yes, he had now managed to save a good deal of money, but he told himself he would always be cautious, never expand too quickly and always make certain he had the flexibility to change and/or reduce operations as required to face challenging circumstances.

It was three decades later when things got really bad. Not only was the nation in recession; tax and regulatory policies had made André’s business considerably more costly to run. Although he had not expanded the business by much in recent years, he now had to employ three accountants to handle Yeoville Bakers’ more complicated affairs. The US Department of Agriculture (USDA) was now quite active in screening foreign grain and flour imports for bad quality or what they sometimes referred to as “irregularities”, as if André or his more experienced staff would be unable to determine quality for themselves. The Commerce Department occasionally imposed foreign duties because of what they called “dumping” which to André seemed rather arbitrary. And the regular or, on rare occasion, surprise inspections of his own facilities, imposed a cost unseen by anyone but André and his core team, who always needed to be prepared just in case, with any and all requested documents, tours of facilities, product samples, etc.

As such, running the business had become more complex, with supplies harder to secure, prices more volatile and higher overhead costs. Adding to the challenges, it was now difficult to hire new employees, not because of a shortage of those able or willing to do quality work; rather, because payroll taxes and required healthcare and other benefits were much higher than before. Also, he had had some difficulty reducing staff during the most recent downturn, with one employee accusing Yeoville Bakers of unfair dismissal, including claims of workplace discrimination. The ensuing legal tangle was resolved in favor of Yeoville Bakers but cost André much valuable management time and taught him an important lesson about how careful he needed to be when hiring new staff. Unless he was absolutely certain that they were qualified, reliable and unlikely to complain if let go, he wouldn’t hire anyone, no matter how rosy future business prospects.

So now, André found himself facing the familiar situation of slack demand he had faced several times before in his long career, but he lacked the flexibility to respond as effectively. It was one morning when he was contemplating what, exactly, he should do in the current instance, when he received an email from the Small Business Administration (SBA) offering him a loan.

Now this had never happened before. André knew of many businesses that had received government subsidized loans through the years. Most of those businesses had grown and thrived, at least for a time.
But he could not recall the SBA offering loans pro-actively in this way. It was the businesses that normally did the asking. So why was this happening? Could it have something to do with what he had heard about many banks turning small businesses down for new loans? Or cutting existing lines of credit? Everyone knew that banks had lost a huge pile on residential and commercial lending. Although André had no use for a loan at present, he was intrigued by the very existence of the program and inquired anyway, picking up the phone.

“Small Business Administration, new loans division, may I help you?”

“Yes, I’m calling to inquire about an email I received offering me a low-interest loan. Please could you let me know some of the terms and conditions, as well as the purpose of the program?”

“Of course. We are offering subsidized loans to small businesses that can demonstrate that their access to credit has been reduced, or that have viable expansion plans yet cannot get access to new credit. Specific terms and conditions vary with the size and proposed use of the loan. Those uses pertaining to environmental or green technologies receive the most favorable terms. The overall purpose of the program, other than supporting small businesses generally, is to ensure that credit is available, in particular for investment related to environmental or green technologies.”

“Thank you.”
“Have you recently been denied credit?”
“No.”
“Do you have plans to expand your business?”
“No.”
“What then is the reason for your inquiry?”
“Just curious, thank you.”
“Well if your circumstances change, please don’t hesitate to give us a call.”
“Thank you. I will do so. Goodbye.”
“Goodbye.”

André hung up the phone and thought to himself. “So this is the way the government goes about trying to restore economic growth: First, they cut interest rates to near zero, following the residential and subsequent commercial real estate bust. But apparently that isn’t enough to stabilize the big banks, several of which are at risk of failure, so the central bank bails them out, assuming some illiquid, toxic debt that André knows will never be sold back into the market. Then the government enacts a massive stimulus plan, which seems primarily to funnel money to a bunch of big businesses with strong connections to government, most of which probably have little difficulty accessing credit. But none of this seems to help smaller businesses, which is where most hiring in the economy normally takes place and where worker productivity tends to be highest. So now it appears they’ve got some fancy new program to extend credit to small businesses, but the favored terms are reserved for those that are keen to invest in the sorts of projects that the government wants, for whatever reason, and which are already being done in some shape or form by the large, government-connected businesses that received most of the stimulus money in the first place.”

“In the meantime, they have raised payroll taxes, in part to pay for increasing healthcare costs. The state has also raised sales taxes to cover an unprecedented revenue shortfall. They are threatening now to raise income and corporate taxes. The regulatory regime was already uncertain and is likely to become more so as Congress seems unable to resist the temptation to respond to each new lobbying effort by this industry group or that. Workplace discrimination suits are now so commonplace that I need to do full background checks on potential employees to make certain that, in the case I need to let one of them go, they are unlikely to take legal action. Customer demand remains weak as unemployment remains high.  Now my input costs are soaring because of the weak dollar–which I understand is the result of so-called “quantitative easing”–which pushes up global grains prices. These costs I can only partially, if at all, pass on to my customers, implying lower margins and profitability ahead.”

“And these guys think that I, a small-town baker, might be interested in a loan? In expanding my business? In hiring new workers? Business is risky enough in good times. It is riskier in bad times. But even in the bad times–and I’ve had a few–there have been occasional opportunities to hire a good employee; acquire some good equipment at a low price from another bakery closing its doors; adjust the product line to better suit changing consumer attitudes. Yet now, not only are times bad; the uncertainty is higher than ever and the priority of the government is really not about getting the economy going again with sensible, sustainable, predictable tax and regulatory policy but rather about subsiding their pet programs and government-connected firms, which in the end is only going to raise the overall economic debt burden, implying even higher tax rates in future. No thanks.”

He went for a long walk and thought. The next day he went for another long walk and thought some more. He spoke to a few other small businessmen he knew who were getting by but not doing particularly well. He shared a few thoughts with his wife and with the two oldest of his three children.  And he made a decision, perhaps the most difficult of his life.

The next day, after he arrived at work, he assembled all of his senior employees in his office. He let them know that he was going to put the business up for sale. If they wanted, they could buy him out over time, financing the purchase with a loan that he would provide at a low interest rate. He was retiring, he said.

“This seems rather sudden,” said one of his assistant managers.

“No, actually, it’s not. It is the result of trends that have been in place for a long time. It’s just that I think about things differently than I used to. I’m getting older. And as you get older you begin to realize that some things may change for the better, some for the worse, but some things don’t change at all. I’m tired of waiting for some things to change. I’ve had enough. It’s your turn now. Good luck.”

His employees were stunned. They respected the man, who had a fine reputation. He had kept his business profitable and, more often than not, growing, for over 40 years. And now it was their turn. They were going to need good luck all right. Lots of it.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

The Tale of André Prenner, a Parable for our Times (Part Two of Two) originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Tale of André Prenner, a Parable for our Times (Part Two of Two)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Real Estate, Uncategorized

All Treasuries All the Time: The Impact of QE2

November 4th, 2010

So… This is what life after “QE2” looks like:

  • Record gold prices
  • Stocks back at pre-Lehman levels
  • And a dollar cruising toward its 2008 lows.

Everything is rallying…in terms of depreciating dollars. Mission accomplished. Ben Bernanke needs George W. Bush’s ol’ “shock and awe” flak jacket.

In case mainstream media coverage made you glaze over, here’s the quick and dirty of the Federal Reserve’s fateful decision…

  • The Fed will buy $600 billion in Treasuries over the next 8 months
  • The mortgage securities the Fed bought during QE1 now reaching maturity will continue to be rolled over into Treasuries, as they have been since August. That’s another $275 billion, give or take
  • There was also the caveat that more of this could be in the works if unemployment stays high and inflation (as defined by core CPI) stays low.

Hmmn… If the federal budget deficit is supposed to run $1.2 trillion during fiscal 2011 (that’s the consensus guess)…and the Fed will purchase $875 billion in Treasuries over the next eight months (that’s two-thirds of a year)…

[Pause for back-of-the-envelope math]

…then we quickly see the Fed plans to monetize all of all the debt that Treasury plans to spit out from now through the middle of next year, and then some.

This is yet another reason we don’t expect the House Republicans to convert to the gospel of fiscal responsibility any more than they did last time they were in the majority: They can indulge in demon spending unto oblivion…and the Fed will have their back.

“If this were Greece or Ireland,” Bill Bonner wrote yesterday before the announcement, “the government would be forced to cut back. With quantitative easing ready, there is no need to face the music. If bond buyers will not finance America’s trip to bankruptcy, the Fed will provide as much brand-spanking-new money as necessary.”

The main difference between QE2 and its predecessor is this: The bulk of the junk the Fed put on its balance sheet during QE1 was mortgage securities, with about $300 billion of Treasuries thrown in for good measure. Now it’s all Treasuries, all the time.

And most of those Treasuries are of medium-term duration – very few 30-year bonds are in the mix. Thus, the yield on the long bond rocketed past 4% yesterday. It sits at 4.05% as we write.

Still, what’s really notable about QE2 is the form it did not take. In August, former Fed vice chair Alan Blinder wrote an Op-Ed in The Wall Street Journal. He tossed out a number of suggestions for QE2 that, for better or worse, would actually goose the economy and not just shore up the banks’ balance sheets:

  • The Fed could buy assets beyond the realm of Treasuries and mortgage securities. It could buy corporate bonds, small business loans, or credit card receivables
  • The Fed could stop paying interest on excess reserves to member banks. And if that didn’t encourage them to make more loans…
  • The Fed could start charging the banks interest to stash their excess reserves.

Yesterday, the Fed chose “none of the above.”

It didn’t even take up Blinder on his suggestion to adopt new language hinting at an even-longer lasting commitment to near-zero rates. We just got the same old blather about “exceptionally low” rates “for an extended period.”

Yawn.

Stretch.

“Today,” Fed chief Ben Bernanke wrote in this morning’s Washington Post by way of explaining himself, “most measures of underlying inflation are running somewhat below 2%, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run.”

Of course, that “underlying” inflation level does not take into account your need to eat, or heat your home or drive to work.

And it’s only going to get worse. Your neighborhood grocer is seeing his costs rising. “The big challenge,” says the CEO of a California grocery chain to The Wall Street Journal, “will be how much can we swallow and how much can we pass along?”

He’s holding out as long as he can, but skimping on tires for your delivery trucks (seriously, that’s one of his cost-cutting measures) only gets you so far.

Yesterday, we discussed rising food, gold and commodities costs in the context of the Fed decision during this interview with Financial Survival Radio. Have a listen here:

Addison Wiggin
for The Daily Reckoning

All Treasuries All the Time: The Impact of QE2 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
All Treasuries All the Time: The Impact of QE2




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

3 Stocks for the Small Business Rebound

October 9th, 2010

3 Stocks for the Small Business Rebound

Voters across the political spectrum can agree on at least one thing: the long-term health of the U.S. economy absolutely depends on jobs being created by the private sector. So Friday's report that 64,000 private sector jobs were created is a hopeful sign, though clearly not enough.

The chart below shows the depth of pain being experienced by small businesses.

But even as Friday's jobs report may not yet signal a big upturn in hiring, a few other items in the news on Friday suggest that the private sector may create higher amounts of new jobs in the months ahead.

First, the Treasury Department has just announced plans to provide states with $1.5 billion to help promote small business job creation. States have to prove that the funds are being matched with much higher levels of bank lending, so the whole economic boost is hoped to be closer to $15 billion. And just last week, the Small Business Jobs Act went into effect, creating a $30 billion small business lending fund for community banks and offering tax cuts for small businesses.

Those efforts may help a trend that is already underway, if little-known ScanSource (Nasdaq: SCSC) is any indication. This company sells a range of telephone, barcode scanning and point-of-sale equipment to small and medium-sized businesses. Large companies buy these wares direct from the manufacturer. Thousands of smaller companies need to go through middlemen like ScanSource. At the end of every quarter, the company discusses recent sales trends — and right now, business is doing quite well.

Sales in the first fiscal quarter rose to around $625 million from $488 million a year ago, well ahead of the $567 million consensus forecast. That's pushing shares up +7%, close to a 52-week high, which makes me hesitant to recommend shares of ScanSource in particular. But it's a clear sign that other companies selling into the small and mid-sized business (SMB) sector have increasing reason to cheer. Here are three names I like as SMB plays:

Office Depot (NYSE: ODP)
The tough economic environment has been brutal for this office supply chain. Adding insult, rival Staples (Nasdaq: SPLS) has been a far more nimble player, stealing away market share. Office Depot's stock has fallen from $35 in 2006 to a recent $4.50, but as I noted recently, that seems like too deep of a punishment. [Read more on why I like Office Depot here]

Make no mistake, Office Depot has its work cut out for it. The retailer needs to further pare debt, figure out a way to retake market share, even as firms like Walmart (NYSE: WMT) step onto its turf, and weather the effects of the downbeat economies in Florida and California, where the store base is heavily concentrated. But I'm heartened by recent insider buying, improving working capital metrics, very cheap valuations and, as noted above, a possible strengthening in the SMB sector. And as I noted in this article, retailers only need to show modest sales gains to post outsized cash flow gains.

Mitel Networks (Nasdaq: MITL)
This $14 IPO is now a $6 busted IPO. Shares are now quite cheap, trading for less than seven times projected fiscal (April) 2012 profits. The dead-on-arrival IPO came public in the wrong year, as it's a play on the SMB sector, which up until now, has been in a funk. Mitel sells phone systems and usually sees demand when companies are hiring, with new desk set-ups. But even with sales at depressed levels, Mitel can still be counted on to earn $0.75 to $0.90 a share. If SMB spending really picks up, per share profits could exceed $1.

Vistaprint (Nasdaq: VPRT)
The big slowdown in SMB spending really hurt this company, which provides printing and marketing services to companies that are too small to handle their printing needs on an in-house basis. Shares plunged in early August, which looked to me to be a severe over-reaction. [Read: Panic Selling Creates Potential for +35% Gains . . . At Least]

Analysts at Kaufman Bros. see shares rebounding back from a recent $37 to $50 as the company's sales problems this summer prove to be short-lived. “Vistaprint is currently facing a perfect storm, with small business weakness, adverse (foreign exchange) impact and recent execution issues. We note that all these factors are temporary, and should reverse themselves in the future,” notes Kaufman's analysts. They predict that shares, which currently trade for 13 times next year's profits, will trade up to a price-to-earnings (P/E) multiple of 20 once these near-term concerns abate.

Action to Take –> Spending at small businesses is likely to rebound only slowly into 2011 and perhaps more robustly into 2012. But investors need to look ahead, and these stocks could start to appreciate handsomely, simply on the expectation that SMB spending will eventually rebound — and the three stocks I mentioned above are good places to start.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
3 Stocks for the Small Business Rebound

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3 Stocks for the Small Business Rebound

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Can September’s Rally Continue? How Investors Should Plan for the Months Ahead

October 6th, 2010

Can September's Rally Continue? How Investors Should Plan for the Months Ahead

I have been chewing over our trading expert Mike Turner's article this week, trying to get a handle on where the stock market can go from here. [Read Mike's article here] Mike points out that September's rally seemingly ignores the daunting economic hurdles we face. And his technical analysis tells us that we may see all of September's gains erased, returning the major indices to pre-Labor Day doldrums.

I'm inclined to agree. Not only because we haven't seen any really positive economic news to undergird a rally, but also because investors have been conditioned to sell into rallies and buy into pullbacks. That's been a profitable move. If you were a buy-and-hold investor, you'd likely be seeing only flat returns since the start of the year.

Even the index fund players are steering clear of buy-and-hold, rotating into different sectors from month to month. Investors rushed into retail stocks in February, pushing the sector up by +25% until late April before fleeing the sector en masse. Airline stocks have been in favor recently, but who knows how long that will last?

Where we go from here is really a function of whether we view the current environment as half-empty of half-full. On the one hand, there is little economic news to cheer and give reason to expect a more robust outlook in 2011. On the other hand, many stocks are quite inexpensive — especially on an enterprise value basis — and corporate profit margins remain strong, which is a necessary precursor to an uptick in hiring and capital spending.

Let's take a closer look at where we stand relative to historical norms.

Everything is relative
Depending on who you ask, the stock market's price-to-earnings (P/E) ratio is either in line or slightly below the historical average. The S&P 500 stands near 1150, which equals about 16 times projected 2010 profits and about 13.5 times next year's profits. During the past 75 years, the market's P/E ratio for current year earnings has been about 17.

But that number is also associated with interest rates that were well higher. Recall that in the 1970s, stocks got really, really cheap precisely because interest rates were so high. This time around, stocks and bonds are not reacting in tandem. But if you believe that inflation and interest rates will stay low for a while to come, then the risk-premium associated with stocks should be reduced, and a target P/E on the market would be closer to 20. But investors see low rates as a negative, not a positive. “Equities investors now look to rising interest rates as a sign of strength and falling rates as a sign of weakness,” wrote Citigroup's Steven Wieting in a recent report.

In that vein, a modest rise in interest rates may actually be a positive for the market. In fact, interest rates can rise 300-400 basis points from here and would still be at a level that is supportive of a rising stock market, historically speaking. The interest rate discussion is moot in the near-term, as rates are unlikely to start rising for at least another year. But when they do, it won't necessarily be a sell signal for the stock market.

But investors aren't buying the stock market — they are buying individual stocks and sectors. And in many cases, you'll find P/E ratios well below the market average, as I noted recently.

Industries with very low P/E ratios include insurance, mortgages, airplane leasing, pawn shops, dry bulk shipping and companies operating in China.

And you can find plenty of stocks with incredibly strong balance sheets. [Read more here]. All that cash is likely my main reason for being a bull into the first half of 2011, despite the concerns I share with Mike Turner noted above. Cash fuels mergers, stock buybacks and dividends, all of which have been key themes any time in the market is in a mood to rally.

Lastly, it's hard to overstate the relative attractiveness of many free cash flow yields. As I noted in this piece using Walmart (NYSE: WMT) as an example, the retail giant's free cash flow yield stands above 5%, nicely higher than equivalent bond yields. A wide range of companies such as ExxonMobil (NYSE: XOM) and Office Depot (NYSE: ODP) have free cash flow yields above 10%.

When bad is good
As noted earlier, the economic picture is pretty dismal right now, which is likely to lead the Federal Reserve to take action to boost the economy. The market's recent rally has largely been the result of an expected round of bond buybacks, which is known as quantitative easing. As bond sellers like big banks and large enterprises cash in their holdings, they have more money to apply elsewhere in the economy.

As Citigroup's Wieting recently noted, “vast increases in precautionary liquidity throughout the economy could also fuel a more vigorous expansion when 'animal spirits' return.” More specifically, “larger corporate borrowers are likely to re-leverage, return capital and/or income to share holders and expand. The small business sector should gradually thaw”. the Fed is expected to act by early November.

ETF, Uncategorized

Can September’s Rally Continue? How Investors Should Plan for the Months Ahead

October 6th, 2010

Can September's Rally Continue? How Investors Should Plan for the Months Ahead

I have been chewing over our trading expert Mike Turner's article this week, trying to get a handle on where the stock market can go from here. [Read Mike's article here] Mike points out that September's rally seemingly ignores the daunting economic hurdles we face. And his technical analysis tells us that we may see all of September's gains erased, returning the major indices to pre-Labor Day doldrums.

I'm inclined to agree. Not only because we haven't seen any really positive economic news to undergird a rally, but also because investors have been conditioned to sell into rallies and buy into pullbacks. That's been a profitable move. If you were a buy-and-hold investor, you'd likely be seeing only flat returns since the start of the year.

Even the index fund players are steering clear of buy-and-hold, rotating into different sectors from month to month. Investors rushed into retail stocks in February, pushing the sector up by +25% until late April before fleeing the sector en masse. Airline stocks have been in favor recently, but who knows how long that will last?

Where we go from here is really a function of whether we view the current environment as half-empty of half-full. On the one hand, there is little economic news to cheer and give reason to expect a more robust outlook in 2011. On the other hand, many stocks are quite inexpensive — especially on an enterprise value basis — and corporate profit margins remain strong, which is a necessary precursor to an uptick in hiring and capital spending.

Let's take a closer look at where we stand relative to historical norms.

Everything is relative
Depending on who you ask, the stock market's price-to-earnings (P/E) ratio is either in line or slightly below the historical average. The S&P 500 stands near 1150, which equals about 16 times projected 2010 profits and about 13.5 times next year's profits. During the past 75 years, the market's P/E ratio for current year earnings has been about 17.

But that number is also associated with interest rates that were well higher. Recall that in the 1970s, stocks got really, really cheap precisely because interest rates were so high. This time around, stocks and bonds are not reacting in tandem. But if you believe that inflation and interest rates will stay low for a while to come, then the risk-premium associated with stocks should be reduced, and a target P/E on the market would be closer to 20. But investors see low rates as a negative, not a positive. “Equities investors now look to rising interest rates as a sign of strength and falling rates as a sign of weakness,” wrote Citigroup's Steven Wieting in a recent report.

In that vein, a modest rise in interest rates may actually be a positive for the market. In fact, interest rates can rise 300-400 basis points from here and would still be at a level that is supportive of a rising stock market, historically speaking. The interest rate discussion is moot in the near-term, as rates are unlikely to start rising for at least another year. But when they do, it won't necessarily be a sell signal for the stock market.

But investors aren't buying the stock market — they are buying individual stocks and sectors. And in many cases, you'll find P/E ratios well below the market average, as I noted recently.

Industries with very low P/E ratios include insurance, mortgages, airplane leasing, pawn shops, dry bulk shipping and companies operating in China.

And you can find plenty of stocks with incredibly strong balance sheets. [Read more here]. All that cash is likely my main reason for being a bull into the first half of 2011, despite the concerns I share with Mike Turner noted above. Cash fuels mergers, stock buybacks and dividends, all of which have been key themes any time in the market is in a mood to rally.

Lastly, it's hard to overstate the relative attractiveness of many free cash flow yields. As I noted in this piece using Walmart (NYSE: WMT) as an example, the retail giant's free cash flow yield stands above 5%, nicely higher than equivalent bond yields. A wide range of companies such as ExxonMobil (NYSE: XOM) and Office Depot (NYSE: ODP) have free cash flow yields above 10%.

When bad is good
As noted earlier, the economic picture is pretty dismal right now, which is likely to lead the Federal Reserve to take action to boost the economy. The market's recent rally has largely been the result of an expected round of bond buybacks, which is known as quantitative easing. As bond sellers like big banks and large enterprises cash in their holdings, they have more money to apply elsewhere in the economy.

As Citigroup's Wieting recently noted, “vast increases in precautionary liquidity throughout the economy could also fuel a more vigorous expansion when 'animal spirits' return.” More specifically, “larger corporate borrowers are likely to re-leverage, return capital and/or income to share holders and expand. The small business sector should gradually thaw”. the Fed is expected to act by early November.

ETF, Uncategorized

7 Countries that Could Crash in Five Years

September 18th, 2010

7 Countries that Could Crash in Five Years

Every few years, demographers raise their estimate for human longevity. Whereas 70 years old once signified a rapidly ageing body and the early signs of mortal illness, now 70 year-olds run marathons, chop wood and settle for long retirements. Ninety is the new 70. And who could complain about that?

Well, investors might complain. In a number of countries, a rapidly aging society is creating financial burdens that will start to bite within a few years. Fewer young workers paying into the retirement system, coupled with explosive growth in the elderly population looks set to wreak havoc on government balance sheets. And since many governments already carry large debt burdens and will need to roll over their expiring debts with new ones, bond buyers are likely to demand far higher interest rates once they see how difficult it will be for some of these countries to live beyond their means.

Japan serves as a prime example of the demographic time bomb. According to the United Nations' Population Division, Japanese households are having an average of 1.4 children (well below the 2.1 replacement rate), and when this is coupled with restrictive immigration policies, it has led to a steadily rising average age in Japan. Japan's life expectancy, already among the highest in the world at 83 years, could approach 90 in the next few decades, according to the U.N.

As this chart indicates, the United States is on track to have the highest percentage of workers under the age of 65 by 2050, compared with China, Europe and Japan.

Immigration and births are key
One of the main reasons that the U.S. is expected to have an ample percent of its population in 2050 below 65 is its relatively open immigration system and reasonable family size. Yet some countries are likely to suffer from small family sizes (much of Europe, Japan) or restrictive immigration policies (Japan, Australia). In Russia, a combination of small families and a high incidence of premature mortality (often due to alcoholism or environmental factors), is leading to an outright shrinkage in its population, which has already dropped from 150 million to 141 million in the last 15 years and could drop to 130 million by 2030 according to demographers. A shrinking population makes it harder to handle rising government debt loads.

Markets look ahead
But it won't take until 2050 for this time bomb to go off. Government finances are already starting to feel the heat, and the deficits will only deepen unless their economies sharply rebound and we see major entitlement reform in many nations. And few are expecting either of those factors to happen, let alone both. So as debts get rolled over the next few years, look for rising interest rates on government bonds. Which makes matters worse. And as bond concerns arise, equity markets are likely to grow even more skittish. [How to Lock in 8% Government Yields]

Taking a look at the countries with the largest stock markets, here's a quick list of countries that have large government debts as a percentage of GDP:

(These tables don't reflect 2010 and projected 2011 debt levels, and these numbers are likely higher for most of these countries now. U.S. debt levels appear higher, but benefit from a currently over-funded Social Security program).

Now, let's cross-reference those government debt levels with median population ages:

One of things you'll notice when comparing this table to the one earlier, is that median ages are rising quickly. In Japan, the figure was 42.9 in 2005, and is now 44.6. Conversely, countries such as Israel, Brazil and India all have a median age below 30, which will be a real long-term asset — if they can maintain strong education systems that ensure a productive workforce.

Germany is going to be an especially interesting test case. The country's industrial economy is at the heart of its society, and an ageing workforce is less capable of manning the assembly lines.

Low birth rates
As noted earlier, it takes 2.1 children per family just to keep populations stable (immigration notwithstanding). Surprisingly, more than 100 countries fail to meet that threshold, according to the U.N. The dearth of children is especially notable in some of the fast-growing economies in Asia.

The risky 7
In light of these trends, these economies could be headed for real trouble — unless drastic action is taken.

1.

ETF, Uncategorized

The War on Small Business

September 2nd, 2010

Today, we revisit a recurring theme: the assault on enterprise. It was the subject of our symposium in Vancouver in July. In this episode, we look at a particularly vulnerable segment of the economy: small businesses.

To help set the stage, let’s look at some important stats from the Small Business Administration (SBA). Small businesses:

  • Represent 99.7% of all employer[s]
  • Employ just over half of all private-sector employees
  • Pay 44% of total U.S. private payroll
  • Have generated 64% of net new jobs over the past 15 years
  • Create more than half of the nonfarm private gross domestic product (GDP)
  • Hire 40% of high-tech workers (such as scientists, engineers and computer programmers)
  • Are 52% home-based and 2% franchises
  • Made up 97.3% of all identified exporters and produced 30.2% of the known export value in FY 2007.
  • Small firms produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large-firm patents to be among the 1% most cited.

Further, if you look to the Kauffman Foundation, startup firms are the “sole engine” of job creation in the U.S. economy.

Kauffman crunched a data set from the Census Bureau covering the years 1977-2005. In all but seven years during that period, existing businesses cut an average 1 million jobs… while firms in existence for a year or less created 3 million.

“Policymakers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies,” explains Kauffman VP of Research and Policy Robert Litan. “But the data from this report suggest that growth would be best boosted by supporting startup firms.”

Instead, these small firms are being strangled. Let us count the ways…

According to the National Business Group on Health, the typical large business will see its health insurance costs rise 9% next year.

But for small businesses, the numbers are rising faster. Small employers in California are looking at increases of 12-23%, on average, according to The Los Angeles Times — one got notice of a 76% increase.

It’s an acceleration of a long-standing trend…

Small Business Health Insurance Costs

The government has skewed health insurance costs in favor of larger businesses for decades… and now the “health reform” law signed this year is tilting the scales that much further.

Then there’s this nugget tucked into that other legislative monstrosity known as “financial reform”: Starting in 2012, every business must issue a Form 1099 to every vendor from whom it buys more than $600 in goods or services every year.

So if you’re a small businessperson and you order $601 in office supplies from Staples over the course of a year (better keep a running total), you must issue a 1099 to Staples.

26 million sole proprietorships alone will be caught up in this net. SMC Business Councils, a business networking group, reckons its typical member currently files about 10 1099s a year. Under the new rules, SMC estimates the number could reach 200.

The idea behind this requirement is to increase compliance with existing tax law. The unintended consequence is it will bury small businesses in paperwork.

Very small firms with fewer than 20 employees already spend 45% more per employee than larger firms to comply with federal regulations, according to the SBA.

And yet… right on cue… a study released by the pithily named Transactional Records Access Clearinghouse at Syracuse University shows the IRS has increased its audit hours of small businesses (those with less than $10 million in assets) by 30% over the last five years.

At the same time, large corporations’ audit hours are down 33%.

The average amount of “underreporting” found for each audit hour of a small- or midsized business was $1,025. For a large corporation, it was $9,354.

Hmmmn… that’s a good trend if you’re a lawyer at a Fortune 500 firm. It’s bad if you’re trying to book a tee time or grow a small business.

Individual sectors are also getting hit hard…

  • The financial reform law is hitting small community banks with big regulatory hurdles. “We will no longer be able to evaluate loan applications based solely on the creditworthiness of the borrower,” complains Sarah Wallace, chairwoman of a small thrift in Ohio, in The Wall Street Journal. “We will be making regulation compliance decisions, instead of credit decisions”
  • The requirements buried in a “food safety” bill likely to pass Congress this month will have a devastating impact on small farmers. “This could make farmers markets go away,” farmer Scott Frost tells the Portland Oregonian. “The only guys left standing in the room will be the big gorillas.” That’s because the big boys can easily absorb the record-keeping requirements (and annual fees) that come with the bill.

It’s not just the Feds looking for a piece of these guys. Small businesses are looking juicy to revenue-starved state governments. To wit…

  • Pennsylvania is looking to add a 6% sales tax to plumbing and electrical services
  • Wristwatch repair may become subject to a 4% sales tax in New York
  • Four states are looking to join the 26 that already tack on a tax or fee at bowling alleys
  • Want to go horseback riding in Arizona? The stable owner may soon have to charge you a 5.6% sales tax
  • Three states may opt to start taxing interior decorating services.

Given the environment, this next nugget should come as no surprise.

The National Federation of Independent Business puts out a monthly “Optimism Index” of small-business owners it surveys. Last month, that number sat at 88.1. The last time the number stayed above 90 for longer than three months was early 2008. It was over 100 as recently as October 2006.

“The persistence of Index readings below 90 is unprecedented in survey history,” says the NFIB. Contrast its readings over the last five years with, for instance, the big-business ISM manufacturing index, which has pointed to expansion for over a year now…

No Recovery for Small Business

“It seems,” Barron’s columnist Randall Forsyth writes archly, “America’s entrepreneurs were too busy struggling with their own businesses to read all the accounts in the media about how terrifically the economy is doing.”

When NFIB survey participants were asked what is the single-most-important problem facing their business, a plurality of 29% said “poor sales.” But right behind that…

  • 22% cited taxes
  • 15% cited “government regulations and red tape”
  • 7% cited “cost and availability of insurance” — as we’ve seen, a government-created problem.

Only 4% cited availability of credit. Good thing we spent billions in bank bailouts to keep the lines of credit open, isn’t it?

Addison Wiggin
for The Daily Reckoning

The War on Small Business originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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The War on Small Business




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

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