The Economy, Oil Prices, Tax Cuts & Obama’s Tantrum

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The Economy, Oil Prices, Tax Cuts & Obama’s Tantrum

On The Economy, Oil Prices & Obama’s Temper Tantrum by Gary D. Halbert

FORECASTS & TRENDS E-LETTER
December 2, 2014

IN THIS ISSUE:

1.  Economy Rose More Than Expected in the 3Q

[Exclusive] DG Value Underperforms In H1, Sees Growing Number Of Distressed Opportuities

Dov Gertzulin's DG Capital has had a rough start to the year. According to a copy of the firm's second-quarter investor update, which highlights the performance figures for its two main strategies, the flagship value strategy and the concentrated strategy, during the first half of 2022, both funds have underperformed their benchmarks this year. The Read More

2.  The Economy is Not Yet Out of the Woods

3.  The Oil Price Decline is Like a Big Tax Cut

4.  President Obama’s Post-Election Temper Tantrum

5.  Webinar With Wellesley Investment Advisors on Thursday

Economy Rose More Than Expected in the 3Q, But…

Last Tuesday the Commerce Department raised its estimate of 3Q Gross Domestic Product to a 3.9% annual pace from the 3.5% rate reported last month, reflecting upward revisions to business investment and consumer spending and a smaller than previously reported decline in inventories. The pre-report consensus was for a slight cut to 3.3%, so the latest report was much better than expected.

The report came on the heels of the second quarter report in which GDP expanded at a 4.6% rate. Indeed, in four of the last five quarters GDP has increased by 3.5% or more (and by 4.5% or more in two of the last five quarters). The American economy hasn’t strung together five quarters like that since the late 1990s.

There are several positive trends occurring that have underpinned the above-trend growth over the last two quarters. The first, of course, is the sharp decline in the price of oil and other commodities. That has translated into much cheaper gasoline, with average prices down 24%, or 89 cents a gallon, since late April. Americans are also enjoying cheaper natural gas, fuel oil and electricity, which have common roots in the falling commodity prices.

These savings tend to flow directly into other forms of consumption, much as a tax cut would. Every dollar not spent to keep cars filled up is available to buy something else, which is helping prop-up spending and economic growth in the final months of 2014.

Next, over the last year, employment has grown at the fastest pace since 2006 and the pace of hiring seems to be trending upward. The nation has been adding jobs since 2010, but in 2014 the rate of that gro