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U.S. Economy

Plunge in Capital Spending Could Slow Hiring & Economic Recovery

Although initial claims for jobless benefits fell more than expected last week, a slowdown in U.S. business investment indicates hiring will continue to stall.

Applications for unemployment benefits dropped by 31,000 last week to 473,000, the Labor Department said yesterday (Thursday), providing some relief that the job market isn't deteriorating rapidly as the economy slows. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 10,000.

But claims still remain elevated and aren't likely to boost confidence in the economic recovery.  The four-week moving average, which smoothes volatility in the data, rose by 3,250 to 486,750, the highest level since Nov. 28, 2009. And new claims for the previous week were revised upward to 504,000 from 500,000.

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The Tobin Tax: The Deficit-Busting Levy Wall Street Hates

After the Nov. 2 midterm elections, the Obama administration and Congress are going to have to scramble to fill a trillion-dollar hole in the U.S budget, and tax increases may be the only option.

A tax increase won't be good news for an already wheezing economic recovery that seems to get weaker with each new report or indicator that's issued. But the type of tax that's chosen will go a long way in determining just how much damage the U.S. economy will have to endure.

With a deficit in excess of $1 trillion, there aren't a lot of options. One possibility would be to allow the 2001 and 2003 Bush tax cuts to expire, which would have a depressing effect on the economy and most people's pocketbooks.

But a better option would be to devise some new taxes that may prove less damaging. Indeed, there's even one possibility that might even do some economic good if it's implemented correctly.

It's called a "Tobin tax."

To see how a reasonably set "Tobin tax" could help U.S. leaders to fix the nation's finances, please read on…

To see how a reasonably set "Tobin tax" could help U.S. leaders to fix the nation's finances, please read on...

Is the Bond Bubble About to Burst?

Bonds have provided a welcome safe-haven for investors seeking shelter from the financial maelstrom of the past two years. But now many analysts fear bonds have entered bubble territory and pose a rising threat to their holders.

The amount of money flowing into bonds is "probably not sustainable on a consistent basis" Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc., told Bloomberg News. "Eventually it won't be sustainable. Whether that means five years from now or five weeks is a little difficult to tell."

Bond funds have attracted more investment than stock funds for 31 straight months, which matches the record streak that ran from 1984 – 1987. Bond funds attracted $559 billion in the 30 months through June, according to the Investment Company Institute (ICI). Meanwhile, investors withdrew $209.4 billion from U.S. stock funds and $24.4 billion from funds that buy foreign stocks.

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Question of the Week: Readers See Failures in Fed's Policies During U.S. Economic Recovery

The U.S. Federal Reserve last week said it would take a small "easing" step – what Fed watchers described as a largely symbolic move designed to show the central bank is "concerned" with the nation's economic outlook. The central bank's policymaking Federal Open Market Committee (FOMC) said it would hold interest rates at record-low levels and announced it would reinvest maturing mortgage-backed securities back into the market so that its balance sheet does not shrink.

However, Analysts think the Fed will have to do more to help the economy move along, and are expecting more announcements of policy easing in coming weeks.

"I suspect that the Fed will, within time, purchase more longer-dated government securities" than is required by reinvesting the principal payments from agency debt and agency mortgage-backed securities in the Fed's portfolio, said veteran Wall Street economist Henry Kaufman to Reuters.

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We Want to Hear From You: Are You Seeking 'Safe Haven' Shelter in the U.S. Bond Market?

Ongoing stock market worries and a string of discouraging economic reports have imbued the U.S. bond market with "safe-haven" status. The upshot: Investors have poured record amounts of money into bond funds.

"It is hard to pick up the newspaper and see anyone optimistic," Francis Kinniry from The Vanguard Group Inc., told Bloomberg News. "The problem is there is not a lot of good news on the recovery front and that translates in people's mind to poor capital markets."

Bond funds for the past two years have seen inflows almost as high as stock funds did during the Internet bubble, according to the Investment Company Institute (ICI). From January 2008 through June 2010, outflows from equity funds totaled $232 billion, while inflows to bond funds hit a staggering $559 billion.

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Cold-Weather Investing: Coal, Natural-Gas and Heating-Oil Investments Will Pack a Punch in January

The irony about cold-weather investing is that the biggest profits come to those who position their money during the hottest months of the year – even during the record heatwave Americans have been experiencing this year.

In short, now's the time to start thinking about such winter-related topics as heating bills, and such cold-weather investments as natural gas, heating oil and coal.

According to the American Petroleum Institute (API), natural gas provides heat for 55% of homes in the United States, followed by electricity, which warms 39%. Heating oil, propane and coal play only minor direct roles, although coal is used to fire 49% of America's electric generating plants, with another 20% fueled by natural gas.

That means natural gas is the natural choice of investors looking for winter-related profits – although Dr. Kent Moors, editor of Oil & Energy Investor newsletter and a frequent contributor to Money Morning, cautions that factors other than routine home-heating demand play a major role in setting prices.

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What to Expect on Wall Street as Nervous Investors Navigate a Slowing Economic Recovery

Wall Street was hit hard last week with gloomy data that has kept buying interest stalled and investors spooked over a slow economic recovery.

Stocks slipped over the past week after investors learned from government reports that jobs are getting scarcer than straw hats in a wind tunnel, and it isn't always sunny in Philadelphia. 

The big-cap indexes lost around 1%, while safe haven assets like gold and the U.S. dollar were buoyant. The best investment around for the week was the U.S. long bond, up 2%.

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To read what’s in store after last week’s gloomy data, click here

How Washington Should Handle the Bush Tax Cuts

The big political issue for the remainder of this year will be the so-called "Bush tax cuts" engineered by U.S. President George W. Bush in 2001 and 2003.

Those tax cuts are scheduled to expire on Dec. 31, with taxes reverting to their 2001 levels.

It's not at all clear which of the cuts will be extended and which will be repealed.

But one thing is clear: The outcome of the Bush-tax-cut debate will have major implications for the U.S. economy.

To understand the economic implications of extending the Bush tax cuts, please read on...

Three Ways to Brace for a Double-Dip Recession: Recession-Proof Stocks

Today (Friday) we conclude our series on bracing for a double-dip recession.

In Part I of this investment series, "Three Ways to Brace for a Double-Dip Recession: Going for the Gold," we discussed ways investors could safeguard against the imminent decline of the U.S. dollar by buying gold.

In Part II, "Three Ways to Brace for a Double-Dip Recession: Going Global," we
explored potential investments in foreign countries that have more stable economies and better growth prospects.

And today, we're going to conclude by looking at "recession-proof" stocks right here in the United States.

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Money Morning Mailbag: Ending Bush Tax Cuts Not a Cure-All for U.S. Financial Woes

The question of whether or not to extend the Bush tax cuts will be a pivotal issue as Washington prepares for this year's midterm election.

The Congressional Budget Office yesterday (Thursday) reported that extending the tax cuts would result in only short-lived economic benefits.

"[It would provide] a considerable boost to economic activity in 2011 and beyond for a few years," CBO Director Douglas Elmendorf told CNN. "Over time, [however,] the negative consequences of very high federal borrowing build up."

The CBO reported that if the cuts for most U.S. taxpayers were made permanent – as proposed by U.S. President Barack Obama – the nation's accrued debt (not including money owed to Social Security and other government trust funds) could climb to 100% of gross domestic product by 2020, up from 62% this year.

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