Saudi-Russian Oil Deal … U.S. Odd Man Out?

Ty J. Young Editorial

Although it lacks the flair of a James Bond movie or the intrigue of a Cold war spy novel, the agreement between Saudi Arabia and Russia to cap oil production output at January 2016 levels could be a political game changer.

Americans have been enjoying unprecedented savings at the pump over the last 18 months, and our own production capacity has skyrocketed over the last decade. But we ignore the risks of this new relationship at our own risk. In short, this is one of many moves taking power away from America and sending it to others. In this case, the Russians.

I. How the Saudi-Russian oil deal could affect the U.S.:

  1. Russia trying to dethrone king dollar: The dollar has been stronger than ever, but long term Russia and other adversaries want to remove the dollar as the world’s primary reserve currency. Oil is priced in dollars – controlling the oil price and oil market share puts a big dent in dollar importance.
  2. Russia taking more oil market share. Russians and Saudi Arabians lost control of the market when U.S. shale oil producers, along with U.S. Natural Gas, began taking sizable portions of the global oil market share. Oil priced in U.S. dollars … U.S. gaining market share … price drops hurting their budgets … the Russians had to make a move. Traders now realize the price and the market will be set in Saudi Arabia and Moscow, with a growing voice from Iran.
  3. Russian move against U.S. allies. From Syria, to attacks on NATO (North Atlanta Treaty Organization) ally Turkey, and now they are making deals with long-time U.S. ally Saudi Arabia over oil production. This is pushing the U.S. out of the region, leaving NATO’s southern flank exposed, creating fear in other U.S. allies, such as Jordan, and endangering U.S. friend and ally Israel.
  4. Russian move against our markets and economic interests. U.S. banks are exposed to energy bonds and shale oil companies that are going bankrupt at a fast rate as oil prices have dropped. Many are calling these loans the “new sub-prime,” in reference to the real estate debt which helped caused the 2008 financial collapse. Controlling oil production and the price of oil affects the value of the dollar. These moves can cause havoc to banks, corporations and therefore the U.S. stock market and economy as a whole.

II. Why the Saudi-Russian oil deal matters to you:

  1. Bad for the dollar, bad for all of us. The dollar as the world reserve currency has given us control of the global economy and has allowed us to run deficits at low interest rates. If the dollar is eventually moved out of or replaced for international transactions, it will drive our interest rates up and will force drastic cuts in the U.S. budget. Jobs, social welfare and markets will ALL be negatively impacted.
  2. Bad for our friends. Under our current government, the Middle East seems to have been handed over to Russia and Iran. After decades of spending our blood and treasure, our role and leadership was given up seemingly overnight. Our friends, like Saudi Arabia, see no choice but to cut deals with Russia. Other friends, like Israel, Jordan, and Egypt, are fearful of our withdrawal. Those changes come with a heavy price to our reputation, which usually means we will be paying down the road in even more blood and treasure.
  3. Bad for our economy. This deal strikes at the heart of our energy industry. It will put a ton of downward financial pressure on dozens of U.S. energy companies. We could see energy company defaults spike and an increase in bankruptcies. This will put greater stress on banks. Layoffs and broader defaults could follow. The energy industry is heavily reflected in the Dow and S&P meaning your retirement money will be affected as well.

Lower oil prices have been great for consumers. Moderately higher prices could help the U.S. energy industry while, at the same time, remaining as a savings for consumers. What we do not know, and what is causing fear in U.S. markets, is how the Saudi-Russian oil production deal could impact our markets and our economy over the long haul. These risks cause uncertainty and volatility – both can wreak havoc with your retirement portfolio … but not if your money is protected.

Where can you find protection from the global events affecting markets today? Call now to find out. 877-912-1919.




RIP Justice Antonin Scalia

Ty J. Young Editorial

Conservative Supreme Court Justice Antonin Scalia died Saturday, February 13, 2016.  The Reagan appointee was on the high court for almost 30 years, and is largely considered one of the great legal minds in the country’s history.

Included in his friends across the aisle was liberal Justice Ruth Bader Ginsburg, who was quoted upon his death saying, “He was a charming man and a very good friend.  We did not agree on most things, but he was persuasive and someone whose integrity you trusted.”

Antonin Scalia was a conservative champion because he believed in original intent, meaning the Constitution should be read as it was originally intended, because it is a legal document, not a living organism, and if you did not like it there was a process for changing it … which was not the role of the Court.  His rulings and votes on cases of historical importance have led to some of the most memorable comments in American history.  Since there was not enough room for a Top-1,000, here is our top 10 “Scalia’s Greatest Hits”:

I. Scalia’s Top 10 Greatest Hits

  1. Antonin Scalia said – Same-sex Marriage ruling was wrong. In Obergefell v. Hodges, Justice Scalia dissented, saying the court was substituting its own morality for the original meaning of the Constitution, and this was wrong.  He made fun of his fellow Justices by saying:  “The Supreme Court of the United States has descended from the disciplined legal reasoning of John Marshall and Joseph Story to the mystical aphorisms of the fortune cookie.”
  2. Antonin Scalia said – Character is not for sale. During a Harvard Law speech, Scalia decried the lack of ethics in the legal profession, and shared with his audience:  “Bear in mind that brains and learning, like muscle and physical skill, are articles of commerce. They are bought and sold. You can hire them by the year or by the hour. The only thing in the world not for sale is character.”
  3. Antonin Scalia said – Court cannot rule against the 2nd Amendment. Writing for the majority in Columbia v. Heller, Scalia said:  “Undoubtedly some think that the Second Amendment is outmoded in a society where our standing army is the pride of our Nation, where well-trained police forces provide personal security, and where gun violence is a serious problem. That is perhaps debatable, but what is not debatable is that it is not the role of this Court to pronounce the Second Amendment extinct.”
  4. Antonin Scalia said – God’s blessings have been placed on America. In 2007, Scalia told a New York Times reporter: “God has been very good to us. … One of the reasons God has been good to us is that we have done him honor.”
  5. Antonin Scalia said – the Court got Bush v. Gore (2000 election) right.  Scalia told NBC’s Tim Russert, when asked about the 2000 election:    “Get over it.  It was a 7-2 ruling.  The scheme the Florida Supreme Court concocted to count the votes – counting some counties and not others – violated equal protection.  It wasn’t that hard of a decision.”
  6. Antonin Scalia said – Taxpayers do not have to pay for free speech. In his majority ruling in NEA v. Finley, Scalia cited the 1st Amendment and free speech – “Avant-garde artists remain entirely free to express whatever they choose; they are merely deprived of the additional satisfaction of having the [public] taxed to pay for it.  It is preposterous to equate the denial of taxpayer subsidy with measures aimed at the suppression of dangerous ideas.”
  7. Antonin Scalia said – Obamacare is a legal joke.  Scalia was scathing in his dissent against the Obamacare ruling, saying:  “The Court’s next bit of interpretive jiggery-pokery involves other parts of the Act that purportedly presuppose the availability of tax credits on both federal and state Exchanges … which is not actually written in the Act itself … This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere.  Pure applesauce.   We should start calling this law SCOTUScare.”
  8. Antonin Scalia said – Capitalism’s success requires Christian virtue. As quoted from his text before an AEI symposium:  “For in order for capitalism to work — in order for it to produce a good and a stable society — the traditional Christian virtues are essential.”
  9. Antonin Scalia said – States have the right to police who is inside their borders. In his dissent in the DREAM Act cases, Scalia said Arizona was COMPLYING with federal law by turning over illegal aliens of any age within their borders, and we must ask the question:  “Would states have joined the Union if the Constitution prevented them from controlling illegal aliens entering their territory?  Of course not.”
  10. Antonin Scalia said – Originalism does not allow for moderate interpretation. Speaking in front of a Georgetown student gathering, Scalia was asked whether a moderate interpretation would be preferable in the age we live in.  His answer:  “What is a moderate interpretation of the text? Halfway between what it really means and what you’d like it to mean.”

Scalia’s death set off a political firestorm as the White House believes this is a chance to remake the Court in Obama’s image. Conservatives are reminding the Republican Senate they better not wimp out in blocking any Obama appointee.

II. What this means for the Presidential Election year:

  1. Potentially bad for conservatives. Without the vacancy filled, 3 highly politicized cases would most likely finish with a 4-4 vote.  That would ratify the lower court’s ruling as final.  This means the President’s DREAM Act would remain in full force and effect, as well as union pay being taken from teachers for political causes without their consent.  Those are two major losses for conservatives.
  2. Conservative Senators will be under enormous pressure. Cave in to an Obama appointment, which would be ideologically opposite of Scalia and further tip the Court to the left, and face a voter revolt in November. Block a Presidential Supreme Court appointment, and expect the full weight and fury of the media and the political left to retaliate.
  3. This could cause problems for Trump. Presidential candidate Donald Trump’s sister Maryanne Barry is a liberal jurist who he has repeatedly praised and said “She would make a great Supreme Court Justice.”  She is an eager pro-choice Judge who has written in support of partial-birth abortion.  Trump cannot speak out against his sister – so what happens on the trail when the question is asked:  “Will you nominate your sister to the Supreme Court?”

Whether you are liberal or conservative, Antonin Scalia’s death is a great loss to the legal community and to the country as a whole.  His combative reputation will survive him as the politics on both sides of the aisle get ready to wage war over the future direction of the Supreme Court.

There is a great deal of precedent for not confirming a Supreme Court appointee. It happens often, and you have to go back 100 years to find a lame-duck Presidential court appointee approved by the Senate.  If you hear or see someone in the media saying the Republicans are wrong to block the President’s appointment, then they are wrong.

The price of freedom is one of eternal vigilance, and Antonin Scalia’s career represents such vigilance, a Constitutional Conservative who hopefully is not the last of his kind to have served on the Court.  In his works and in his life, he tried to inspire us to adhere to the principles of freedom, limited government, and the American ideal that we are a nation of laws, not of men. Those laws are found in the original interpretation of our Constitution.



Is the U.S. importing a recession from China?

“Is the U.S. importing a recession from China?”
Ty J. Young Editorial

Many commentators are beginning to view the slowing Chinese economy as a potential starting point for a recession in the United States. You are now hearing from the talking heads that we may be importing a recession from China. It is a common theme, since both economies are linked together a great deal.

I. Those who believe we are importing a recession from China are saying:
1. Global economy is globally connected. The global economy is interconnected. It was once said when the U.S. sneezed, the rest of the world caught a cold. Now, any global event can spark a response anywhere else.
2. The U.S. is directly connected to China. U.S. businesses have placed a sizable portion of our manufacturing base into Asia. Furthermore, China is our banker and holds 1/5th of our public debt in U.S. Treasuries. Movement on interest rate policy, debt holdings, and other financial decisions made in China can have an adverse impact on the dollar and US markets.
3. Big market players need Chinese profits. Google, Apple and other companies rely upon foreign profits for their bottom lines. These big market players are affected when sales in China dry up. The drop in sales can affect the retirement portfolios of U.S. households with stock in these companies. If your savings are taking a hit, your net worth will lower and slow U.S. spending.
II. Those who do not believe we are importing a recession from China are saying:
1. U.S. trade with China is tiny. Last year U.S. exports to China totaled $118 billion or “two-thirds of 1 percent of U.S. GDP.” The U.S. has much larger trade relationships with Europe, Canada and Japan. There is little impact coming from trade with China, which means an even smaller impact on the economy as a whole.
2. Chinese imports are now cheaper. Your wallet keeps its cash, and your bottom line improves. Imports become cheaper to purchase as China weakens. While deflation is usually a sign for a recession, a lower cost of living and an improved household balance sheet is not.
3. Debt is a problem for China, not the U.S. There is an old saying – “If you owe the bank a thousand dollars that is a problem for you. If you owe the bank a million dollars that is a problem for the bank.” China cannot move to massively sell U.S. debt without lowering the value of that debt, which lowers the value of their own foreign holdings and cash reserves.
III. Many say a recession is imminent whether it comes from China or not.
1. Stifling regulation. American businesses have been choked by a thunderous assault from the Federal Government’s Environmental Protection Agency and other rogue agencies, along with Obamacare and White House executive orders.
2. Artificially stimulated stock market. The stock market had an historic run over the last 6 years, but has lately seen some declines. That surging market was driven by zero interest rates, which led people to consider riskier assets in order to find some return on their money. An artificial surge can only work for so long, and has essentially been withdrawn. We are now seeing the effects.
3. Fundamentals are scary. The stock market is down, business formation is contracting, manufacturing has tanked and economic growth is slowing. There are no fundamental indicators that suggesting we are trending upward. We suggested a recession is in the near term future, which may be the case soon. However, a recession will be from the lack of fundamentals, not necessarily from China.

IV. 3 easy steps to avoid recession and stimulate economic growth.
1. Flat tax or Fair tax system. Implementing a drastically reduced tax code using a flat tax system or removing income taxes altogether by implementing a fair tax system could prevent increasing taxes and tax rates on everyone and everything. This would free up disposable income, and would drive increase government revenue as there would be less tax evasion and greater economic expansion. Tax cuts have stimulated economic growth every time.
2. Remove unprecedented regulation. The last seven years have seen an extraordinary increase in the amount of government intrusion into the economy. This regulatory burden stifles growth, deters new businesses from forming, and absorbs profits from businesses. It is as simple as replacing tens of thousands of burdensome business regulations with just a few smart business friendly rules
3. ACT LIKE BUSINESS, PROFIT AND PERSONAL WEALTH ARE A GOOD THING BECAUSE THEY ARE! We should want people to aspire to do well, seek success, seek accomplishment, and be profitable in their business. Instead of demonizing the wealthy, we should be encouraging people to emulate how the wealthy succeed. Eliminate crime and inheritance and the majority of wealthy people earn success and prosperity through hard work, dedication, and an unwillingness to accept defeat. In the current era we are living in, we are instead teaching people they are owed something for nothing, and to take from those who have succeeded to give to those who have not.

Remove these barriers and the free market always finds a way to build businesses, create jobs, and drive economic growth to Reagan levels of prosperity. A recession could be avoided with pro-growth conservative principles coming from government.

The global economy is connected. What happens in China can have an impact on the United States, but it should not. Our problems can be resolved through our own actions. Free market policies can have a greater impact on markets and economic performance than worrying about China’s slowing growth. Like the American economy, the decisions we make can positively affect our personal balance sheets instead of letting the stock market’s ups and downs negatively affect your retirement portfolio. Call now to find out how you can be protected from the adverse effects of the marketplace. 877-912-1919