21/10/2010 The 10 Most Pressing Questions Abo…

October 21, 2010

The 10 Most Pressing Questions About the U.S. Economy –

And Their Answers
Money Morning Staff Reports

Will the economy lapse into a double-dip recession? What can be done about the soaring U.S. budget deficit? What's
next for the stock market?

These are just a few of the tough questions facing investors. And there may be no one better to offer answers, insight,
and advice than Money Morning Contributing Editor Shah Gilani.

A retired hedge-fund manger, Gilani has routinely been there to shepherd investors through blinding market uncertainty.
He's used his contacts on Wall Street to give Money Morning readers the inside scoop on the collapse of American
International Group Inc. (NYSE: AIG), the May 6 "Flash Crash," and most recently the "Mortgagegate" scandal that
currently threatens to undermine the fragile U.S. recovery.

Indeed, Gilani has been a tireless advocate for investors and a prescient market maven. That's why Money Morning 's
editors recently sat down with Gilani to talk about today's most pressing issues and discover what he expects for financial
markets in the months and years ahead.

In the partial transcript of that interview below, Gilani discusses why it's a good time to invest in stocks, what steps should
be taken to fix the U.S. economy, and whether or not gold prices have peaked.

In short, the U.S. government has failed the public as a matter of course, but there is still a way out of our current
economic malaise and ample opportunity for investors to profit.

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Money Morning: Is now a good time to invest in stocks? Why or why not?

Shah Gilani: It's not a good time to invest in stocks - it's a great time. While economic numbers in the United States are
uninspiring in terms of growth, they have inspired the U.S. Federal Reserve to pursue an expansive monetary policy.

If the Fed is successful in keeping rates down while the economy slogs toward recovery and jobs growth, two things will
happen:

1) Fixed-income investors will exit their low-yielding bond holdings and chase appreciation and total return prospects in the
equities markets.

2) If we have growth here in the United States - since we're behind the global curve - the rest of the world will already
be humming along. That means price pressures and inflation. That's better for stocks and bad for bonds. That's going to
propel equities to extraordinary heights.

(Q): Does gold have more room to run from here?

Gilani: Yes, there's more room for gold prices to head higher. Countries around the globe continue to devalue their
currencies in a race to be export driven machines. Additionally, the growing threat of inflation is another reason gold will
continue to be a momentum trade.

(Q): Is U.S. President Barack Obama getting the job done?

Gilani: No. The president has blown a historic opportunity to lead the country. Ramming healthcare down America's
throat left everyone on both sides of the argument with a terrible taste in their mouths. It was the nail in the coffin of
bipartisanship. The President should have moved immediately on financial reform, making the economy and a safe investing
environment the basis of recovery. He had the wind in his sails, but he chose to sail onto the rocks of healthcare instead
of pursuing financial reform. He's lost a lot of supporters and a lot of credibility.

(Q): What should be done to fix the economy?

Gilani: The government should change the tax system to favor small business development. It should cut taxes on
dividends to a flat 10% to encourage corporate profits to be paid out to capital investors. That will increase equity
investing and savings, both of which will supply cheap capital for business growth and employment. However, the
government should only allow the flat rate tax for the portion of dividends that are non-leveraged; in other words, don't
let corporations borrow to pay dividends. If they make profits and pay dividends from those profits, they will be strong
companies, safe investments, and the basis for a sound, productive economy.

(Q): How concerned are you about the budget deficit?

Gilani: I'm very concerned about the budget deficit. If there is no real, transparent address of runaway government
spending, the U.S. economy will become third rate - perhaps within five to seven years.

(Q): What are the chances that the U.S. economy will lapse into a double-dip recession?

Gilani: Unfortunately, the dice are in the hands of government and not the private sector. Until politicians decide that
they are the problem and that big government is crowding out entrepreneurship and free enterprise, there's a chance
the U.S. economy will backslide into a double-dip recession. Throwing money at banks and artificially keeping interest rates
low, but not incentivizing capital formation and small business development, could keep us out of a double-dip, but it
doesn't guarantee we won't end up like Japan and suffer for the next two decades.
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(Q): What one thing needs to be done to fix the jobs picture?

Gilani: Reduce the tax burden on businesses and employers when they demonstrate they are bringing on and keeping
new hires.

(Q): Does the U.S. economy need more stimulus?

Gilani: No. It's like the government wants the Fed to re-kindle a fire that has just been doused with flame retardant
chemicals. It's not going to work because there's not enough kindling and too much retardant. Stimulus should take the
form of reduced tax burdens, less wasteful spending, fewer pet projects. Wasteful government stimulus projects
misallocate scarce capital resources. They only serve to line the pockets of special interest groups who lobby for them and
the "consultant" middlemen who broker the deals.

(Q): Should Pres. Bush's tax cuts be extended to all?

Gilani: No. Draw a line in the sand that separates the superrich from the rest of us. $250,000 is not rich. Make it
$5,000,000. Don't cut taxes for the superrich - raise them. If you're making $5,000,000 a year you owe this country
something back. And, at the same time, completely eliminate the "death tax." Why take anything from anyone after they
are dead? They've already paid their taxes.

(Q): China: friend or foe?

Gilani: China is the best friend we have. Because the saying goes, keep your friends close and your enemies closer.

[Editor's Note: Shah Gilani, a retired hedge-fund manager and renowned financial-crisis expert, walks the
walk. In a recent Money Morning exposé, Gilani warned that high-frequency traders (HFT) were artificially
pumping up market-volume numbers, meaning stocks were extremely susceptible to a downdraft.

When that downdraft came, Gilani was ready - and so were subscribers to his new advisory service: The
Capital Wave Forecast . The next morning, because of that market move, investors were up 186% on a short-
term euro play, and more than 300% on a call-option play on the VIX volatility index.

Gilani shows investors the monster "capital waves" now forming, and carefully demonstrates how to profit
from every one.

But he doesn't stop there. He's also the consummate risk manager. As the article above demonstrates, Gilani
also makes sure to highlight the market pitfalls that can ruin years of careful investing and saving.

Take a moment to check out Gilani's capital-wave-investing strategy - and the profit opportunities that he's
watching as a result. And take a look at some of his most-recent essays, which are available free of charge.
You can access those essays by clicking here.]

News and Related Story Links:

Money Morning:
Special Report: New CEO Dudley Isn't the Long-Term Answer at BP, Expert Says

Money Morning:
Gold Will Hit $5,000 an Ounce Long Term ... But the Near-Term Profit Prospects Are Even Bigger

Money Morning:
"Capital Waves" Point to High-Tide Profits for Commodities, Tech and Emerging Markets

Money Morning:
Global Currency Wars: Three Ways to Profit From the "Race to the Bottom"
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21/10/2010 The 10 Most Pressing Questions Abo…

Money Morning:
What You Don't Know about "Mortgagegate" Could Crush the U.S. Banking System

Money Morning:
The Seven Themes That Will Lead to Maximum Profits in 2010

Money Morning:
What Really Caused the Stock Market 'Flash Crash'

Money Morning:
Anatomy of a Scam: This "Prime Bank Program" Has Already Cost Investors Billions

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