12.31.14 - Two Experts Recommend Gold and Greenspan Speaks
Gold last traded at $1,188 an ounce. Silver at $15.70 an ounce.
With the end of 2014 just hours away, two high profile experts are recommending gold and former Fed chair Alan Greenspan has made sobering comments about the health of the US economy.
Dennis Gartman of the widely-read and highly regarded Gartman Letter believes gold will enjoy a solid 2015. Gartman sees gold as the best way to play what he thinks will be a big theme in 2015: currency devaluation.
"My better trade for the year will be the same trade that has been the better one for this year and the better one for the previous year, which is to be an owner of gold," says Gartman.
Gartman also sees other reasons to own gold. "The political circumstances around the world mean that money will be moving to the United States, strengthening the U.S. dollar. But at the margins, looking also for safer horizons or safer harbors, that probably means gold."
CNBC's Jim Cramer appears to agree.
Cramer is reminding investors of this way to diversify their portfolio. He says the old school method of picking stocks in each sector will no longer protect your portfolio. Cramer points out that gold brings a "special element" into a portfolio.
Cramer recommends gold because it tends to go up when everything else is going down. It is the investors' insurance against geopolitical events, uncertainty and inflation.
Says Cramer:
"Just as you wouldn't own a home or car without insurance, you shouldn't have a portfolio without gold.
Do you get upset when your insurance doesn't go up in value? No. So, don't ridicule gold.
Owning gold is not about upside potential. It is about minimizing risk to the downside."
No less an insider than Alan Greenspan is skeptical about US economic strength.
“The United States is doing better than anybody else, but we’re still not doing all that well,” Greenspan, 88, said yesterday. “We still have a very sluggish economy.”
Greenspan said the economy won’t fully recover until American companies invest more in productive assets and the housing market bounces back.
“Almost all of the weakness in the last four, five, six years has been in long-lived investments” in capital goods and real estate, Greenspan said. “Until these pick up, we’re not going to get the kind of vibrant growth that everyone is hoping for.” The latest economic statistics back up Greenspan's comments. The number of Americans filing new claims for unemployment benefits rose more than expected last week.
Initial claims for state unemployment benefits increased by 17,000 to a seasonally adjusted 298,000 for the week ended Dec. 27, the Labor Department reports.
Economists had forecast claims rising to 290,000 last week. The prior week's data was revised to show 1,000 more applications received than previously reported.
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12.30.14 - Signals from the Economic Front
Gold last traded at $1,200 an ounce. Silver at $16.28 an ounce.
As we approach the end of 2014, two new economic statistics indicate the US economy is far from robust or healthy as government bureaucrats would have us believe.
Home prices cooled in October - a second consecutive month of declines - as annual growth hit the slowest pace in two years, according to data released this morning.
U.S. home prices ticked down 0.1% in October, according to S&P/Case-Shiller’s 20-city composite index that showed a drop in 10 cities, an expansion in eight, and unchanged prices in two.
Meanwhile, the pace of annual growth also pulled back, with year-over-year home prices rising 4.5% in October — the slowest pace in two years.
This trend is of concern because, historically, the US economy has never recovered without a strong real estate market.
Meanwhile, consumer confidence is also waning.
Having missed expectations by the most since June 2010 in November, The Conference Board's measure of Consumer Confidence missed once again in December.
Consumer confidence came in at 92.6 against expectations of 93.9. This is the 3rd miss in the last 4 months despite stocks hitting record highs and gas prices collapsing.
Clearly, something has Americans worried.
In fact, investors around the world are worried, as evidenced by the activity in the gold market this morning.
Gold rose sharply this morning as the dollar weakened and stock markets slid, with concerns over tension between Russia and the West also helping push the metal higher.
A wave of risk aversion has swept through global markets today, with end-of-year caution and worries about Greece's future in the euro zone pushing European stock markets down. Meanwhile, Russia's Foreign Ministry said that a widening of U.S. sanctions against Moscow this week may hamper bilateral cooperation, further stoking friction.
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12.29.14 - Gold in 2015, More Than Ever
Gold last traded at $1,181 an ounce. Silver at $15.78 an ounce.
Gold is set to serve its historical safe haven role in 2015. That's good news given some of the trouble that could be brewing.
Gold is the only store of wealth with a proven track record over five thousand years. It also protects and grows wealth in the shorter term.
Gold's price has remained stable and fears of a crash in the price predicted by Wall Street were clearly overblown. What’s more, experts believe that the long-term outlook for the precious metal is well supported over the coming year.
The longer-term outlook for gold demand remains positive. Jewellery purchases of 534 tons, which make up more than half of total gold demand at 929 tons, are supported by strong buying across India and China. In India, demand jumped 60% during the third quarter, according to the World Gold Council, and - when combined - India and China make up 54% of global gold-buying.
Central banks have also been accelerating gold purchases ever since quantitative easing began in early 2009. Central banks added 93 tons of gold to reserves in the third quarter, with more than half of all buying coming from Russia, according to the World Gold Council. Central bank purchases are expected to hit more than 400 tons for the full year, in line with 2013. China is buying huge amounts of gold as it seeks to increase from the current 1% of reserves.
The outlook for gold is good news for investors due to trouble elsewhere.
Problems have resurfaced in Greece and the question remains: can Greece's troubles be limited to Greece or will they spread across the European Union?
Greece's parliament will be dissolved and the country will hold snap elections within the next month, risking a nasty fallout for Greece's fragile economic recovery.
The need for snap elections was triggered overnight after Greece's parliament was unable to secure enough votes to install a president.
The main Greek stock market index plunged by as much as 11% after the voting results came out, but then recovered slightly. The main indexes in Spain and Italy, two nations also plagued by chronic economic and fiscal problems, also dipped by about 2%.
The yield on Greek 10-year government bonds jumped by one percentage point to 9.3%, reflecting growing concern that Greece may be heading for another debt crisis.
Here in the US, get ready for a disastrous year for U.S. government bonds. That’s the message forecasters on Wall Street are sending.
With Federal Reserve Chair Janet Yellen poised to raise interest rates in 2015 for the first time in almost a decade, prognosticators are convinced Treasury yields have nowhere to go except up. Their calls for higher yields next year are the most aggressive since 2009, when U.S. debt securities suffered record losses.
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12.24.14 - Oil Price Collapse Reverberates Across World Economy
Gold last traded at $1,173 an ounce. Silver at $15.71 an ounce.
**Swiss America will be closed through the rest of the week in observance of Christmas and will reopen on Monday, December 29th. The Swiss America family wishes all of our clients and readers a very blessed holiday.**
There was a time when a steep drop in the price of oil might be considered good news for the world economy. These days that is not so certain.
The near-collapse of the price of oil has damaged some nations' economies and has hurt a sector here in the US responsible for most of the economic activity we've seen in the past few years.
Moreover, the collapse in oil has touched off geopolitical ripples seemingly far removed from pure economics, but which could certainly have an impact on the world economy and financial markets.
Here in the US, there has been a boom of sorts in the oil and gas sector due to the growth of fracking. In fact, US production became a world leader in recent times. The oil and gas sector has been responsible for much of the new employment in recent years.
All of that is in deep jeopardy with the collapse in the price of oil. US production and exploration is largely unsustainable at low prices. The boom could soon turn to bust if prices stay low for much longer.
US troubles are mild compared to other world economies.
In particular, socialist Venezuela is on the verge of economic collapse, and a possible political upheaval as well, due to the price drop.
In Russia, the ruble has performed its own pratfall as the economy sinks due to the collapse in oil. There is real danger of a banking crisis there. The problem for the rest of the world is Russia. As of late, the country has been aggressive and adventuresome when it comes to its renewed military power under Vladimir Putin. Historically, during times of domestic economic crisis, despots have often turned loose their military power on foreign targets to distract their populous from conditions at home.
The same might be said for OPEC nations, many of which are suffering from the oil price drop in the midst of the rise of Jihadist movements that threaten regimes currently in power. If prosperity goes away in countries like Qatar, Kuwait, the UAE and even Saudi Arabia, the people have more reason to support militant elements.
So, the drop in the price of oil could potentially have side effects from which investors must protect themselves with the safety of gold.
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12.23.14 - Obamacare: The Government's self-licking ice cream cone
Gold last traded at $1,178 an ounce. Silver at $15.87 an ounce.
The federal government keeps putting out reports and statistics that indicate the US economy is going great gangbusters.
In the real world, no one can figure out how the bureaucrats are coming up with this stuff. A detailed analysis of their statistics and reports reveals the whole truth is often concealed in the details.
Over July, August and September, economic output rose at an annual rate of 5 percent, the Commerce Department reported this morning, a huge revision from its earlier estimate of 3.9 percent and the fastest quarterly growth in a decade.
Personal consumption was the main driver of US growth in the GDP report.
So what did Americans supposedly spend so much more on compared to the previous revision released one month ago? Was it cars? Furnishings? Housing and Utilities? Recreational Goods and RVs? Or maybe nondurable goods and financial services?
Actually no.
2/3 of the "boost" to final Q3 personal consumption came from higher healthcare spending as a result of the rising health insurance premiums of Obamacare.
In other words, the federal government has created a "self-licking ice cream cone" in the uber-expensive monstrosity known as Obamacare. Health insurance premiums have skyrocketed for millions of Americans, so consumers are spending more out of necessity on healthcare. The Commerce Department then uses those skyrocketing costs to consumers to bump up their GDP figures and release a report that the economy is soaring.
The economy, of course, is not soaring. People are simply paying more for the same goods and services they received before. That is not progress and it certainly isn't a path to prosperity.
Other economic reports, such as the latest durable goods report, fail to support the narrative that the US economy is strong.
Against expectations of a jubilant 3% surge in November, Durable Goods Orders slipped 0.7% - the biggest miss since December 2013. Perhaps even more worrisome, year-over-year Durable Goods Orders rose at a mere 0.3% - the slowest since the harsh winter that was blamed for the slowdown almost a year ago.. Across the board the data was a disaster, Transports came in down 0.4% (against expectations of a 1% rise), Capital Goods Orders were unchanged (against expectations of a 1% rise) and shipments rose just 0.2% (missing expectations of a 1.3% rise).
The same story is true of the housing market.
For the 6th month in a row, home prices have been revised lower. New Home Sales came in at 438,000, down from prior revised lower 445,000 and missing expectations of a surge to 460,000. New Home Sales have now missed expectations for 8 of the last 10 months. For the period May through November, the initial new home sales figures amounted to 2.779 million houses. But after revisions, the number plunges by 22% to 2.168 million homes. Because no recovery has ever been sustained absent a healthy real estate market, this is bad news for the outlook for the economy and the US dollar.
The outlook for gold, on the other hand, is quite positive, according to one of the most prominent industry insiders.
Martin Murenbeeld, chief economist at Dundee Capital Markets, has issued a bullish forecast for gold in 2015. Murenbeeld thinks the gold market may be "finally turning" and the price could overshoot on the upside:
"We are more bullish than the actual numbers suggest, which results partly from the judgement that 2015 will see more financial and geopolitical fireworks. [..] crises present an unknown positive risk to the outlook: indeed it is very possible that the average gold price for 2015 will be higher than forecast (as happened in 2014) precisely because of the many crises looming on the horizon for 2015.”
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12.22.14 - Russia In "Full-Blown Crisis"
Gold last traded at $1,179 an ounce. Silver at $15.68 an ounce.
One former finance minister has warned that Russia is now in a "full-blown economic crisis" and will be forced to take emergency financial measures. Alexei Kudrin, says this "full-blown economic crisis" in Russia will trigger a series of defaults and the loss of its investment-grade credit rating. Analysts have also warned that the Russian economy will not improve in the long-term unless either oil prices or relations over Ukraine improve. The warning came as Russia announced it will provide up to $540 million to rescue Trust Bank, one of the country's most troubled banks, in order to prevent bankruptcy.
Russia is also still battling a wave of sanctions as a result of the Ukraine tensions beginning earlier this year. Over the weekend, Russia derided U.S. and Canada for imposing yet another round of economic sanctions. Sanctions mixed with falling oil prices and geopolitical uncertainty have contributed to Russia's struggling economy. Last week, the rouble fell by as much as 36% in one day, rattling confidence in the government. So far this year, the rouble has lost around 45% against the dollar. Fearing a further currency meltdown, Russians have flooded into stores to turn their rubles into hardgoods.
The U.S. is having economic concerns of its own. Existing home sales have collapse the most since July 2010, plunging 6.1%. This clearly demonstrates the uneven nature of the housing market recovery. Housing has been struggling to gain momentum after stagnating in the second half of 2013 due to the jump in mortgage rates. Housing has also struggled due to tepid wage growth, a shortage of properties available and higher home prices. Investors who had been supporting the market continued to withdraw in November, accounting for over 15% of transactions last month.
In other U.S. market news, Wall Street is betting that the latest Sony hack will encourage other companies to ramp up spending to defend themselves from a breach of their own. FireEye, a cybersecurity service, jumped more than 15% last week while Proofpoint, another cybersecury service, jumped 8%. The Sony hack has been drawing widespread attention and even President Obama had something to say about it, criticizing the studio for cancelling The Interview based on threats made by North Korean hackers. The Sony incident isn't the first major company to get hit by hackers. Companies like Target and Home Depot have also been victims earlier this year.
Aside from hacking concerns, investors and experts have been worried about the growing size of the bond market. U.S. corporations are on track to issue over $1.5 trillion in debt this year alone. Not only will this be an all-time record, it will be the third consecutive all-time record for corporate debt issuance.
One reason the bond market has grown so much is because few entities have the cash available to pay back debt holders when their debts are due. Instead of paying back their debt, many are choosing to roll over debts or pay them back via the issuance of new debt. Experts warn that the bond bubble is THE bubble and when it bursts we will experience THE crisis.
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12.19.14 - Hacking Takes Center Stage
Gold last traded at $1,196 an ounce. Silver at $16.03 an ounce.
Today's news reminds us not everything that impacts our investments are domestic economic statistics from Washington and financial reports from Wall Street.
Some of the factors have nothing to do with either of the above.
There is, for example, the issue of cyberwarfare, cybersecurity and hacking and how it can impact the business marketplace. Just look at the hacking of Sony Pictures. Consider how this story has grown. First the press reports focused on the premature web release of some new movies. Then they moved on to the embarrassing and compromising email traffic revealed by the hackers. These security compromises did damage to Sony Pictures' brand, value and even revenue in various ways. But then it was revealed that the FBI firmly believes the government of North Korea is behind the attack and that the hackers threatened terrorist attacks on movie theaters if Sony released the movie, The Interview.
So what may have, at first, seemed like a malicious prank actually turned into a state-sponsored act of terrorism.
This shows the potential of how far hackers can and will go. This could have just as easily been an attack on a financial institution resulting in the loss of personal wealth or private information. Or it could have been an attack on a healthcare firm, with personal medical data stolen for use in some nefarious manner. The possibilities are endless. And these potential consequences should give investors pause.
Physical gold and silver investments kept close at hand are not subject to hackers and can provide a form of safe haven in the event that future attacks impact the financial markets.
For their part, the North Koreans may have their cybersights set on far bigger targets in the future.
The hacking attack on Sony Pictures may have been a practice run for North Korea's elite cyber-army in a long-term goal of being able to cripple telecoms and energy grids in rival nations, defectors from the isolated state indicate.
North Korea has been working for years on the ability to disrupt or destroy computer systems that control vital public services such as telecoms and energy utilities.
"North Korea's ultimate goal in cyber strategy is to be able to attack national infrastructure of South Korea and the United States," says Kim Heung-kwang, a defector from the North who was a computer science professor there.
"The hacking of Sony Pictures is similar to previous attacks that were blamed on North Korea and is a result of training and efforts made with the goal of destroying infrastructure," said Kim, who came to the South in 2004.
In 2013, South Korea blamed the North for crippling cyber-attacks that froze the computer systems of its banks and broadcasters for days.
More than 30,000 computers at South Korean banks and broadcast companies were hit in March that year, followed by an attack on the South Korean government's web sites.
Highlighting the vulnerability to hacking, the network of Korea Hydro & Nuclear Power was recently compromised, resulting in the leak of its employees' personal information, the blueprints of some nuclear plant equipment, electricity flow charts and estimates of radiation exposure on local residents.
Cybersecurity and intelligence experts warn that the Sony episode is only the beginning.
Cyberattacks against US federal agencies and breaches into government systems have been skyrocketing.
There were almost 61,000 cyberattacks and security breaches across the entire federal government last year, according to a recent Obama administration report.
And the number of cyber incidents involving government agencies has jumped 35 percent between 2010 and 2013, from roughly 34,000 to about 46,000, according to another recent report by the Government Accountability Office.
Unclassified networks at the White House and State Department were recently hacked, leading the State Department to shut down its email system for days last month.
But it's not just spies looking to crack government computers. Hackers are also after personal information accessible through government computer systems, not unlike their counterparts who have nabbed millions of credit and debit card numbers from Target and Home Depot.
Last July, hackers hit the Energy Department and took personally identifiable information from more than 100,000 people "that could be used to damage the financial and personal interests of many individuals," according to a post-mortem report by the department's inspector general.
The data included names; dates and places of birth; social security and bank account numbers; and information about their education and disabilities, according to the report. The hack cost the government almost $4 million in credit monitoring fees and lost productivity.
To put it mildly, the federal government's information technology is not as secure as it should be.
Sometimes the threat comes from simple incompetence. Last year, the IRS mistakenly posted tens of thousands of social security numbers on government websites, according to the nonprofit Public.Resource.org.
The IRS uses automated systems to process returns. If breached, billions of dollars in returns could be taken and the systems erased, forcing the IRS to use archives to try to reconstruct its system. One attack could potentially cripple the IRS system.
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12.18.14 - Russia in Economic Turmoil
Gold last traded at $1,194 an ounce. Silver at $15.93 an ounce.
Russia is undergoing what can only be described as economic turmoil and observers are hoping the crisis will be limited to Russia. That could be. After all, some of what we're seeing is trouble of Russia's own making in the form of economic sanctions imposed due to Russian expansionism in Ukraine.
But some of what we're seeing is also due to the collapse of the price of oil, which may very well be a symptom of overall global economic problems; something that is of serious concern to investors everywhere.
The Russian economy may come to “a sudden stop” and a bank run “could be in the cards,” according to an analyst at Moscow brokerage UralSib Capital.
“A full-blown currency and financial-crisis scenario seems to be unfolding in Russia in what was supposed to a quiet week as we head into the holiday season,” Slava Smolyaninov, deputy head of research, wrote in an e-mailed report today. “There is a risk that the economy will come to a sudden stop, along with the banks and the overall financial system. Hence, we may have underestimated the level of financial risk in the event of a full-fledged panic. A bank run could be in the cards.”
“The financial system and banks in particular are clearly in danger as a crisis of trust seems to be developing as well,” Smolyaninov wrote. “We believe the worst is yet to come.”
Russian consumers flocked to stores Wednesday, frantically buying a range of big-ticket items to pre-empt the price rises kicked off by the staggering fall in the value of the ruble in recent days.
As the Russian authorities announced a series of measures to ease the pressure on the ruble - which slid 15 percent in the previous two days and raised fears of a bank run - many Russians were buying cars and home appliances before prices for these imported goods shoot higher.
"This is a very dangerous situation. We are just a few days away from a full-blown run on the banks," Russia's leading business daily Vedomosti said in an editorial Wednesday. "If one does not calm down the currency market right now, the banking system will need robust emergency care."
Earlier this week, the ruble suffered catastrophic losses as traders continued to fret over the combined impact of low oil prices and Western sanctions over Russia's involvement in Ukraine's crisis.
Should the current attempts to shore up the ruble fail, then the Russian authorities could be imposing capital controls.
The turmoil may be limited to Russia this time, but in 1998 when oil fell and the ruble was in crisis mode economic trouble did in fact spread elsewhere. This is a factor investors will need to watch.
Of course, not all the news is about Russia.
The US Federal Reserve is always in the news and this week is no exception. Markets have reacted to a statement from the Fed that it would be "patient" in increasing interest rates. Fed Chair Janet Yellen said the Fed was unlikely to hike rates for "at least a couple of meetings", meaning April of next year at the earliest.
Gold climbed sharply on the news.
In the currency markets, the dollar index was down 0.2 percent after the Fed statement, but the bigger news was that the Swiss franc fell to two-year lows after the Swiss National Bank said it would introduce negative interest rates.
The move forces commercial banks to pay to deposit their francs with the Swiss National Bank — usually they get a small interest rate for doing so.
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12.17.14 - Fed Statement Adds More Confusion
Gold last traded at $1,191 an ounce. Silver at $15.93 an ounce.
Today, the Fed made another confusing and unclear annoucment, causing volatility in the markets. In today's statement, the Fed said they will be "patient" before beginning to raise rates. The Fed went on to say this was "consistent" with their "considerable time" pledge made after the last few FOMC meetings.
“At this point we think it unlikely that it will be appropriate that we will see conditions for at least the next couple of meetings that will make it appropriate for us to decide to begin normalization,” Yellen said in the press conference after the Fed announced its decision.
Traders have no clue what exactly the Fed is trying to communicate, as reflected in the market's reaction. Moments after the Fed statement was released the U.S. dollar sold off, rallied, then dropped again. Treasury yields and crude oil were also volatile.
The only thing that is clear is that the Fed's actions will be heavily dependent on upcoming data; such as employment figures and inflation numbers.
In other news, Russia, the world's 8th largest economy, is in a full-blown state of turmoil right now. With sales of oil and natural gas making up approximately two-thirds of all Russian exports and half of government revenue, it should come as no surprise that falling oil prices have caused significant damage to the Russian economy.
Many economists fear the trouble in Russia may spread to other European nations. Some nations, fearing the possibility of collapse, have demanded their gold reserves be brought back home. Austria is the latest country to make this request, following Germany, the Netherlands and France.
The point of having gold on your own soil is to serve as a hedge against other national currencies. With so many countries wanting this sort of insurance, it clearly demonstrates their lack of confidence in the euro.
According to Australia & New Zealand Banking Group Ltd., gold prices will recover in 2015 as demand in China and India improves. This makes right now the perfect time for investors to add to their portfolio, taking advantage of lower prices before 2015.
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12.16.14 - A Variety of News Reports
Gold last traded at $1,194 an ounce. Silver at $15.75 an ounce.
There are a wide variety of news reports with implications for investors today, starting with continuing evidence of a brightening outlook for gold.
The price of gold is up around 7% since it hit multi-year lows in early November. Back then, many on Wall Street were happily eulogizing the death of the yellow metal. Rumors of gold's demise turned out to be greatly exaggerated. The price of gold has risen in four out of the past five weeks.
Despite this rise, gold is still not far above multi-year lows. As a result, more and more traders are seeing gold as a bargain and are buying. The U.S. Commodity Futures Trading Commission reports an rising trend in long gold positions and gold ETFs are seeing a net inflow of money for the first time since October.
The reasons are actually varied, as reflected by a series of reports today:
• The Russian economy is in the worst shape since 1998 and, given Vladimir Putin's record, that is reason for nervousness for many reasons. Russia's Central Bank raised rates by 650 basis points - to 17% - in an attempt to stop the ruble's crash against other major currencies. The ruble improved by as much as 9% against the dollar before collapsing entirely. Once again we see the failure of central banks to achieve desired policy goals against free market forces. Now Russians are faced with a collapsed ruble AND sky-high interest rates. Russia now finds itself in severe financial straits. If sustained, the new higher rates would squeeze an economy already being hurt by sanctions and by a collapse in oil prices. The ruble's collapse has evoked the turmoil of the 1998 Russian crisis, an event that reverberated through financial markets around the world.
• It seems many American investors have completely forgotten the lessons of the most recent financial crisis of 2007-2009. Six years after the collapse of Lehman Brothers, the lessons of the financial crisis may already be fading from collective memory.Just last week, Congress acted to loosen the regulation of the high-risk investments that ignited the 2008 crisis and housing regulators cut minimum down payments on home loans. The Institute of International Finance declared it "worrisome" that global indebtedness, as a share of world economic output, has reached record levels. All this comes as subprime auto loans for financially stretched buyers are surging. And the so-called too-big-to-fail banks that needed a taxpayer bailout in 2008 now loom even larger than before the crisis; America's five biggest banks account for 44 percent of bank assets, up from 38 percent in 2007.
• Maybe the Chinese know something we don't know. They are dumping their holdings of US Treasury securities, something that could potentially cause problems for the US economy and financial markets by forcing up interest rates. China's holdings of US Treasuries fell to a 20-month low in October, the latest month for which data is available.
• There has been a lot of cheerleading from the Obama administration about the "improving economy" but a closer examination of statistics indicates underlying trouble: 65% of all children in the US now live in a household that receives some form of federal aid, The Census Bureau reports that 1 in 5 of millennials (age 18-34) live in poverty and fod stamp beneficiaries have now exceeded 46 million for 37 straight months. None of these can be described as a sign of a healthy economy.
• The plunging price of oil might mean many things. Some call it a positive for the Western economies. Others call it a sign of deflation. But there may be another side effect for which investors must be prepared: The collapsing price of oil could stoke geopolitical tensions in key producing nations. For example, Iraq - which is battling Islamic State (IS) militants - will take a major hit from the plunging cost of crude. But Iraq is not alone, there could be fallout as well in nations such as Russia, Venezuela, Iran, Nigeria and even Norway.
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12.15.14 - Hedge Funds Seek Safety of Gold
Gold last traded at $1,207 an ounce. Silver at $16.56 an ounce.
After largely missing the downturn in stocks, hedge funds are re-orienting themselves to the safe haven provided by gold.
In fact, hedge funds are now the most bullish on gold since August. The net-long position in New York futures and options climbed for a fourth week, the longest stretch of increases since July.
The move to gold occurs in the wake of the plunge in global equities that has erased about $2 trillion from the value of stocks. In contrast, gold prices are heading for a second consecutive month of gains.
“We are seeing safety trade toward gold,” says Peter Sorrentino , a senior vice president who helps oversee $1.8 billion at Huntington Asset Advisors in Cincinnati. “Investors have begun to see that the equity market is priced for a scenario that may not come to pass. That’s led some to flee the market and use gold as a storehouse.”
The decline in stocks and the rise in gold is no coincidence. Unlike bonds and real estate, gold has historically moved independently of stocks. This makes gold an ideal diversifier for a portfolio weighted heavily in paper assets.
Last week's carnage in stocks has continued this week, with declines across the board in markets in Germany, France, the UK, Hong Kong, Tokyo and the Dow, S&P 500 and the NASDAQ. Ironically the decline is being blamed on something that used to be considered good news: a decline in the price of oil.
The problem perceived isn't that the price of oil is falling, but that it has fallen so far, so fast. Many observers see the drop as a sign of deflation and fear the contagion could spread to other economic sectors.
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12.12.14 - No Coincidence: Gold Headed for Best Week in 6 Months as Stocks Suffer
Gold last traded at $1,224 an ounce. Silver at $17.09 an ounce.
Historically gold has moved independently of the US stock market and, often, it has had a negative correlation to stocks.
This is important because diversification is one of the most important and fundamental principles of investing. The only way to achieve true diversification is to include assets in your portfolio that are not closely and positively correlated with one another.
There was a time when it was believed that diversification meant merely investing in stocks and bonds at the same time. However, that strategy has proven inadequate, since stocks and bonds are often positively correlated with one another due to their similar reactions to changes in interest rates.
It is also not enough to just spread your money into real estate. After all, in the financial crisis of 2007-2009, both the real estate and stock markets fell hard for interrelated reasons.
Gold is the ultimate portfolio diversifier because it is truly independent. It does not react to macroeconomic, financial and geopolitical factors in the same way paper assets do. Unlike all man-made, paper investments, gold is an asset in its own right, not dependent on anyone's promise to repay.
Keep that in mind as you examine the market events of the past week.
Growing fears over the Chinese economy, the eurozone and oil prices have sent global stock markets tumbling this week. In fact, the FTSE 100 in Britain is now on course to record its worst week for more than two years.
But the British stock market is not alone. The Italian FTSE MIB, the CAC 40 in France and Germany’s DAX were all down sharply this week.
And here in the US, the stock market has also fallen hard. After starting the week at just under 18,000, the Dow is set to finish the week some 400 points lower. The S&P 500 and NASDAQ have both fallen sharply over the course of the week too.
Against this backdrop stands the contrast of gold.
Gold is on track for its biggest weekly rise since June, up nearly 3 percent for the week, following a 2.1 percent jump the previous week. Falling stock markets have prompted some investors to buy the metal as an alternative asset, while a drop in the value of the US dollar made gold even more attractive, since gold is priced in dollars.
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12.11.14 - Congress Debates Spending Bill, Billionaire Investor Turns to Gold and Silver
Gold last traded at $1,225 an ounce. Silver at $17.11 an ounce.
Today the United States Congress is debating a $1.1 trillion spending bill which will result in another massive federal budget deficit and contribute to the ever-increasing $18 trillion federal debt.
The omnibus spending bill is being attacked from both sides. It seems there is something for everyone to hate in this 1600 page monstrosity, including changes to how banks may trade derivatives.
Though it doesn't seem particularly likely at this time, there is a remote possibility that stand-offs on certain key issues could potentially result in more talk of a government shutdown.
A New Gold Bull
One of the world’s richest men, billionaire Frank Giustra, is turning to gold over concerns about the world banking system and his forecast that the dollar will renew its decline. He specifically warns gold investors, however, not to deposit gold in banks. He reports some Swiss banks, once the epitome of security and privacy, have moved depositors' gold out of segregated vaults.
Giustra is also very concerned about banks' massive exposure to the derivatives markets, which of course leads us back to the omnibus spending bill in Congress. Should it pass, it will allow banks to once again trade derivatives in-house by entities covered by FDIC insurance. The obvious danger here is that the taxpayer-funded FDIC, which is woefully inadequate to cover member banks, could be on the hook should derivatives-driven losses put a bank in jeopardy.
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12.10.14 - Gold Defies Stocks, Commodity Declines
Gold last traded at $1,229 an ounce. Silver at $17.19 an ounce
The price of gold is trading at a 7-week high while the prices of other commodities, particularly oil, are literally collapsing.
The explanation for this shift is understandable given the recognition that gold is not like any mere commodity. Gold is the ultimate form of real money and its age-old monetary role separates it from the commodity world. While oil, natural gas, gasoline, copper, nickel, iron ore, and other industrial commodities have been falling, gold has risen as investors around the world seek safe havens.
The fall in world stock markets has come upon us suddenly as a result of a broad array of factors from Greek politico-economic turmoil to a slowing Chinese economy.
Greece has been an economic and financial thorn in the side of the European Union for a few years now and, up until recently, it was hoped Greece would finally emerge from its persistent economic problems. That looks highly unlikely now as a political crisis in Athens could cause the current government to collapse, which would almost certainly result in an economic collapse.
Meanwhile, China is doing more and more to prevent an economic slowdown there, including accelerating its war on the US dollar in an attempt to boost the worldwide prestige of the yuan as a reserve asset and medium of exchange.
In other news, the co-founder of Home Depot, Ken Langone, has issued a warning about the US economy.
Langone says he sees extreme wariness among consumers.
"The consumer is more cautious now than I've ever seen them," the billionaire said in an interview on CNBC, because the growth in jobs and uptick in wages are not robust enough.
His forecast is far from optimistic: "We're going to have a very tepid economic recovery."
Sales of silver coins aren't tepid.
The US Mint has sold a record number of silver coins this year as demand for the physical metal helped futures in New York recover more than 20 percent since falling to a five-year low early this month.
Sales of American Eagle silver coins reached 43.051 million ounces in 2014, data on the mint’s website shows. That tops last year’s 42.7 million ounces, the previous all-time high.
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12.9.14 - Gold Surges Amid Wall of Worry
Gold last traded at $1,232 an ounce. Silver at $17.13 an ounce.
The price of gold is surging this week as a result of a global rout in stocks and a retreat of the US dollar.
Gold hit its highest level since late October, as cautious comments from U.S. Federal Reserve policymakers prompted a pullback in the dollar and stock markets slid.
Dennis Lockhart, head of the Atlanta Federal Reserve, said late on Monday he was in no rush to drop the Fed's pledge to keep interest rates near zero for a "considerable time," while San Francisco Fed chief John Williams said the phrase was still appropriate.
That sparked a retreat in the dollar, which fell 0.8 percent; its biggest one-day drop since April.
Stocks in the US were also slammed by global economic concerns. U.S. stocks declined this morning, extending losses into a second session, as Wall Street echoed a global rout that came as China toughened collateral rules for short-term loans, increasing worries about its economy. China's Shanghai exchange fell more than 5% overnight.
European shares also fell hard, led by Greece, which appears to be re-entering economic crisis mode. Greece's stock market fell by the most for a single day since 1987, spooking the stock markets of other European Union nations. Greece's trouble was prompted by a burgeoning political crisis which could see elections called for much sooner than anticipated.
All of this is benefiting gold since a weaker dollar makes dollar-denominated gold cheaper, while investor aversion to risk due to stock market volatility and economic uncertainty increases gold's attraction as an alternative investment to diversify portfolios overweight in paper assets.
Finally, as if Europe didn't have enough to worry about, last week's report that ISIS terrorists may have a radiological "dirty bomb" appears to have legs.
An alleged weapons maker for ISIS now claims a “radioactive device” has been smuggled into an undisclosed location in Europe, according to an intelligence brief released Monday by the SITE Intelligence Group.
While it is difficult to assess the veracity of the ISIS claims, U.S. officials have expressed concern about ISIS potentially smuggling nuclear and radioactive material out of Iraq.
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12.8.14 - Gold Picture Brightening Due to Central Bank Stimulus
Gold last traded at $1,203 an ounce. Silver at $16.38 an ounce.
Central bankers can't stand gold because it is the ultimate form of real money and thus stands in direct competition to fiat currencies.
Because of that, they often do all they can to suppress gold. In the past, they have tried to manipulate its price through various forms of chicanery.
Ironically, however, central bankers' activities usually end up undermining the value of their own fiat currencies and highlighting the value of gold.
Today seems to be no exception. Not terribly long ago many analysts were ready to write gold off but central bankers' actions as of late have many optimistic about the prospects for the yellow metal.
There are now signs that central banks will act to counter low inflation which will, in turn, boost gold.
European Central Bank President Mario Draghi said last week that policy makers “won’t tolerate” a prolonged period of low inflation, as officials consider increasing asset purchases. The Bank of China lowered interest rates to spur economic growth, while the Bank of Japan has expanded its unprecedented stimulus program.
Whether these measures will boost economic activity is debatable. That they will undermine paper currencies is a foregone conclusion.
Stock Bull Pulls in His Horns
With stocks at record highs and the Dow less than one percent from crossing 18,000 for the first time ever, James Paulsen, the chief investment strategist at Wells Capital Management, says he's going to "underweight" the U.S. for 2015.
Paulsen, who's ridden the rally higher over the years, now sees a flat or even a negative year for stocks in 2015.
According to Paulsen, "There's some really, really strong Wall Street consensus themes right now. And one of them is 'the U.S. is the place to be.' Another one is 'the dollar is only going to go up.' The third one [is] 'rates can stay lower for longer.' I kind of think that 2015 might resolve in disappointing every one of those themes. The whole foundation of this bull market we've been in since 2009 has been climbing a chronic wall of worry. That's been the primary catalyst for this run. That, to me, is over."
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12.5.14 - The Whole Truth on the Employment Numbers
Gold last traded at $1,190 an ounce. Silver at $16.26 an ounce.
We've no doubt all heard the phrase "lies, damn lies and statistics."
No where does this phrase match better than when it comes to describing economic statistics produced for public consumption by agencies of the U.S. federal government.
Today is a case in point.
The Labor Department reported today that employers added 321,000 jobs in November — a much stronger number than expected. Hourly earnings rose by 0.4 percent in November, double what economists had been expecting.
But don't start celebrating just yet.
The labor force participation rate remained at a 36-year low of 62.8 percent in November, according to the Bureau of Labor Statistics.
The quality of jobs created also comes into question.
Retail Trade, Education and Health, and Leisure and Hospitality, as well as Administrative Assistants, cumulatively made up more than half of the jobs gains in the month. All of these categories are minimum wage - or just above - paying jobs.
Another economic statistic released today does not seem to back up the rosy employment figures.
US Factory Orders tumbled 0.7% in October (obviously falling short of expectations). This is the 3rd month in a row that factory orders fell; for the first time since June 2012.
In other news - that could conceivably have future implications for the financial markets and global economy - ISIS terrorists are claiming that they have manufactured a "dirty bomb" with radiological material confirmed as stolen from the University of Mosul in Iraq over the summer.
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12.4.14 - China Overtakes the US
Gold last traded at $1,207 an ounce. Silver at $16.58 an ounce.
Anyone who doubted the US dollar's recent strength was largely a temporary mirage should have had their hearts and minds changed with the news that came in today.
For the first time since Ulysses S. Grant was president, the U.S. is not the leading economic power in the world.
The Chinese economy just overtook the United States economy to become the largest in the world.
According to the International Monetary Fund, China will this year produce $17.6 trillion in goods and services — compared with $17.4 trillion for the U.S.A.
As recently as 2000, we produced nearly three times as much as the Chinese.
China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.
This follows the development last year of China surpassing the U.S. for the first time in terms of global trade.
This has ominous implications for the value of the U.S. dollar, especially since China has been very aggressive in promoting its currency as a replacement for the dollar as a medium of exchange and reserve asset.
It's also interesting to note that China's overtaking America comes as China's economy has actually been slowing. This suggests that the future could see China's growth accelerating ahead of America even further.
All of this comes as central banks around the world struggle to develop policies to boost economic growth. It seems no economy is thriving. The European Central Bank is embarking on an asset buying program even more ambitious than the US Federal Reserve's Quantitative Easing program. Even the OPEC nations and Russia are stymied by suddenly collapsing energy prices. This has led to a problem central bankers have never had to tackle.
If they are as successful at tackling this problem as they have been at tackling other problems, we should all prepare for rough waters ahead.
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12.3.14 - Another Debt Milestone Surpassed
Gold last traded at $1,208 an ounce. Silver at $16.41 an ounce.
Very quietly last night the US National Debt surpassed $18 trillion for the first time.
Though it gets almost no coverage in the news media, our federal government continues to accumulate added debt at a rapid clip.
With the U.S. national debt - or government debt - now at over a staggering $18 trillion, it means each household in the U.S. now carries the burden of $124,000 in national debt alone - or $56,378 per individual. This does not include the massive private debt or household debt burden; people’s mortgages, personal loans, credit card debt, student loans, car loans and other household debt.
When Obama took office in 2009, the national debt had surged to $10.6 trillion up from $3 trillion at the beginning of Bush’s tenure in 2001.
The total U.S. debt has increased by 70% under Obama, from $10.625 trillion on January 21, 2009 to over $18.005 trillion today
In short, the federal government has borrowed, and spent, nearly $7.5 trillion more since President Obama took office than it has collected in taxes.
This development is coupled with some significant warnings about the stock market and the US economy today.
Jeremy Warner of the The Telegraph newspaper in the United Kingdom editorialized today that there are five reasons why the stock market is headed for a crash:
1: The curiously juxtaposed state of asset prices, with generally buoyant equities but falling sovereign bond yields and commodity prices. They cannot both be right. High equity prices are – or at least, should be – indicative of investor confidence and optimism. Low bond yields and falling commodity prices point to the very reverse; they are basically a sign of emerging deflationary pressures and a slowing economy. If demand was really about to roar away, both would be rising along with equities, not falling.
2: Europe, the problem economy that refuses to go away.
3: Political uncertainties.
4: An increasingly turbulent international situation, made worse in some of the world’s major flashpoints by declining oil prices, greatly enhances the chances of unanticipated shocks. Such risks are, of course, always with us, but are greater today than markets like to believe.
5: Most importantly, few of the underlying problems highlighted by the financial crisis have yet been convincingly addressed. If anything, they’ve got even worse.
Caution isn't just recommended for the stock market. It also applies to the overall economy, thanks to politics. A dark cloud is threatening the economic skies: fiscal and political uncertainty.
Absent congressional action, a host of business and personal tax breaks expires on January 1. The government's borrowing limit is reinstated on March 16, although the government might not actually hit the ceiling until August.
On March 28, unless lawmakers act, physician reimbursements from Medicare drop off a cliff. On May 31, the highway trust fund runs out of money. In June, the Export-Import Bank, which helps finance overseas purchases of American exports, might close in the face of conservative opposition to its mission. Then on Sept. 30, the entire Children's Health Insurance Program faces its expiration. A few days later, across-the-board spending cuts loom once again.
Investors should prepare for a return of governing-by-crisis in 2015, something that will not warm the financial markets.
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12.2.14 - Ground Floor Opportunity in Gold and Silver
Gold last traded at $1,199 an ounce. Silver at $16.46 an ounce.
Yesterday saw gold and silver swing dramatically to the upside, prompting technical analysts to scramble to review their charts.
Silver staged a huge recovery on Monday. It climbed a whopping 18.7% from its intraday low. Silver dropped to a five-year low and then rebounded; this suggests a bottom now could be in place.
Gold’s intraday recovery was also dramatic with a positive swing of 6.9%. Gold also may have found a floor, given Monday’s move.
One technician called it "probably the most important technical price action in gold and silver that we’ve seen in months."
The metals got a lift from three factors: a Japanese downgrade that boosted haven demand, India easing its import restrictions for gold and a softening dollar.
This activity could represent a terrific buying opportunity in both metals.
The news is not so good with regard to the US Treasury's management of America's fiscal house.
In what can be accurately described as a Ponzi scheme, the Treasury recently issued $1 trillion in new debt, to pay off old debt, in just eight weeks.
The Treasury report on the matter is enough to make one tremble.
The largest share of the marketable debt - $8,192,466,000,000 - was in notes that mature in 2,3,5,7 or 10 years, and which have an average interest rate of 1.807 percent as of the end of October.
Another $1,412,388,000,000 of the marketable debt was in Treasury bills, which carry “maturities ranging from a few days to 52 weeks,” says the Treasury. These $1.4 trillion in short-term Treasury bills had an average interest rate of 0.056 percent as of the end of October, according to the Treasury.
The continual rolling over of these short-term, low-interest bills helped drive over the $1-trillion mark the new debt the Treasury had to issue in the first eight weeks of this fiscal year.
The Treasury has taken out what amounts to an adjustable-rate mortgage on our ever-growing national debt.
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12.1.14 - Gold Market Shrugs Off Swiss Vote
Gold last traded at $1,218 an ounce. Silver at $16.69 an ounce.
Swiss voters went to the polls over the long weekend to vote on several issues, including whether to compel their central bank to add substantially to its gold holdings.
This issue was always overblown by gold market observers. Politics is an unpredictable activity and the amount of gold in question would not have significantly altered the physical gold market in the first place. Moreover, the issue was less about gold and more about who gets to be in charge of such decisions in Switzerland. Politicians and bureaucrats are customarily loath to relinquish control and power and as such launched a huge campaign to influence the election outcome among the voting public.
The referendum's failure was not a surprise. Polls showed this was a foregone conclusion.
The important thing to remember is, no matter what anyone else says, the issue at hand was not gold but political and bureaucratic power and authority. The election outcome changes nothing for gold--not the current market conditions, nor gold's role in the global economy and financial markets.
It's really no surprise, then, that gold rose in European trading overnight.
Year-End Economics
There are more significant economic news reports to focus on as we begin December.
Three economic statistics emerged this morning that suggest a continued economic slowdown.
The first came from "Black Friday" shopping statistics here in the US.
Even after doling out discounts on electronics and clothes, retailers struggled to entice shoppers to Black Friday sales events, putting pressure on the industry as it heads into the final weeks of the holiday season.
Spending tumbled an estimated 11 percent over the weekend from a year earlier. More than 6 million shoppers, who had been expected to hit stores, never showed up.
The financial news media is already hard at work trying to spin these disappointing numbers, attributing it merely to changing shopping habits, but such a sharp decline year over year cannot simply be attributed to such factors.
The second economic report came from China, where the key Chinese manufacturing gauge fell as factory shutdowns aggravated a pullback in the economy. Just last week, China surprised the world by cutting interest rates, so this report can't come as a total surprise. China's economy is slowing just like Europe and Japan.
At this point the US economy seems to be the healthiest, but only relatively so. One might say the US is the healthiest horse at the glue factory.
That's because US manufacturing is slowing down too.
The U.S. manufacturing sector slowed in November to its lowest rate of growth since January, while gauges of new orders and output also fell to their lowest levels since January, an industry report showed on Monday. Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index fell to 54.8 from October's final reading of 55.9.
Finally, given all the disappointing economic news, it comes as no great surprise there is a new warning about the US stock market.
Jubilant equity investors have been piling into U.S. exchange traded funds (ETFs) in the last few months, triggering a number of cautionary signals for stocks, according to U.S.-based tracker firm TrimTabs.
Some observers see it as a bearish signal that markets might have become too exuberant and are due to pull back.
TrimTabs also highlighted that inflows into these ETFs over the month ending November 26 was $42.9 billion - near a level not seen since December 2007, shortly after the last bull market ended. This inflow figure is also five-times the year-to-date average.
