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3.11.14 - JOLTS Report Shows Signs Of Slowing Job Market
Gold prices higher on safe-haven buying as traders keep an eye on Ukraine. U.S. stocks end lower, Nasdaq declined for 4 straight days. Gold last traded at $1,346 an ounce. Silver at $20.82 an ounce.
There are fresh signs this morning that the US job market is indeed slowing down and as a result, all three major US stock indices are down this morning.
The Bureau of Labor Statistics' JOLTS Report did not paint a pretty picture. JOLTS stands for "Job Openings and Labor Turnover Summary" and it is one leading edge measure of the employment market watched by new Fed Chair Janet Yellen.
Job openings came in at 3.974 million, below the 4.015 million most economists expected. Meanwhile, the number of layoffs and discharges rose to 1.74 million in January from a recent bottom of 1.51 million in November. In addition, there were 4.54 million hires in January, below 5.04 million when the recession started at the end of 2007, signaling that the labor market still hasn’t made up all of the ground that it lost during the downturn.
The number of people quitting jobs slipped a bit in January for the second straight month. Quitting is evidence of a vibrant job market because it shows hiring is strengthening enough for more people to leave existing positions.
Employment market trends are heading in the wrong direction with data signaling that workers’ confidence in the economy is flagging.
This is having a negative impact on the US dollar as investors are worried the US economy is once again trending toward recession.
The stock market doesn't like this news, but the stock market's problems extend far beyond today.
Markets are entering a dicey phase according to index fund pioneer and founder of The Vanguard Group, Jack Bogle.
Meanwhile, one of the world's most respected investors has raised the alarm over a looming asset price bubble, calling out "nosebleed valuations" in technology shares like Netflix and Tesla Motors and warning of the potential for a brutal correction across financial markets.
Seth Klarman, the publicity-shy head of the $27 billion Baupost Group whose investment opinions have attracted a near cult-like following, said that investors were underplaying risk and were not prepared for an end to central banks reversing a five-year experiment in ultra-loose money.
While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: "When the markets reverse, everything investors thought they knew will be turned upside down and inside out. 'Buy the dips' will be replaced with 'what was I thinking?' . . . Anyone who is poorly positioned and ill-prepared will find there's a long way to fall. Few, if any, will escape unscathed."
Finally, Irwin Kellner, MarketWatch's chief economist, lists five reasons why stocks will fall.
The first is that most stocks have already gone up an awful lot over the past five years. Last year alone, the Dow rose more than 30%! This is more than the economy has risen in total since the end of the last recession. It also beats the rise in corporate profits by a wide margin.
The second is that profit takers are already beginning to exit the market. In this environment it should be no surprise that many investors and traders have decided to take some money off the table.
Reason three is nerves. The market has been extremely volatile of late, going up a lot one day, and down about as much on the second. It’s a trader’s market, not one for the faint of heart, a.k.a. the average investor. An increase in volatility usually precedes a drop in stocks as market participants rush to get out of the way by selling en masse.
The fourth reason is the economy, which has slowed significantly since the end of last year. It does not seem that the markets are prepared for just how bad the first quarter’s growth was or how much this slowdown impacted sales and earnings.
The last is the perennial fear of geopolitical tension. In this instance, what looks to be a renewal of the Cold War between the United States and Russia.
Lots of economies in Europe and elsewhere are dependent on us and Russia for both imports and exports. A new Cold War could put the kibosh on such trade.
All of this also makes a strong case for gold, since gold has historically moved independently of stocks. That makes gold an excellent diversification vehicle to provide a degree of security and stability to a portfolio overweight in equities.
3.10.14 - Global Debt Soars On Borrowing Binge
Gold prices settled higher on short covering, bargain hunting. U.S. stocks lower on China concerns. Gold last traded at $1,341 an ounce. Silver at $20.91 an ounce.
The most important word today is DEBT.
The Bank for International Settlements reported this morning that the amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis. All a result of a borrowing binge as governments borrowed in an attempt pull their economies out of recession and companies took advantage of record low interest rates.
U.S. government debt outstanding has surged to a record $12 trillion, up from $4.5 trillion at the end of 2007. The jump in debt is nearly twice US Gross Domestic Product, indicating a huge price to pay in an attempt to boost the economy.
There is another use of debt that is also in the news today and it has a warning for investors.
A number of warning signals are flashing in the stock market telling investors to exercise caution. Among the warnings signs: The stock indexes’ string of record highs; high levels of margin debt, or borrowings to finance stock buys; the slim number of prior bull markets that have lasted past this point; and valuations that are close to levels when stocks last peaked.
Margin debt, which tends to spike alongside stock rallies and pullbacks, has been rattling investors for months. “As that debt goes up, the market’s foundation gets shakier and shakier,” says Brad McMillan, chief investment officer for Commonwealth Financial. “The correction could be deeper.”
Also of concern is the bull market’s fifth birthday today. The average bull market only lasts about 4.5 years, putting the current one in rarefied territory. Of the 12 bull markets since World War II, only half have lasted five years, and only three have made it to their sixth birthday.
Valuations, or the prices of stocks compared to the companies’ underlying earnings, have passed levels last reached in 2007, or the top of the last bull market. Bull markets tend to expire when trailing 12-month P/E ratios get into 17x or 18x territory, says LPL Financial’s Jeff Kleintop. They’re approaching 18x now.
Another worry hitting global stock markets is China. Stock markets around the world have been falling sharply since last night on the news that China's exports in February tumbled 18.1 percent from a year earlier, official data showed, raising questions about the health of the world's second-largest economy.
It's not surprising that we're seeing more predictions of higher gold prices now.
Pictures of tanks rolling into Ukraine, continued uncertainty about the strength of the United States economic recovery and turmoil in the emerging market currencies can mean only one thing – the price of gold will increase.
3.7.14 - Government Statistics Sending More Mixed Signals
Gold prices lower on upbeat jobs report, but gain for the week. U.S. stocks higher as U.S. economy generated 175,000 jobs in February. Gold last traded at $1,338 an ounce. Silver at $20.93 an ounce.
Fresh government statistics are once again sending mixed signals regarding the US economy.
The Labor Department reported this morning that the U.S. economy added 175,000 jobs last month, marking an improvement from January and topping economists' expectations, but the unemployment rate rose to 6.7%, from 6.6% in January.
The 175,000 level is still not robust. Prior to December, the economy had been adding an average of 205,000 jobs each month. Taken over the entire past 12 month period, the average monthly increase was 189,000 jobs; so the employment picture is still in a downward trend.
The U.S. economy lost 8.7 million jobs amid the financial crisis, and as of February, only 8 million jobs had been recovered.
Once factoring in population growth, economists still estimate it will take years to get back to pre-recession health in the job market, when the unemployment rate was between 4% and 5%.
Meanwhile, long-term unemployment remains high. As of February, 3.8 million Americans were unemployed for six months or more. One key component of the employment reports paints a sobering picture. Men between the ages of 25 and 54 are in their prime working years. In February 2008, 87.4 percent of men in that demographic had jobs. Six years later, only 83.2 percent of men in that bracket are working.
This employment rate is an important indicator of the health of the labor market. This snapshot of the overall employment picture means the nation is not even halfway to a full recovery.
This is not good news for the dollar as it will add to the uncertainty about the US economy and financial markets, discouraging investment in US dollar-denominated assets.
The Commerce Department also released a report this morning. The U.S. trade deficit widened in January on a rise in imports of oil and other foreign goods.
The trade deficit increased to $39.1 billion, up 0.3 percent from December’s revised $39 billion deficit, the Commerce Department reported.
Imports rose 0.6 percent to $231.6 billion, reflecting a 9 percent jump in imports of petroleum. Imports of food and machinery also rose.
A higher trade deficit acts as a drag on economic growth because it means U.S. companies are making less overseas than their foreign competitors are earning in U.S. sales. It also serves as a drag on the value of the dollar relative to foreign currencies since more dollars are being sent overseas to foreign nations in return for imported goods. Increasing the supply of dollars tends to negatively impact its value.
One asset that has outperformed most paper assets, particularly stocks, so far in 2014 is gold. A variety of factors have contributed to this, most recently the crisis in Ukraine. Whether or not Russian troops march into Ukraine, it seems probable there will be a negative fallout from the conflict, with the possibility of sanctions disrupting trade and economic activity.
Michael Dudas, Precious Metals and Mining Analyst at Sterne Agee, says there are several reasons gold is moving higher.
Dudas believes the cause of the recent safe haven run-up in bullion will continue. He sees tensions in Ukraine as lingering, no matter what the outcome is in the near-term. He also sees a technical reason for gold to move higher.
"You have continued support of technicals," says Dudas. "You have the gold price break above its 150-day and 200-day moving averages. That's been very supportive after a multi-year decline in the metal."
Though today's employment data release may add a little bit of volatility to gold, it's the longer-term issues that Dudas believes will be more important. "As long as the gold market has discounted the taper," says Dudas, "and the Fed… continues to have zero interest rate policies for a pretty long period of time… I think that combination will continue to trade gold higher."