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9.22.14 - More Economic Reports Point To Struggling U.S> Economy

Gold prices end flat on bargain hunting and a stronger U.S. dollar. U.S. stocks close sharply lower as investors worry over falling commodity prices and concerns about global growth. Gold last traded at $1,217 an ounce. Silver at $17.70 an ounce.

As we start another week, there are fresh economic reports that point to a US economy less strong than the Obama administration and the Fed have been claiming. In addition, a new technical factor in the stock market is pointing to trouble. To top it all off, geopolitical factors are beginning to emerge once again.

The US economy has bumped along the bottom for over six years now and it's taking a toll on a generation of wealth earners. Gen Xers (born between 1965 and 1980) are now less well off than their parents were at this point in their lives. They are on track to be the first in recent history to fall behind previous generations in terms of wealth accumulation, a key indicator of economic security.

One problem plaguing all ages in the US has been chronic unemployment. More than 20% of Americans laid off the past five years are still unemployed and one in four who found work found only a temporary job, according to a survey released by the Heldrich Center for Workforce Development at Rutgers University. Workers fortunate enough to land full-time jobs often take significant pay cuts. Forty-six percent of those who found jobs after being laid off said their new job pays less than their previous one. Nearly half of those out of work at least six months during the past five years estimate it will take three to 10 years to recover financially from the recession.

Every true economic recovery in the modern era has included a robust housing and real estate market. That's why many doubt the strength of the current economy. U.S. home resales unexpectedly fell in August as investors stepped away from the market. The National Association of Realtors reported today that existing home sales dropped 1.8 percent to an annual rate of 5.05 million units. Economists had forecast sales increasing to a 5.20 million-unit pace. Compared to August last year, sales were down 5.3 percent.

There is a new technical indicator that the stock market could be headed for trouble.

The Russell 2000 Index has been diverging from the broader market over the last several weeks, and now technicians point out it has flashed a bearish signal. For the first time in more than two years, the small-cap index has hit a so-called death cross.

A death cross occurs when a nearer-term, 50-day moving average falls below a longer-term, 200-day moving average. Technicians argue a death cross is a bearish sign.

Hitting a death cross could potentially propel the Russell 2000 lower and push the index closer to correction territory; a significant level watched by traders that is 10 percent below this index's all-time high.

The world is only now beginning to feel the fallout from the emergence of the terrorist organization ISIS in Iraq and Syria.

There has been a new and massive flow of refugees from areas that ISIS controls. The sudden, massive flood of refugees fleeing ISIS is unlike any other displacement in the 3.5 year Syrian conflict. As many as 200,000 people have left the area surrounding the Syrian Kurdish city of Kobani, also known as Ayn al-Arab, in just four days as ISIS advances into the area. Most have gone into Turkey. The number of Syrian refugees now in Turkey since the beginning of the conflict is approaching 1.6 million with no end in sight.

The conflict could be coming to the US as well, possibly creating a terrorist threat here. The White House confirmed this morning that some Americans who have fought alongside the ISIS terrorist group have returned to the United States. In some cases, the FBI has lost track of them.

As the United States begins what could be a lengthy military campaign against ISIS; intelligence and law enforcement officials said another Syrian group, led by a shadowy figure who was once among Osama bin Laden’s inner circle, posed a more direct threat to America and Europe.

American officials said that the group, called Khorasan, had emerged in the past year as the cell in Syria that may be the most intent on hitting the United States or its installations overseas with a terror attack.

The officials said the group is led by Muhsin al-Fadhli, a senior Qaeda operative who, according to the State Department, was so close to Bin Laden he was among a small group of people who knew about the September 11, 2001 attacks before they were launched.

There is almost no public information about the Khorasan group, which was described by several intelligence, law enforcement and military officials as being made up of Qaeda operatives from across the Middle East, South Asia and North Africa. Members of the cell are said to be particularly interested in devising terror plots using concealed explosives. It is unclear who, besides Mr. Fadhli, is part of the Khorasan group.

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9.19.14 - Scotland Votes To Stay Part Of Great Britain

Gold prices end lower on a stronger U.S. dollar and positive jobs data. U.S. stocks end higher, Dow hits record high on positive economic news. Gold last traded at $1,216 an ounce. Silver at $17.78 an ounce.

Yesterday Scotland voted on whether or not to declare their independence from Great Britain. By a substantial margin, Scottish voters elected to stay part of Great Britain. Markets were heartened by this move, which essentially maintains the status quo. It should be pointed out, however, that this episode may spark secessionist movements in other parts of Europe, something that will definitely not cheer the markets going forward.

Gold has been declining recently due to dollar strength touched off by expectations of higher interest rates soon. In fact, gold is now at a low for the year.

As all investors should know, the key to successful investing is ultimately to buy low and sell high.

Right now, an opportunity exists to buy gold at a significant low and sell stocks at an all-time high.

There are some factors at work that need to be explained with regard to the dollar, interest rates and gold.

First of all, though the dollar has experienced some strength recently, it is very difficult to foresee a scenario in which the dollar has sustained strength. After all, the US national debt is over $17 trillion still and the current annual budget deficit is well over $500 billion. This is an unsustainable path. Sooner or later the US will have to service that debt with dollars cheapened by inflation. Over the long-term, this is like an anvil attached to the value of the dollar.

Second, many investors--and financial journalists--are too young to remember the late 70s and early 80s when gold experienced a huge bull market. Interest rates were rising and the prime rate hit the sky-high level of 21% at the same time the price of gold soared to a then-record level of over $800 per ounce. So, the narrative currently being floated around the financial world that rising interest rates are a death blow for gold does not stand up to historic, factual analysis.

Finally, one thing that HAS been true more often than not, is that rising interest rates are very bad news for the stock market. Many analysts, such as Marc Faber, are saying that rising interest rates will be the pin that bursts the current stock market bubble, touching off what could be the first major correction since 2011 or possibly even the first bear market in 6 years (which is overdue by historic norms). Given that gold has had a negative correlation with stocks over the long-term, a bear market in stocks touched off by rising interest rates could very well prompt investors to flock to the safety and security of gold.

Given these facts, it would appear gold at such low levels represents a terrific opportunity for investors.

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9.18.14 - Fed Offers Little Clarity After This Week's Policy Meeting

Gold prices end lower after Fed comments and a stronger U.S. dollar. U.S. stocks higher, S&P 500 and Dow close as record levels on upbeat jobs data. Gold last traded at $1,226 an ounce. Silver at $18.45 an ounce.

The Federal Reserve held its latest policy meeting this week and yesterday afternoon Fed Chair Janet Yellen met with reporters. As usual, the Fed was as clear as mud in its public remarks.

The Fed renewed its pledge to keep interest rates near zero for a "considerable time", but also indicated it could raise borrowing costs faster than expected when it does start moving on raising interest rates.

Instead of focusing on monetary policy, Fed Chair Janet Yellen decided to focus on the condition of lower-income families in America, perhaps signaling that she believes the Fed needs to do more to stimulate economic activity to help the poor.

The problem, of course, is that the measures Yellen believes need to be taken are really just more of the same. Not only has the Fed's loose monetary policy failed to truly jump-start a stagnant economy, it has undermined the value of the dollar and robbed wealth from each and every American.

Today there was another sign that the economy is struggling, particular in the key real estate sector. U.S. housing starts and permits fell in August. Groundbreaking declined 14.4 percent to a seasonally adjusted annual 956,000-unit pace, the Commerce Department said. Groundbreaking for single-family homes, the largest part of the market, fell 2.4 percent in August to a 643,000-unit pace. Starts for the volatile multifamily homes segment tumbled 31.7 percent to a 313,000-unit rate in August. Last month, permits fell 5.6 percent to a 998,000-unit pace. Permits for single-family homes fell 0.8 percent to a 626,000-unit pace in August. Permits for multifamily housing declined 12.7 percent to a 372,000-unit pace.

There is a new warning of a stock market crash this week, this time from Former Reagan administration director of the Office of Management and Budget, David Stockman.

“I’m worried… that we’ve got the greatest bubble created by a central bank in human history,” he told Yahoo Finance.

“We have been shoving zero-cost money into the financial markets for 6-years running,” he said. “That’s the kerosene that drives speculative trading – the carry trades. That’s what the gamblers use to fund their position as they move from one momentum play and trade to another.”

And that, he says, is not sustainable. While Stockman believes tech stocks are especially overvalued, he warns that it’s not just tech valuations that are inflated. “Everything’s massively overvalued, and it’s predicated on zero-cost overnight money that continues these carry trades; It can’t continue.”

And he believes there will be a day of reckoning.

“When the trades begin to unwind because the carry cost has to normalize, you’re going to have a dramatic re-pricing dislocation in these financial markets.”

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9.16.14 - Investors Focused On Fed Policy Meeting

Gold prices end higher on safe haven demand. U.S. stocks end higher as Fed fears fade. Gold last traded at $1,236 an ounce. Silver at $18.66 an ounce.

All eyes on Wall Street are now cast on the Federal Reserve as it begins its two-day policy meeting and will culminate in Fed Chair Janet Yellen's briefing to the media Wednesday afternoon.

Investors are focused on what Fed policy will be going forward. Will the Fed raise interest rates? How much and how soon?

It's not even certain that Yellen will deliver an accurate representation of what was discussed in the meeting in her press conference.

One long-time stock market bull is warning today that the market could be in for a rough ride in the near-term. Jeremy Siegel believes the Fed is actually "a little behind the curve" on interest rates, with signs rates are already rising.

He's among the market watchers who believe the Fed will drop the phrase "considerable time" in its policy statement Wednesday when referring to how long the central bank will keep interest rates low. That has the potential to spook the market.

While the Fed tends to dominate the attention of Wall Street at times like this, there are other factors and issues investors need to be cognizant of as well.

America's chief executive officers are far from optimistic about the economic outlook near-term. Corporate executives are scaling back plans for sales, capital spending and job creation this quarter, according to a Business Roundtable (BRT) survey, consistent with other indicators that have tempered growth expectations.

The group's Economic Outlook Index—a snapshot of CEO expectations for the next six months of sales, capital spending and employment—fell to 86.4 from 95.4 in the second quarter of 2014. The majority of the BRT's members see plans for capital investment, hiring and revenues falling from the second quarter, with job plans declining the most.

This does not bode well for the US economic outlook, again illustrating that the underlying fundamentals of the US economy are not strong enough to justify a high-flying stock market.

Much of Europe's attention is focused on Scotland, which will hold a referendum Thursday on whether or not it will remain part of the United Kingdom. This is having financial fallout. As we reported yesterday, gold demand in Scotland is way up. There are also fears of a bank run, particularly via ATMs and British banks are stockpiling currency in Scottish ATMs in anticipation, something that might exacerbate already nervous depositors.

The news is brighter for the gold market.

China may join other emerging countries in boosting gold reserves as the precious metal makes up a smaller share of its foreign-exchange holdings compared with developed economies, reports the World Gold Council.

Meanwhile, Carter Worth, chief market technician at Sterne Agee, is telling clients that the dollar is about the turn down-potentially leading the gold price to stage a serious rebound: "We think the massive rally in the dollar is overdone, and you actually can catch a pop in gold."

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