11.27.13 - Central Banks Admit Economy Is In Trouble
Gold prices settled lower on a stronger dollar and rising consumer sentiment. Stocks higher, applications for jobless benefits fall. Gold last traded at $1,237 an ounce. Silver at $19.68 an ounce.
It is no secret the US economy has been slowing. A host of economic reports, particularly labor market and sentiment surveys have been sending this signal for several weeks.
But now central banks are starting to admit the US economy is in trouble. The minutes from the US Federal Reserve's last meeting, held on October 29-30, have been released and reveal a forecast for a growth in productivity less than half of average gains over the past 30 years. Such a slump in productivity would make it exceedingly difficult for the US economy to achieve overall growth targets.
Historically, low productivity gains have been bad for the US economy. In fact, low productivity was one of the hallmarks of the US economy of the 1970s, when America was beset with stagflation--a combination of stagnant economic growth and a rising cost of living.
Across the Atlantic, the European Central Bank has taken notice of developments in the US and, in its latest semi-annual financial stability report, warned of a threat from global financial market turbulence that have increased as a result of the market uncertainty.
Not everyone is merely writing reports about uncertainty emanating from the US. China is actually doing something about it. The Chinese are turning to gold as an alternative to the US dollar.
China's net gold imports climbed to their second-highest on record in October, as the country bought more than 100 tons of gold for a sixth straight month to meet unprecedented demand. Demand in China is such that it is set to overtake India as the biggest gold consumer this year.
Speaking of China, yesterday it was reported that two US B-52 Stratofortress bombers had entered a declared Chinese aviation exclusion zone over disputed islands in the East China Sea. It has now also been disclosed that Japan allowed commercial airline flights to continue in the area as well. While China did not challenge either activity, today China announced it would be sending their new aircraft carrier into the area for exercises. This situation could be ripe for miscalculation if the three sides fail to communicate.
11.26.13 - Consumer Confidence Falls Again
Gold prices close slightly higher with some support from weakness in the dollar. U.S. home prices show slowing growth, consumer confidence falls in November. Gold last traded at $1,241 an ounce. Silver at $19.89 an ounce.
Just as America begins to enter the Thanksgiving holiday period, things are heating up in the financial, economic and geopolitical realms.
In what has become a recurring theme over the past two months, yet another confidence report was released this morning and the report showed Americans are anything but confident.
The Conference Board released its consumer confidence index today and it has fallen for the third straight month, dipping to 70.4 in November from 71.2 -- the lowest level since April.
This is disappointing news for retailers as the Christmas shopping season gets underway in earnest later this week. The Obama administration's fiscal, monetary and economic policies may make this year's holiday shopping season a soft one for the nation's profit-starved retailers, as detailed in a brand new press release from Swiss America:
Most economists had figured the Conference Board's consumer confidence index would actually rise as people shook off the effects of the partial government shutdown thought to impact the October report.
But Americans are increasingly concerned about their job and earnings prospects. A recent poll by the Washington Post and the University of Virginia’s Miller Center found more than 60% of American workers are worried they will lose their job. And nearly one-third say they worry “a lot” -- a record high.
The future expectations component of the consumer confidence index, which covers the next six months, slipped to 69.3 from 72.2, marking the lowest level in eight months.
Overall, consumer confidence remains well below its historical norm. Readings usually top the 100 mark during a strong phase of economic growth and job creation, which shows just how far we are from a healthy economy.
The US dollar fell against world currencies in the wake of the dismal consumer confidence report.
The housing sector is also sending mixed signals at best. The number of Americans who signed contracts to purchase homes fell in October for the fifth straight month, according to a report released by the National Association of Realtors late Monday. The pending home sales index is now at its lowest level since last December.
The banking sector also appears to be taking a hit. Banking giant JP Morgan Chase is dragging the entire sector down. The firm's mounting legal bills due to the mortgage settlement with the US Justice Department has resulted in a drop in income for the entire sector for the third quarter.
As if all this was not enough, there was a new development on the geopolitical scene today. The Pentagon announced the US Air Force flew two B-52 Stratofortress strategic bombers into a new air defense zone near Japan that China recently claimed. China threatened to take defensive measures if any aircraft entered the area. Nevertheless, the B-52s flew through without incident.
11.25.13 - Wall Street Living In A Fantasy World
Gold inches lower after deal with Iran to curb its nuclear program. Nasdaq hits 4,000 mark for the first time in 13 years. Gold last traded at $1,241 an ounce. Silver at $19.93 an ounce.
There are currently two parallel worlds: the fantasy world Wall Street is living in and the world of reality.
On Wall Street today, the Dow hit another record high and the NASDAQ briefly topped 4,000 for the first time since the bubble burst 13 years ago. Wall Street is living the fantasy that all is well and the economy is doing great.
In the world of reality, there is trouble. Economic fundamentals do not support a bull market in stocks and sectors such as banking are preparing for the worst.
Reuters reports that the economists they surveyed cut their forecasts for U.S. economic growth in the final quarter of 2013 and the first quarter of 2014. This is in line with a trend of recent disappointing economic reports, especially in the labor market.
Last week rather late on a Friday before a holiday week, Federal Reserve Governor Dan Tarullo dropped what would ordinarily be a bombshell when he said that global regulators need more policy tools to counter the risk of devastating bank runs and should have powers over a wide array of market participants.
Given that Tarullo is the Federal Reserve's main policymaker on financial regulation, it appears the Fed has serious concern of an impending financial crisis that would involve a bank run--hardly the stuff bull markets are made up of.
Even so, the banking industry fired back at the Fed today warning they would be forced to start charging depositors should the Fed lower the Interest on Excess Reserves (IOER) to zero from 0.25% as a means to offset the implied tightening resulting from the reduction in the monthly flow once Quantitative Easing entered its eventual terminal phase.
Let that sink in for a minute. Banks would actually start charging you to hold your money. If this isn't a nightmare scenario for the banking sector and individual depositors, what is?
In closing, one purported reason for the euphoria on Wall Street today was the news--released in the dark of night on Saturday--that the Obama administration has entered into an international agreement with regard to Iran's nuclear program.
It's probably best to withhold judgment on this deal. You have folks as ideologically divergent as Senator Charles Schumer and Alan Dershowitz on the Left and Lt. Col. Allen West and John Bolton on the right proclaiming the deal to be a disaster in the making.
The outcome remains to be seen, but it wouldn't be the first time that good news ended up turning into bad news.
11.22.13 - Wall St Bulls Start Turning Bearish
With the Dow now trading at over 16,000 for the first time in history, despite weak underlying economic fundamentals, one of Wall Street's biggest bulls is now "tapping the brakes". And an excellent new report was released exposing some little known facts about the economy.
One of the biggest bulls on Wall Street, Tony Dwyer of Canaccord Genuity, is now saying:
"I think sentiment is too high. I think the market's too overbought."
Meanwhile, the financial blog, Zerohedge.com published a guest post this week not to be missed.
The post, written by Tyler Durden, is entitled "The 5 Economic 'Big Lies' The Government Is Telling You"
1. The employment picture and labor market here in the US are far from healthy and have not been steadily improving.
2. Inflation is not as low as people assume; in fact, if it was measured the same way today as it was in the Jimmy Carter era, we'd be looking at close to double-digit inflation.
3. The Federal Reserve's Quantitative Easing program is NOT stimulating economic activity.
4. Obamacare is a disaster for middle class Americans.
5. The US National Debt is much bigger than the government admits and is far from being under control.
All of these truths are themes we at Swiss America have been commenting on for months. Eventually, the rest of America will understand reality, but by then it may be too late for them to secure their hard-earned wealth. That's why NOW is the time to act: BEFORE the rest of America wakes up.
Gold is uniquely suited to providing security and peace of mind when economic and financial conditions deteriorate because it tends to move independently of paper assets. Moreover, gold has a track record going back 6,000 years, considerably longer than the bluest, blue chip stock or US Treasury bonds.
11.21.13 - Labor Market Shows Sudden Strength
Gold prices close lower after release of economic data and Fed minutes. Jobless claims at lowest level in two months. Gold last traded at $1,243 an ounce. Silver at $19.93 an ounce.
It looked like there was good news in the Labor market this morning, but looks can be deceiving. Claims for first-time unemployment benefits fell by more than was anticipated by economists, suggesting sudden strength in the labor market. But some experts are urging caution in interpreting these numbers because they may be skewed by the Veterans' Day holiday which occurred on the Monday of the week measured. Before anyone draws any conclusions from these numbers, they should wait to see if this trend continues in normal weeks to come. For the past two months the labor market has clearly become sluggish, prompting speculation the Federal Reserve will continue its loose monetary policies.
Speaking of the Federal Reserve, President Obama's nominee to become the new Federal Reserve chair, Janet Yellen, has been approved by the Senate Banking Committee by a 14-8 vote. Yellen is well on her way to full Senate confirmation, which is another sign the Fed will continue its easy money policies. She has stated lowering unemployment will be her top priority when she ascends to the chairmanship. This of course is bearish for the value of the US dollar and bullish for gold over the long-term.
One reason Yellen feels justified in her endorsement of loose monetary policy is the perception of a lack of inflationary pressure in the US economy, as expressed by traditional inflation gauges. One example is the Producer Price Index, which measures price activity at the wholesale level. The PPI was released this morning and showed wholesale prices actually declined during October.
But once again, the real story is in the details. Energy costs fell 1.5% last month, led by declines in gasoline and natural gas. The gasoline index sank 3.8% and natural gas slipped 0.6%. This dragged the entire index down, but energy prices are notoriously volatile so declaring a trend from this report is a mistake. The food components of the index rose 0.8% in what was the biggest monthly gain since March. The cost of beef, vegetables, rolls and muffins all surged. But note, this aspect of the story is not making it into the headlines.
Moreover, excluding the volatile categories of food and energy, core wholesale prices rose 0.2%. Economists surveyed by MarketWatch had predicted a 0.1% increase. In other words wholesale inflation, while not extreme by any means, was greater than economists had predicted.
In other economic news, there is a different aspect of the debt picture being largely ignored with significant economic implications. U.S. households added to their debt burden in the third quarter of 2013 at the fastest pace in five years with increases across all debt categories, the New York Federal Reserve Bank reported this morning. This was the largest quarterly increase since the first three months of 2008, when the financial crisis began.
11.20.13 - Still No Clarity From Fed
Gold prices close lower after release of Fed minutes. Stocks lower, U.S. dollar higher on FOMC minutes. Gold last traded at $1,242 an ounce. Silver at $19.83 an ounce.
Minutes from the Federal Reserve's October meeting were released this week. According to those minutes, Federal Reserve officials are looking for a way to exit or at least slow down the bond-buying program sometime in the near future. However, these top economic policymakers are still uncertain on how to cut back on the monetary easing without spooking the market.
Fed officials are still very conflicted on when to wind-down the bond-purchase program and how to communicate that to financial markets. With the market still attached to the Fed's monetary stimulus, it will be a major challenge for Fed policymakers to figure out how to taper. Eventually, Fed officials decided to give themselves more time to see how the economy will play itself out in the coming months.
In other market news, some economic reports were released today including U.S. retail sales, U.S. consumer prices and existing home sales. These reports help gauge whether the economy is still on pace for a recovery or not. According to the U.S. retail sales report, the government shutdown in October did not deter consumers from spending their money. In October, retail sales rose at the fastest pace since July. Sales in retail stores climbed a seasonally adjusted 0.4% in October, according to the Commerce Department, led by car and truck purchases.
U.S. consumer prices fell slightly in October mostly due to a decline in energy costs, pulling down the annual pace of inflation to the lowest rate since 2009. This decline in consumer prices is yet another sign inflationary pressure in the U.S. economy is largely absent for now. Existing home sales, on the other hand, fell in October to the slowest pace in four months. Existing homes sales fell 3.2% in October to a seasonally adjusted annual rate of 5.12 million, a second month of declines.
The problems with Obamacare are still far from over. According to Gov. Scott Walker the Affordable Care Act is a "wet blanket" on the U.S. economy and he called it an "abysmal failure." In a recent poll by CBS, approval of the Affordable Care Act has dropped to 31%, the lowest number yet recorded in CBS News Polls. 61% of individuals disapprove, 46% of whom say they disapprove strongly. This has affected how Americans perceive President Barack Obama. In that same poll it was reported that President Barack Obama's job approval rating had plunged to the lowest of his presidency with only 37% now approving of the job he has done as president.
11.19.13 - Uncertainty In U.S. Causing Growing Risk To Global Recovery
Gold prices settled higher Tuesday on bargain hunting following recent losses. Stocks end lower, Dow breaks winning streak. Gold last traded at $1,273 an ounce. Silver at $20.33 an ounce.
Several economic problems have been contributing to the slowdown of the global recovery. According to the Organization for Economic Co-operation and Development (OECD), the uncertain future of current U.S. fiscal and central-bank policies presents a growing risk to a global economic recovery. The current recovery has already been weakened by sluggish growth in many developing economies.
The OECD says events, such as the strong reaction by investors to the possibility the Fed will soon start tapering its asset-purchase program, has undermined confidence and stability in recent months. "These events underline the prominence of negative scenarios and risks that the recovery could again be derailed," OECD chief economist Pier Carlo Padoan said.
The U.S. also has additional concerns about our own country. President Barack Obama has received huge criticism for the mismanaged roll out of the Affordable Care Act. The disapproval of his job performance has now reached a career high as his approval rate fell to 42%, according to a new ABC News/Washington Post poll. According to that same poll, 55% of individuals disapprove while 70% say the country's headed off on the wrong track.
President Obama is also at career lows for being a strong leader, understanding the problems of the average American and being honest and trustworthy. According to the poll, the president's personal image has also suffered alongside his profession ratings. Skepticism about the Affordable Care Act seems to be the driving force for these numbers.
Retirement has also been a growing concern. Many retirees are worried they are going to run out of money if they go into retirement, forcing many to remain in the workforce. Baby Boomers putting off their retirement is a main reason for the high levels of unemployment for those looking to enter the workforce. According to the latest report from the Bureau of Labor Statistics, the joblessness in people 20 to 25 years old is 12.5%, twice the rate of people over 25.
In other news, a rare St. Louis coin collection sold for more than $23 million at a two-day New York City auction. The collection belonged to retired St. Louis lawyer Eric P. Newman who only paid about $7,500 for the 1,800 piece collection of early American coins, most of which had been off the market for 50 years. Proceeds from the sale will go toward supporting the nonprofit Eric P. Newman Numismatic Education Society, which operates the Newman Money Museum.
11.18.13 - Don't Be Fooled By The Stock Market Rally
Gold prices closer on tapering speculation. Stocks end mostly lower as Icahn sees big drop. Gold last traded at $1,272 an ounce. Silver at $20.36 an ounce.
Even though the labor market is stagnating and confidence is declining; the US stock market is hitting record highs. The Dow has climbed to 16,000 and the S&P 500 is now over 1,800.
But not everyone feels this is cause for celebration. There is ample evidence this stock market has gotten ahead of itself. In fact it could very well be the stock market is banking on an economic recovery that has already peaked and is now petering out. If the underlying economic fundamentals are not strong, it is only a matter of time before the stock market gets reeled back in quickly and painfully.
The stock market rally is mainly fueled by loose monetary policies. Never in history has a nation sustained prosperity by trashing its own currency. This is classic bubble economics at work. A devalued dollar will ultimately rob wealth from every man, woman and child in America. That reduced standard of living will be forced to somehow service a national debt that has grown beyond any level of sustainability. Any sober observer who closely analyzes these simple facts knows the current stock market euphoria is a phenomenon bound to come down hard at some point.
Investors must be prepared for this. The best defense is diversification. Contrary to popular belief, diversification doesn't just mean spreading your investment dollars across different kinds of stocks. True diversification means allocating your wealth across different asset classes. In order to benefit from diversification, one must include assets not closely and/or positively correlated with one another.
Gold investments are an excellent diversifier for a portfolio weighted heavily in paper investments, such as stocks and bonds as the factors that tend to make the price of gold rise over the long-term are quite different from those that benefit stocks and bonds.
Speaking of gold, analysts are the most bullish in six weeks as Federal Reserve Chair nominee Janet Yellen signaled the US central bank is in no hurry to curb economic stimulus thus reviving demand. Eighteen analysts surveyed by Bloomberg News expect gold prices to gain next week, nine are bearish and two neutral; the largest proportion of bulls since October 4.
In economic news, there is yet another measure that shows Americans' confidence in the economy is on the wane.
Home builder confidence remained flat in November from a downwardly revised level of 54, according to data from the National Association of Home Builders/Wells Fargo Housing Market Index released on Monday.
Analysts polled by Thomson Reuters had expected the index to increase to 56.
Builders continue to face challenges stemming from increased construction costs.
Finally a reminder, the debt ceiling agreement is set to expire in February. With this deadline looming, Japanese business leaders are questioning whether they should invest in projects in and with Americans ahead of the deadline, given the signals another crisis is likely to occur in February. Time will tell if others start to share the same sentiments as the Japanese.
China Becomes World's Largest Consumer Of Gold
Gold prices closed the week higher as Fed Vice Chairwomen Janet Yellen voiced support for central bank's stimulus program. U.S. dollar drops on weak manufacturing data, taper timing. Gold last traded at $1,287 an ounce. Silver at $20.73 an ounce.
A generation ago China was a backward, poor nation with a communist economic system.
While China's political system is still totalitarian, the country is no longer backward or poor as a whole and its economic system is no longer communist.
Moreover, the Chinese have learned the lessons of free market capitalism--lessons many Americans appear to have forgotten, including our policymakers in Washington DC.
The World Gold Council now reports China has become the world's largest consumer of gold, surpassing India, the historical top gold buyer.
According to the Council, the Chinese have purchased 798 tons of gold so far this year and are expected to have purchased a total of 1,000 tons by the end of the year.
Gold ranks alongside stocks and property as a favorite of investors in China, and under-performance in those markets has boosted gold (China's stock market is down 6% so far this year).
China's growing interest in gold also reflects its declining confidence in the US dollar. China's central bank is reported to be expanding its gold reserves as a replacement for dollar assets and is even preparing the yuan as a long-term rival to the dollar on world markets.
The dollar has received pressure from within the United States as well thanks to the Fed's Quantitative Easing program, something set to continue and possibly even intensify, according to testimony before Congress by Federal Reserve Chair nominee Janet Yellen.
Today the dollar is under pressure from a new factor as well.
The dollar edged lower after a gauge of manufacturing activity in the New York region surprised markets with a negative reading. The Empire State’s general business conditions index turned negative in November for the first time since May, according to data released by the New York Fed. The Empire State index fell to negative 2.2 from positive 1.5 in October. Economists had generally expected a positive 5.5 reading.
This is yet another sign the US economy is in trouble and the policies the Obama administration has turned to over its five years in office have consistently been ones that undermine the value of the dollar in an attempt to stimulate economic activity. In anticipation of just such a move, the dollar is falling.
Not surprisingly, the price of gold is higher this morning.
News also broke yesterday that Moody's has cut the credit ratings of big U.S. banks including Morgan Stanley, JP Morgan Chase, and Goldman Sachs. The review, by the second-largest rating agency in terms of market share, follows a similar statement from rival Standard & Poor's in June and reflects declining confidence in the US government's ability to bail the big banks out again should a new financial crisis come to pass.
In addition, there were two more indications America is losing its grasp of free market capitalism, even as the Chinese slowly discover it:
• The White House Office of Management and Budget released its estimate of US tax revenue late on Wednesday afternoon, which showed the nation's federal tax receipts will top $3 trillion for the first time during 2014. That's $9,534 for every man, woman and child in America and $29,673 for every full time worker in America. This shows how out of control government has become and it also shows the real impact on our economy. This situation is simply not sustainable over the long-term. We are taxing away our prosperity.
• On a completely different score, the New York Times revealed today that US financial privacy is under attack from a new corner: the CIA has been secretly collecting bulk records of international money transfers handled by companies like Western Union, including transfers into and out of America. On its face it may not seem like this program is abusive, but we keep finding the government overreaching on these types of programs. The safeguards supposedly in place to ensure the constitutional rights and privacy of individual Americans are being ignored.
While China embraces capitalism, the US embraces Big Government and Big Brother.
11.14.13 - Jobless Claims Still Above End-Of-Summer Levels
Gold prices close higher on Thursday on disappointing economic data and comments from Janet Yellen. Jobless claims dropped by 2,000, to 339,000, but still remain above end-of-summer levels. Gold last traded at $1,286 an ounce. Silver at $20.72 an ounce.
Yet another disappointing labor market report indirectly led to a rally in gold prices this morning.
The Labor Department reported the number of people who filed new applications last week to receive unemployment benefits fell by only 2,000, to 339,000, over the past week. The consensus forecast from economists called for a drop to the 330,000 level. In addition, the number of applications in the prior week was revised up to 341,000 from an original read of 336,000. These disappointing numbers prompted the financial world to assume the US Federal Reserve will continue its loose monetary policy for the foreseeable future.
In fact, the report may have influenced the testimony of Federal Reserve Chairman nominee Janet Yellen, who said she would carry on with U.S. monetary stimulus as long as the US economic recovery remained fragile.
This is bad news for the value of the US dollar and bullish for gold, since gold has historically had a negative correlation with the US dollar over the long-term.
More pressure on the dollar is also probably on the way to a rising trend in the US trade deficit. It was also reported this morning that the U.S. trade deficit rose in September for the third straight month to $41.8 billion from a revised $38.7 billion in August, as exports of American goods and services fell slightly and imports of goods like oil and cell phones accelerated.
The reason this could pressure the dollar is because a weaker dollar tends to make US goods and services cheaper overseas, thus boosting exports, while at the same time it makes imported goods and services more expensive, thus reducing imports. In other words, the Fed can look at the trade deficit as justification for debasing the dollar through loose monetary policy.
The cornerstone of the Fed's monetary policy is its bond buying program known as Quantitative Easing (QE). The fact is QE has failed to stimulate the economy to help working Americans as some predicted. What it has done, however, is hurt the US dollar by flooding the world with dollars and, at the same time, it has made a few Wall Street fat cats a fortune. That's the opinion of former Federal Reserve official Andrew Huszar in a column published by The Wall Street Journal this morning. Huszar is in a position to know: he was directly involved in the implementation of QE right from the start back in 2009.
Finally, as if the dollar needed to take any more lumps, predicting the imminent collapse of the U.S. dollar, a Russian lawmaker submitted a bill to his country’s parliament Wednesday that would ban the use or possession of the American currency. The parliamentarian who introduced the bill was Mikhail Degtyarev, who has predicted a collapse of the dollar by 2017.
Not long ago, Russia was part of the communist Soviet Union; today the Russians are offering America lessons in capitalism.
11.13.13 - Labor Force Participation Rate Hits 35-Year Low
Gold prices closed slightly lower Wednesday on selling pressure. Yellen backs Fed's bond-buying program. Gold last traded at $1,268 an ounce. Silver at $20.66 an ounce.
There is more sobering news on the labor front.
The percentage of American civilians 16 or older who have a job or are actively seeking one dropped to a 35-year low in October, according to the Bureau of Labor Statistics. - See more at: http://cnsnews.com/news/article/ali-meyer/americans-participation-labor-force-hits-35-year-low#sthash.VedANFKW.dpuf The percentage of Americans who are employed or are seeking employment hit a 35-year low in October, as reported by the Bureau of Labor Statistics.
The last time the labor force participation rate was this low, Jimmy Carter was president and America was on the brink of "stagflation," a combination of a rising cost of living and stagnant economic growth. It was during this period the "misery index" statistic was calculated for the first time. The misery index is a combination of the inflation rate and the unemployment rate. Also during that period, the price of gold soared to an all-time high over a period of about two years.
The labor force participation rate figure puts the 7.3% unemployment rate in perspective. Once someone quits trying to find a job, they no longer count in the unemployment calculations. The reality of the labor situation shows the US economy is in much worse shape than most realize.
One investment sector that is clearly concerned about the US economy is the bond market, which has had a dismal 2013. The long-term US Treasury bond has returned a negative 8.7% on the year. Should the Federal Reserve decide to end its loose monetary policies at some point in the future, the resulting inevitable rise in interest rates will send the bond market even lower.
Even those that President Obama's economic policies were designed to help are worse off. Income gains for the lowest income workers are lagging behind income gains of higher economic stratus workers and have failed to keep pace with inflation over the past 5 years.
The US economy is not the only economy with worries. China's communist party leadership is meeting this week to address economic reforms to prevent a further slowdown in their economic growth rate. So far, the results have been less than encouraging as the leaders declined to touch the overriding issue of state-owned enterprises crowding out the private sector.
One area the Chinese have demonstrated foresight in is gold. China has been building up its gold reserves as it looks for alternatives to the US dollar. Observers believe China's goal is to match or exceed America's reported gold reserves of 8,133.5 tons within the next decade. This is seen as a strategy to both secure China's reserve assets and to directly challenge the US dollar as the world's reserve currency. This is clearly a bullish double-play for gold.
11.12.13 - More Mixed Signals From Federal Reserve
Gold prices close lower on selling pressure and lack of bullish fundamental news. U.S. stocks fall on talk of December taper. Gold last traded at $1,271 an ounce. Silver at $20.78 an ounce.
Another disappointing report on the economy released this morning is interrupting the rally in stocks.
The National Federation of Independent Business reported that small business optimism fell sharply in October to its lowest levels since April. This is just the latest in a succession of sentiment/confidence surveys that show Americans are becoming increasingly pessimistic about the future of the US economy.
Meanwhile, mixed signals from the Federal Reserve are taking their toll as well. Dallas Federal Reserve President Richard Fisher appeared in an interview on CNBC this morning and pointed out the Fed's Quantitative Easing program of buying Treasury bonds to inject money into the economy cannot go on indefinitely. This spooked the stock market as QE is seen as the main factor behind the trajectory in stocks. Without the monetary stimulus, the underlying fundamentals simply do not support a bull market.
Nomura, a major Japanese financial conglomerate, is warning its clients that trouble is coming in stock markets around the world:
"I still see end Q4 2013, through to end Q1 2014, as the window in which we see a significant risk-on top before giving way, over the last three quarters of 2014 and through 2015, to what could be a 25% to 50% sell-off in global stock markets," warned Nomura's Bob Janjuah in a recent note to clients.
There are other warning signs the stock market may be headed for stormy times:
• Yale University's "Crash Confidence Index" is back at levels not seen since 2007--just before the major bear market.
• CitiGroup's Panic/Euphoria Model indicates investor complacency is near a peak.
• Stocks are expensive. The P/E Ratio relative to 10-year average earnings are well above long-term averages.
• Investors are increasingly borrowing money to invest in stocks. Margin debt is near record highs.
• Sales revenue has been falling short of expectations across industries.
• Trading volumes are declining, meaning fewer investors are chasing stocks higher.
Gold investments are an excellent hedge against potential trouble in stocks since they have historically had no correlation or a negative correlation to rising stocks.
The coming bear market in stocks is particularly sobering news for retirement savers. A survey by Genworth indicates that Americans are underestimating retirement expenses and have not saved enough. This is forcing some retired Americans back to work.
One way to prevent this from happening to you is to diversify your retirement portfolio across a variety of asset classes, including gold, so your retirement savings can provide for you in a variety of economic and market environments.
11.11.13 - Stock Market Rally May Be Coming To An End
Gold prices closed slightly lower Monday on last week's U.S. jobs report. The U.S. Government is closed Monday and no U.S. economic data is due for release. Gold last traded at $1,281 an ounce. Silver at $21.28 an ounce.
In muted Veterans Day trading, the US stock market is touching record high levels. But there are growing signs the stock market party may be getting long in the tooth.
The stock market climb that began in early 2009 now exceeds the average length of bull markets by almost a year and valuations are up 18 percent in 2013. No tree grows to the sky and the outlook for continued growth in the stock market is becoming more questionable with each passing day.
“It’s unusual that we’ve gone so long without at least a correction,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, said from Philadelphia in a Nov. 6 phone interview. His firm oversees $58 billion. “If you just look at this from a valuation perspective, the market is rich. That doesn’t mean we have to crash, but it does suggest that going forward, your return assumptions for U.S. equities should be much more muted than they have been.”
Nine of the last 12 bull markets have ended in five years or less, data compiled by Bloomberg and Birinyi Associates Inc. shows.
The huge French Bank Societe Generale warned today that the S&P 500 will be flat "at best" for the coming quarters with a continued risk of a short-term correction. The bank's view correlates with a bearish projection from Nomura strategist Bob Janjuah who expects a 25-50 percent sell-off over the last three quarters of 2014 in global stock markets. Steen Jakobsen, chief economist at Saxo Bank has explained in recent weeks bullish investors are "chasing the tail" of the recent equity rally, indicating now is not the time to be risky.
Meanwhile, as the stock market pushes to new highs, technical strategists are suddenly sounding a lot more bearish as well. "With each new high in the market, less and less stocks are in uptrends. That's a problem … an unsustainable one. Eventually the major averages will catch up," said technician J.C. Parets, founder and president of Eagle Bay Capital.
The main impetus for stock market growth seems to be loose monetary policy by world central banks, something that undermines currencies and only artificially and temporarily pumps up equities. The European Central Bank, the Czech central bank and Peru's central bank all cut interest rates in the past week, while the US Federal Reserve announced its intention to keep Quantitative Easing going for the foreseeable future.
This debasing of paper currencies has renewed interest in gold around the globe. Additionally, because gold has exhibited little if any correlation with other investment categories over time, it is recognized as a good hedge when stock markets get too high. Two of the world's most populous countries with large economies are especially showing interest in gold.
Malca-Amit Global Ltd. just opened a 2,000-ton capacity gold vault in Hong Kong in anticipation of increased demand. In India, the world's largest market for gold as well as gold and silver imports soared more than 62% in October, as compared to the same month last year.
11.8.13 - U.S. Unemployment Rate Up, Labor Force Participation Rate Down
Gold prices fall sharply on stronger-than-expected U.S. jobs data. Stocks, U.S. dollar higher on jobs report. Gold last traded at $1,284 an ounce. Silver at $21.32 an ounce.
The US unemployment rate rose during October from 7.2% to 7.3%. This uptick matches other economic reports released over the past month or so.
Many on Wall Street and in political circles are trying to spin this increase in unemployment into something positive by pointing out the economy created more new jobs in October than anticipated. But what they don't want anyone to do is to examine the other details of October's unemployment report ...
For instance, the labor force participation rate fell from 63.2% to 62.8%, the lowest figure since Carter was in office.
Moreover, the number of people eligible for work who are not in the labor force skyrocketed by 932,000 during October, the third highest monthly increase in people exiting the labor force in US history. There are now a record 91.5 million Americans who are of working age and eligible to work but who are not working and not seeking work. At current rates of growth, the number of non-working Americans will exceed working Americans by the time Obama leaves office. This is something any economy clearly cannot sustain.
Not surprisingly, confidence is low and falling. The preliminary November reading of the University of Michigan/Thomson Reuters consumer sentiment index hit 72 - the lowest since December 2011 - from a final October reading of 73.2. Economists had expected the gauge to rise to 75 in early November, partially offsetting an October drop driven by the government's shutdown.
In geopolitical news, there are rumors the US and European nations may be on the cusp of an agreement with Iran over its nuclear program. Reportedly, the agreement would allow Iran to continue its uranium enrichment program. This is doubly curious since Iran's enrichment program is a direct violation of its treaty obligations under the Nuclear Non-Proliferation Treaty and is in defiance of multiple UN Security Council resolutions on the matter. Moreover, uranium enrichment is the key process by which nuclear warheads can be completed. Israel has expressed dismay at the reports. As such, this agreement could be setting the world up for a showdown in the Middle East that no one wants.
11.7.13 - Geopolitical Tensions Grow In Middle East
Gold prices end lower on a higher U.S. dollar and upbeat U.S. economic data. U.S. jobless claims fall by 9,000 to 336,000. Gold last traded at $1,308 an ounce. Silver at $21.66 an ounce.
While the financial markets were tame today, the geopolitical world has suddenly taken center stage.
The BBC reported overnight that Saudi Arabia has ordered nuclear weapons from Pakistan in response to Iran's nuclear program. Meanwhile Iran, according to state-run Fars News, has declared to the United Nations International Atomic Energy Agency that it has an unlimited right to pursue and expand its nuclear program.
This has all the trappings of a nuclear arms race in the most volatile region in the world.
While the financial markets have yet to take notice of these developments, when they do--and it seems inevitable that they will--these continuing developments will be a major factor for the global economy.
In economic news, the European Central Bank has followed the US Federal Reserve's lead in loosening its monetary policy by cutting its main interest rate to 0.25 percent from 0.50 percent. This move was not anticipated and the euro is falling sharply on world currency markets as a result. Naturally, those in the European Union with the foresight to hold gold are being rewarded today with sharply higher gold values in terms of the euro.
Meanwhile, in the US, two economic reports released today once again indicate the US economy is losing momentum.
Weekly jobless claims in the US fell by 9,000, to 336,000, in line with expectations. The markets have not really reacted to any extent. But continuing jobless claims, which reflect the number of people already receiving benefits, actually rose by 4,000.
US Gross Domestic Product grew by an annual rate of 2.8 percent in the 3rd quarter according to a report released today. But, as is often said, the devil is in the details. A large portion of the increase came from businesses building up their inventories. This alone added 0.8 percentage points to GDP. When inventories build up, it can mean one of two very different things:
Either businesses have good reason to expect demand will pick up in the future, so they stock their shelves in advance. Or, demand is weaker than expected and goods already ordered linger on shelves.
Many economists believe the present condition reflects the latter and a host of economic reports over the past month seem to point in that direction as well.
Another worrisome aspect of the GDP report was that businesses cut their spending on equipment in the third quarter, indicating negative or, at best, uncertain sentiment in the business world.
11.6.13 - China Challenging U.S. For World Leadership
Gold prices closed higher on U.S. dollar weakness and bullish outside market forces. U.S. stocks higher as European equities advanced. Gold last traded at $1,317 an ounce. Silver at $21.77 an ounce.
There can be no doubt China is challenging the US for world leadership.
Militarily, China is in the midst of a major modernization program to challenge America's superpower status.
Financially, China's economy has grown exponentially. China has problems to be sure but it is also America's biggest creditor.
Now China's currency, the yuan, is challenging the US dollar for world supremacy. This is more a result of irresponsible American monetary and fiscal policies than it is the result of China's actions.
The yuan is now making the biggest inroads on global security exchanges since the introduction of the euro and has the dollar squarely in its sights. This will contribute to the decline of the dollar. Since gold is priced in dollars, this is a bullish factor for gold.
Meanwhile, there are more troubling signs for the US economy.
Yesterday, the Gallup organization reported its measure of US economic confidence plunged during October. In fact, it was the steepest monthly plunge since Gallup began measuring economic confidence.
Additionally, the Labor Department reported this morning planned layoffs by U.S. employers jumped 13.5% last month, led by cutbacks at pharmaceutical and financial services firms. This bodes ill for Friday's scheduled release of the unemployment numbers.
Despite these facts, Wall Street continues to be oblivious to the disturbing economic trends, focusing solely on what the Fed might do. And bad economic news means the Fed will continue its loose monetary policy and debasement of the US dollar.
Not surprisingly, the stock market is approaching record territory yet again. But at least one observer has called the situation for what it is:
“The central bank has decided they will reward risk behavior and that’s what we’re going to get,” said Bill Mann, chief investment officer at Motley Fool Asset Management.
Investing in stocks at current levels is decidedly risky, especially given the economic fundamentals and debasement of the currency.
Not everyone is willing to take that risk evidently. Gold was up in early trading.
11.5.13 - Merrill Lynch Bullish On Gold
Gold prices slightly lower but remain above $1,300. U.S. stocks lower on weak euro-zone growth forecasts. Gold last traded at $1,308 an ounce. Silver at $21.64 an ounce.
Merrill Lynch is bullish on gold in view of technical analysis by its technical strategist MacNeil Curry.
With gold current trading at around $1,310 per ounce, Merrill Lynch now sees an upside target as high as $1,533 per ounce, or just over a 15% advance.
This is a significant change for a major Wall Street firm, a development that cannot be overemphasized.
In addition to the technical picture, there continue to be other factors which point to a bullish scenario for gold.
Chief among these factors is the US national debt. Since the US raised its debt limit last month, the debt jumped by $409 billion according to the US Treasury. That figure is equivalent to over $3,500 for every household in America and is the second largest monthly jump in history.
In addition to the fiscal situation, US monetary policy also continues to be bullish for gold. There is no end in sight for the loose policy practiced by the Federal Reserve, particularly the Quantitative Easing program. The continuation of this program for the foreseeable future was reinforced today when Boston Federal Reserve Bank President Eric Rosengren told CNBC he'd like to see more improvement in the job market and in economic growth.
The US isn't the only region suffering from slowing growth. The European Commission today issued a new economic growth forecast for the European Union and revised its 2014 forecast down substantially. The Commission said it expected unemployment in the 17-country euro zone to remain around 12.2 percent until 2015. The Commission also said it expected the euro zone's gross domestic product (GDP) to shrink this year by 0.4 percent. This news is widely expected to result in continued easing by the European Central Bank (ECB) which is sure to weaken the euro and prompt Europeans to seek out gold as the ultimate form of real money.
11.4.13 - Proceed With Caution As Stock Market Soars
Gold prices close higher on bargain hunting and a weaker U.S. dollar. St. Louis Fed President James Bullard stated the Fed can be patient about tapering. Gold last traded at $1,314 an ounce. Silver at $21.70 an ounce.
It is no secret the US stock market has been soaring to record heights. This has been cause for celebration for many, but it also may be reason for caution.
In the 1990s, the term "irrational exuberance" was coined--not long before the go-go days in the NASDAQ came to a painful end in 1999 and into 2000.
Today, as explained in an excellent article in The Wall Street Journal over the weekend, many experts are seeing parallels with 1999.
Earnings have been mundane at best, US economic growth has been anemic and the private sector is far from thriving. Yet the stock market is booming.
Something is amiss. Either the stock market is anticipating a boom no other indicators are anticipating or the stock market is getting way ahead of itself, setting up investors for a serious fall.
We believe caution is in order given recent economic statistics.
One factor feeding the stock market bubble is the Federal Reserve's Quantitative Easing program. James Bullard, chair of the St. Louis Federal Reserve Bank told CNBC this morning QE isn't going to end any time soon. That's bad news for the value of the US dollar and a very good reason for investors to turn to gold.
Not surprisingly other market observers, such as Peter Schiff of Euro Pacific Capital, are pointing out America's economic fundamentals are not positive and investors should be turning to gold as a safe haven.
American experts, such as Schiff, are hardly alone in their assessment of the outlook for gold. The Economic Times of India has laid out key reasons why gold will glitter going forward. The Economic Times is India's premiere financial daily paper and India is the world's largest consumer of gold. With this in mind, the following facts are extremely significant:
• India, the world's largest consumer of gold, will continue to demand gold
• Currency markets now favor gold
• Gold's technicals seem positive: gold is trading above its 10, 20 and 100-week EMA (Exponential Moving Average)
• The long-term fundamentals for gold also remain positive
11.1.13 - U.S. Economy Not Getting Better Any Time Soon
Gold prices end lower amid surge in U.S. dollar index and weakening Euro currency. Stocks higher on strong manufacturing data. Gold last traded at $1,313 an ounce. Silver at $21.84 an ounce.
Markets paused earlier today on news a shooting had brought Los Angeles International Airport, one of America's busiest, to a standstill.
The worry, of course, was that this could have been a coordinated terrorist attack but has turned out not to be the case.
Though LAX operations are certainly disrupted, the incident was brought to a fairly quick ending. Tragically, at least one victim, a TSA agent, was killed in the shooting.
News continues to be made in the financial arena, with yet another sign that the US economy is running into trouble.
Financial data firm Markit said its U.S. Manufacturing Purchasing Managers Index for October hit a one-year-low as factory output slowed sharply.
This trend comes despite the frantic efforts by the Federal Reserve, through Quantitative Easing and negative real interest rates, to jump start the economy.
Judging from the outlook for the employment market, the US economy isn't going to get healthier any time soon. Economists at the Federal Reserve Bank of Kansas City reported today that at the current rate of progress, the U.S. labor market won’t get back to "normal" until the summer of 2015. But Goldman Sachs economists examining the same data conclude that "normal" might not arrive until the beginning of 2017.
The financial markets are betting the Federal Reserve’s rate-setting Federal Open Market Committee will start tapering purchases of long-term bonds sometime in early 2014. But the FOMC has said the purchases will continue “until the outlook for the labor market has improved substantially in a context of price stability.” If the FOMC sticks to that commitment, bond purchases could continue longer than many people expect with continued negative effects on the US dollar and unknown effects on economic activity.
With the end of the fiscal year taking place on October 1, the federal government issued its financial statements of sorts. The numbers showed the net worth of the country (if measured in corporate balance sheet format) is now negative $16 trillion!
Not surprisingly, the Federal Reserve is trying to make sure US banks are ready for negative outcomes as it sets the rules for next year's model runs to gauge the health of the financial system. Under these so-called "stress tests," banks in the United States will have to test whether they can survive a halving of the stock market during a severe U.S. recession.