8.28.24 -Investors Around The Globe Seek Safety Of Gold
Gold prices end higher on safe haven buying interest amid growing geopolitical tensions. U.S. stocks lower, S&P 500 falls below 2,000 on fresh Ukraine worries. Gold last traded at $1,288 an ounce. Silver at $19.53 an ounce.
There has been a rather stunning reversal in world stock markets and the gold market over the past 24 hours as euphoria over record-setting highs for the Dow and S&P 500 gave way to renewed concerns over tensions between Russia and Ukraine.
In fact, "tensions" is probably are gross understatement. Russian forces in two armored columns invaded Ukraine and captured a key southeastern coastal town.
The two Russian columns, including tanks and armored fighting vehicles, entered the town of Novoazovsk on the Sea of Azov after a battle in which Ukrainian army positions came under fire from Grad rockets launched from Russian territory.
As a result of these developments, all of the world's key stock markets--Shanghai, Hong Kong, Tokyo, Frankfurt, London, Paris, and New York--are sharply lower.
Meanwhile, gold is sharply higher as investors around the globe seek safety and security.
Combat between Russia and Ukraine isn't the only geopolitical factor Wall Street is keeping a wary eye on.
A new English-language magazine from Al Qaeda in the Arabian Peninsula (AQAP) was released and features a how-to article on making car bombs and suggests terror targets in the United States; including casinos in Las Vegas, oil tankers and military colleges.
It also implies an attack is imminent. The executive director of the Middle East Media Research Institute (MEMRI), Steve Stalinsky, who monitors Jihadi communications of all sorts, reports the magazine implied that the next attack is "coming soon."
Given that US intelligence now estimates some 300 US citizens are fighting with ISIS in the Middle East, taking part in unspeakable atrocities, these types of threats can no longer be discounted. With AQAP releasing a statement of solidarity with ISIS last week, this threat could be more significant than past threats. Terrorist attacks could conceivably have a profound economic impact and possibly a direct impact on financial markets.
Terrorist attacks aren't the only form of attack the financial system must be concerned about. Other types of attacks could have an even more direct threat on investors.
The FBI is looking into a coordinated cyber attack on international banking giant JP Morgan Chase. Sophisticated attacks were coordinated by Russian hackers against JP Morgan as well as four other financial institutions.
The attacks could conceivably have been in retaliation for US sanctions imposed on Russia.
While there does not appear to have been any financial losses associated with these attacks, they illustrate the risks associated with deposit accounts and electronic exchanges.
Physical gold and silver may be the only safe haven investments that are truly "hacker-proof." Hackers can steal personal information, financial assets and even your identity, but in order to get your gold and silver, they have to physically access it.
Cyberattacks may not even be the most serious threat to banks and financial institutions.
At the height of the financial crisis in 2008, the U.S. government forced some of America's largest banks to take “bailout” funds amounting to billions of dollars in order to keep them from going bankrupt. It was a move designed to not only keep too-big-to-fail financial institutions afloat, but one that would inspire confidence and keep American consumers spending. As a result, the last several years have seen stock markets reach record highs with Americans continuing to rack up personal debt for real estate, vehicles, education, and consumer goods.
But the purported recovery may not be everything government officials and influential financial leaders have made it out to be.
Recent comments delivered by Federal Reserve Vice Chairman Stanley Fischer suggest that not only are global and domestic economies still struggling, but the U.S. government itself is preparing financial contingency plans in anticipation of another widespread economic event.
This time around however, according to Fischer, t he government won’t be bailing out financial institutions in need of cash. Instead, failing banks will turn directly to their unsecured creditors when they need money. Within this context, that means depositors (otherwise known as bank customers).
As part of this approach, the United States is preparing a proposal to require systemically important banks to issue "bail-in-able" long-term debt that will enable insolvent banks to recapitalize themselves in resolution without calling on government funding. This cushion is known as a “gone concern” buffer.
Under this scenario, bank depositors would be forced by government-imposed rules to cover bank debts in the event of a crisis. This would lead to banks forcibly seizing funds from depositor accounts in order to pay their debts.
This is what happened in Cyprus last summer and Europe and Japan have already prepared for such measures.
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8.26.14 - Trouble Lies Ahead For U.S. Stock Market
Gold prices end higher on bargain hunting and short covering. U.S. stocks higher on a better-than-expected reading on consumer confidence. Gold last traded at $1,285 an ounce. Silver at $19.39 an ounce.
There is an alarming new, objective report on the US stock market that flies directly in the face of the new record highs the Dow and the S&P 500 have reached.
The Swiss economic and financial consultancy Wellershoff & Partners just published a study that indicates the U.S. stock market is likely to be more than 30% lower in the next five years than where it stands today.
The company, whose chief executive is former UBS chief economist Klaus Wellershof, found a strikingly strong inverse correlation between the stock market’s valuation and its maximum drawdown over the subsequent five years.
This is very bad news for U.S. stocks. As judged by the cyclically adjusted P/E (CAPE) ratio championed by recent Nobel laureate Robert Shiller, the U.S. stock market’s current valuation is at one of its highest levels in history. The latest CAPE reading is 25.69, which is 61% higher than its historical median of 15.95 (and 55% higher than the historical mean of 16.55).
Wellershoff & Partners found that since 1900, the average five-year decline following CAPE levels as high as current readings is between 30% and 35%.
Furthermore, the study found there is little basis in the historical record for thinking the market will somehow be able to sidestep a big decrease during the next five years: “Going back to 1900, there has been only one instance when the valuation levels we see today were not followed by drawdowns of 15% or more over the subsequent five to six years. Thus, at least for the U.S. market, it seems fair to say that the risk of losing capital is substantial.”
With the Dow and S&P 500 trading at record heights, now would seem to be an ideal time to begin unwinding stock positions, taking profits and diversifying into assets that represent better value.
One of those assets, of course, is gold. At this point, even savvy central banks are beginning to add to their gold reserves. This is quite a contrast to the 1990s when central banks often liquidated gold reserves.
The central banks of Russia and Kazakhstan, for example, have continued to boost their gold holdings, partially due to geopolitical tensions and partially due to economic concerns.
There is reason for individual investors to be concerned about the US economy as well, despite government reports and statistics.
There is now even more evidence those government reports may not be as reliable as some think.
A new academic paper from Princeton University suggests the unemployment rate appears to have become less accurate over the last two decades, in part because of a rise in nonresponse. In particular, there seems to have been an increase in the number of people who once would have qualified as officially unemployed and today are considered out of the labor force, neither working nor looking for work. In other words, the report has been skewed by politicians to say that the economy is doing better than it actually is.
This calls into question improvements in the US unemployment rate over the past several months.
If the unemployment is higher than official government reports indicate, that means the overall economy is weaker than is being calculated. This has substantial implications for the financial markets, which already seem vulnerable to a pullback.
One sector that does not appear to be very healthy right now is residential real estate. U.S. single-family home prices fell in June and disappointed expectations.
The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.2 percent in June on a seasonally adjusted basis. A Reuters poll of economists had forecast a flat reading.
Significantly, for the first time since February 2008, all cities showed lower annual rates than the previous month.
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8.21.14 - Investor Optimism Seems Out Of Place
Gold prices fall after a larger-than-expected drop in U.S. jobless claims. U.S. stocks advance as reports on manufacturing and existing home sales exceeded expectations. Gold last traded at $1,275 an ounce. Silver at $19.42 an ounce.
Irrational exuberance appears to have returned to the stock market at an odd time: just as the threat of terrorism targeting America has ramped up to levels not seen since 9/11.
All of the US stock indices have continued their climbs to the sky based on investor optimism.
It turns out that optimism is very much a double-edged sword. In fact, it is often a contrary indicator.
The American Association of Individual Investors said today that 46.11% of retail investors described themselves as bullish in their latest survey. This is the highest reading since Dec. 26. The survey found 23.65% described themselves as bearish marking the lowest reading since late June.
The survey tends to serve as a contrarian indicator, so this is the sort of new high that might actually prompt some concern for market bulls. “While less than half of individual investors are bullish, we are getting close to that 50% threshold that has spelled short-term trouble in the past,” wrote analysts at Bespoke Investment Group after the survey's release.
This optimism seems out of place as polls show Americans are bracing for a new wave of terrorism.
The vicious Islamic State group is now vowing to kill Americans wherever and whenever it can.
Tuesday’s horrific videotaped beheading of American photojournalist James Foley was packaged with a new Islamic State posting on social media threatening the United States: “We will drown all of you in blood.”
A US intelligence official told the Washington Times today, “I would tell you ISIL has had a longstanding, overt interest in killing Americans.”
Robert Spencer of the website Jihad Watch indicates there is ample evidence that the terrorist group is gearing up for attacks against the US.
Intelligence and Defense officials believe some Americans have joined the Islamic State and are being programmed to conduct suicide bombings.
“They have said they are going to go after Americans,” Mr. Spencer stated. “They have said American civilians are all legitimate targets. It seems to be absolutely certain they will be trying to kill as many Americans as possible in the United States as well as elsewhere.”
The threat of terrorism is unpredictable and even if a terrorist attack occurs, it is not certain just how, or if, the financial markets might be effected. If this threat does metastasize, historical evidence indicates it could impact the financial markets negatively.
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8.19.14 - Stock Market Warnings Are Growing Louder
Gold prices slightly lower on a stronger U.S. dollar ahead of Janet Yellen's speech expected at the end of the week. U.S. stocks higher, Nasdaw Composite hits 14-year highs. Gold last traded at $1,296 an ounce. Silver at $19.41 an ounce.
With the NASDAQ trading at a 14-year high, is it any surprise the warnings about a stock market bubble are getting louder?
The NASDAQ climbed yesterday to its highest level since March 2000 as the market cheered the easing of some of the geopolitical tensions that have been worrying market observers.
The stock market, however, is driven by underlying economic factors long term. Geopolitical factors may come and go, but the economic factors are ALWAYS present.The underlying economic fundamentals simply do not support a NASDAQ at its highest levels since Bill Clinton was president.
Sentiment also plays a big role in the financial markets. A poll by the Wall Street Journal shows nearly half of all Americans believe the US economy is in a recession. Given the parade of disappointing economic reports over the past few months, this belief is understandable.
Yet the NASDAQ is at a 14-year high? This just does not add up.
As a result, some of the brightest minds in the financial world are sounding alarms about the stock market.
Nobel Prize-winning economist Robert Shiller wrote in the New York Times last week that "The United States stock market looks very expensive right now."
Hedge fund king Carl Icahn blogged last week that, "We can no longer simply depend on the Federal Reserve to keep filling the punch bowl."
Icahn called the current scenario a "dangerous financial situation."
Ex-Treasury secretary Robert Rubin wrote in the Wall Street Journal last week that, "The risk of excesses and the consequent instability have increased substantially."
Despite the stock market at record heights, a new survey for Bankrate.com shows over 1/3 of people (36%) in the U.S. have nothing saved for retirement. One contributing factor to this alarming figure, and the widely held view that the US economy is in recession, is the fact that the past five years of so-called economic recovery have done almost nothing to boost paychecks for average Americans. This marks the weakest growth since World War II.
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8.14.14 - Investors Continue To Find Safe Haven In Gold As Global Economies Struggle
Gold prices end higher for a third straight session on weak jobless claims data. U.S. stocks end higher as softer-than-expected economic data reinforced speculation that the Fed won't rush to raise interest rates. Gold last traded at $1,315 an ounce. Silver at $19.91 an ounce.
The markets seem to be ignoring the troubling economic news over the past 24 hours. Instead, the financial world is choosing to focus on possible easing of tensions between Ukraine and Russia.
Two of the biggest economies in the world faltered in the 2nd quarter. Japan's GDP fell in the 2nd quarter by a whopping 6.8%. Wall Street is making excuses for the drop, blaming it on localized tax issues, but there's a problem with this view. It turns out that Germany's GDP also fell in the 2nd quarter.
There are scarcely two more important, modern, industrialized economies in the world than those of Germany and Japan. The fact that both economies are shrinking is not something the financial markets can ignore for long.
Disappointing news also came from the US economy. The number of Americans filing new claims for unemployment benefits rose more than expected last week. Initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 311,000 for the week ended Aug. 9, the Labor Department said today. Moreover, the prior week's claims were revised to show 1,000 more applications received than previously reported.
This is the highest level of unemployment claims since June and the biggest shortfall between actual and expected claims in 3 months.
The news isn't any better for the US dollar, which continues to come under pressure from Russian and Chinese machinations.
President Vladimir Putin said today that Russia should aim to sell its oil and gas for rubles globally because the dollar monopoly in the energy trade was damaging Russia's economy, which is basically in recession.
Meanwhile, some analysts are worried China could be ready to start dumping its existing holdings of US Treasuries.
Such a move would be quite damaging to the US economy, bond and stock markets because it would spike interest rates sharply higher.
One clear safe haven for investors is gold.
McEwen Mining founder and chief owner Robert McEwen told CNBC yesterday that he sees gold going to $5,000 per ounce in the next three to four years.
Baker Steel Capital Managers Managing Partner David Baker isn't predicting $5,000 gold but he is forecasting higher gold prices and is advising clients to hang on to gold because of "abnormal monetary policies of central banks."
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8.14.14 - Investors Continue To Find Safe Haven In Gold As Global Economies Struggle
Gold prices end higher for a third straight session on weak jobless claims data. U.S. stocks end higher as softer-than-expected economic data reinforced speculation that the Fed won't rush to raise interest rates. Gold last traded at $1,315 an ounce. Silver at $19.91 an ounce.
The markets seem to be ignoring the troubling economic news over the past 24 hours. Instead, the financial world is choosing to focus on possible easing of tensions between Ukraine and Russia.
Two of the biggest economies in the world faltered in the 2nd quarter. Japan's GDP fell in the 2nd quarter by a whopping 6.8%. Wall Street is making excuses for the drop, blaming it on localized tax issues, but there's a problem with this view. It turns out that Germany's GDP also fell in the 2nd quarter.
There are scarcely two more important, modern, industrialized economies in the world than those of Germany and Japan. The fact that both economies are shrinking is not something the financial markets can ignore for long.
Disappointing news also came from the US economy. The number of Americans filing new claims for unemployment benefits rose more than expected last week. Initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 311,000 for the week ended Aug. 9, the Labor Department said today. Moreover, the prior week's claims were revised to show 1,000 more applications received than previously reported.
This is the highest level of unemployment claims since June and the biggest shortfall between actual and expected claims in 3 months.
The news isn't any better for the US dollar, which continues to come under pressure from Russian and Chinese machinations.
President Vladimir Putin said today that Russia should aim to sell its oil and gas for rubles globally because the dollar monopoly in the energy trade was damaging Russia's economy, which is basically in recession.
Meanwhile, some analysts are worried China could be ready to start dumping its existing holdings of US Treasuries.
Such a move would be quite damaging to the US economy, bond and stock markets because it would spike interest rates sharply higher.
One clear safe haven for investors is gold.
McEwen Mining founder and chief owner Robert McEwen told CNBC yesterday that he sees gold going to $5,000 per ounce in the next three to four years.
Baker Steel Capital Managers Managing Partner David Baker isn't predicting $5,000 gold but he is forecasting higher gold prices and is advising clients to hang on to gold because of "abnormal monetary policies of central banks."
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8.12.14 - Federal Reserve's Loose Monetary Policy Continues To Hurt Economy
Gold prices end higher on poor economic data from Germany. U.S. stocks lower as investors remain jittery amid growing global tensions. Gold last traded at $1,310 an ounce. Silver at $19.93 an ounce.
A Federal Reserve official is finally admitting what has been apparent to most Americans for years: this so-called economic "recovery" is weak at best and certainly disappointing.
The Federal Reserve’s No. 2 official acknowledged Monday that global growth had been “disappointing” and warned of fundamental headwinds that might temper future gains.
Stanley Fischer, who took over as vice chairman of the Fed in June, pointed to weak labor force participation and a soft US housing recovery as two reasons for disappointing economic growth, saying this could be a long-term phenomenon.
The labor force participation rate has remained near modern-era lows for years, coming in at just 62.9 percent last month. This statistic offsets other statistics that the administration has been touting as evidence of an improving employment picture.
The housing sector has also continued to weigh on the recovery, said Mr Fischer, who echoed the concerns of the Fed’s chairwoman, Janet Yellen. Unlike the vigorous rebound in housing activity that followed previous recessions, tighter credit conditions have led to faltering home construction.
Despite this though, Fischer claimed that the Fed's Quantitative Easing program had been successful. Private sector economists often disagree with that assessment. Unprecedented loose monetary policy has resulted in a world awash in dollars and created a new asset bubble, the impact of which is still yet to be felt.
Perhaps the most stark evidence that Quantitative Easing has in fact failed is a startling statistic from the United States Conference of Mayors. U.S. jobs pay an average of 23% less today than they did before the 2008 recession. In total, the report found $93 billion in lost wages. While Fed policy has benefited a few fat cats on Wall Street, it has robbed Main Street USA of wealth through debasement of the currency and a failure to spur economic growth.
In gold market news, a highly respected financial commentator, says the derivatives activity that has suppressed the price of gold is unraveling as the financial world becomes more aware of the dangerous geopolitical situation around the world.
Dennis Gartman, whose opinions are much sought after in the mainstream investment sector, has told clients the following in his latest newsletter ...
“The Force has already lost one very important battle: it has lost the battle at 975 euros/oz., with gold trading now at or near 982 euros and with the truly psychologically and technically important 1000 euros/oz. level only just a bit ahead. Once 1,000 euros is taken out -- and we think that it shall be, if not today, then next week if the geopolitical events unwind as badly as we fear they might -- then there is nothing that stems the advance until 1,100 euros, noting that the peak for gold in euro terms was 1,350 euros back in late 2012.
Too often, commentators look at gold only in dollar terms, but with the Eurozone having a similarly sized population and a GDP on a broadly similar scale to that of the U.S., gold price movement in the Euro are equally important in the global picture. There are massive dangers ahead for the precarious global financial system with serious fighting in Ukraine, Syria, Iraq and Libya. Flexing of fundamentalist Islamic muscle in the Middle East and North Africa is destabilizing.
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8.7.14 - Markets React To Russia Tensions
Gold prices end higher for a second day after Russia announced a ban on food imports in retaliation against Western sanctions. U.S. stocks close lower as investors react to Russia's retaliatory measures. Gold last traded at $1,312 an ounce. Silver at $19.96 an ounce.
Stock markets in the US and Europe are again lower today; gold is higher, primarily due to continued concerns that Russia may be preparing to conduct a military incursion into Ukraine.
Coupled with the fear of a direct military conflict are concerns over the economic fallout of the developing trade war.
Russia has banned food imports, which include fruit, vegetables, meat, fish, milk and dairy products from the U.S., Europe, Australia, Canada and Norway.
Russia relies on imports for about a quarter of its milk, dairy products and fruit, and slightly less for its supplies of meat. The ban is likely to hurt Russians the most as they will pay more for food at a time when the country is teetering on the edge of recession.
Europe also stands to lose as food/farming is the continent's fourth biggest export industry. Some 10% of EU food exports -- worth €12 billion -- were delivered to Russia last year, making it Europe's second biggest customer.
The timing of all this is especially bad for Europe. The Italian economy shrank in the second quarter, according to an official estimate on Wednesday, taking economists by surprise and provoking concern that violence in Ukraine and tension with Russia could be pushing the eurozone back into recession.
Given this spate of bad news, it's no surprise gold is trading at a 2-week high. Investors of all sorts are accumulating gold--including central banks.
Given the crisis in Ukraine and deteriorating ties with the West, Russia has been aggressively accumulating gold reserves.
The IMF, in its recently released International Financial Statistics report, showed that the Russian central bank has hiked its gold holdings by 16.8 tonnes to 1,094.8 tonnes in June.
Indeed, most central banks are increasing their gold reserves, IMF data showed. Russia, Mexico, Kazakhstan, Kyrgyzstan, Tajikistan, Serbia, Greece and Ecuador have all reported higher gold reserves for June.
Between the Russia-Ukraine rebellion, the Israel-Gaza war and the crisis in Iraq - central banks do not think this is the time to stop buying gold.
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8.5.14 - Renewed Russian Tensions Cause Stock Market Sell-Off
Gold prices slightly lower on upbeat U.S. economic reports and a stronger U.S. dollar. U.S. stocks sharply lower on growing tension between Russia and Ukraine. Gold last traded at $1,285 an ounce. Silver at $19.83 an ounce.
Tensions between Russia and Ukraine have precipitated a sharp sell-off in the stock market today. Meanwhile, gold is rising due to the same factors.
Russia's latest threat illustrates the "boomerang effect" of economic sanctions. Russia is considering forcing airlines to fly around Russia on their way to international destinations. This would cause massive changes in air travel and raise the costs of air carriers. This is just one small example of how disruptive sanctions can be.
Today's trading also proves why gold is such a valuable portfolio diversifier. It tends to "zig" when paper assets "zag." In this case, gold is acting as a safe haven at the same time that stocks are being impacted by geopolitical tensions.
One factor that has historically resulted in a higher price of gold is a weaker dollar and at least one Wall Street analyst is going against the grain in predicting a much weaker dollar going forward.
Saxo Bank's chief economist Steen Jakobsen expects weak global demand to hit the U.S. economy and to cause the dollar to sell off in the second half of the year.
Jakobsen added: "2014 will be a huge disappointment and I disagree with pretty much everyone that the dollar is going to come back, I think growth will be significantly slowing down."
Another factor that has historically been associated with higher gold prices is rising inflation. The conventional wisdom on Wall Street and in Washington is that inflation is not a worry; but the available evidence suggests otherwise.
Companies across industry groups—from food to technology to health care—are raising costs for the consumer.
Hershey for instance, announced it's raising prices by an average of 8 percent across the majority of its portfolio in the US. Hershey makes chocolate and snacks that include Reese's, Kit Kat, Twizzlers and Ice Breakers gum and mints.
"Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year," a Hershey executive said in a statement.
Mars, the company behind M&Ms and Snickers, quickly followed, announcing a 7 percent increase in prices in North America for the first time since 2011.
Kraft revealed last week it had raised prices on cheeses between 5 percent and 12 percent and many Oscar Meyer products by an average of 10 percent. It, too, blamed rising commodities prices.
"Beef, turkey and pork prices for our cold cuts have continued to increase and are at record highs as we speak," the company said.
Dining out will also cost more.
Fast-food restaurants across the U.S. are raising prices to deal with those higher meat costs.
Coffee companies are also facing higher raw coffee costs and have said they will raise prices for packaged coffee and other items.
Bottom line: Inflation is here, regardless of whether it shows up in the Federal Reserve dashboard. Consumers are feeling it and will feel it further.
Finally, there are two seemingly unrelated news reports out there today that are in fact related.
An analysis by the rating agency Standard & Poor's claims the widening gap between the wealthiest Americans and everyone else has made the economy more prone to boom-bust cycles and slowed the 5-year-old recovery from the recession.
Whether you believe that or not, the fact that the gap is widening would seem to be an indictment of US entitlement programs.
The federal government paid $2,007,358,200,000 in benefits and entitlements in fiscal year 2013 from government programs, according to data from the Bureau of the Fiscal Service’s Monthly Treasury Statement.
With the government doling out all of this money, if it were accomplishing the intended objective, wouldn't the wealth gap be narrowing, rather than widening?
