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7.20.18 - The Fed Can't Stop What's Coming

Gold last traded at $1,231 an ounce. Silver at $15.54 an ounce.

NEWS SUMMARY: Precious metal prices rose Friday on bargain-hunting and a weaker dollar. U.S. stocks rose on upbeat earnings despite increased China tariff threats.

Gold snaps losing run after Trump slams strong dollar -Reuters
"Gold prices rose on Friday from one-year lows hit the previous day after U.S. President Donald Trump criticized the strength of the dollar and interest rate increases by the Federal Reserve, pushing the greenback sharply lower....Bank of America Merrill Lynch said on Friday fears of a trade war had seen global investors plough $5 billion into bonds this week while pulling $1.2 billion from gold....One trigger could be sharp falls on global stock markets which could drive investors to gold, seen as a safe asset, said analyst Fawad Razaqzada. Another could be a weakening of the dollar, which Turner said he expected to see later this year or next year. Despite Trump's intervention, the dollar was near one-year highs on Friday as Fed Chairman Jerome Powell did nothing this week to counter expectations of two more rate rises this year and said the United States was poised for several more years of growth."

stocks Gold Bugs vs. Stock Market Bulls -Pension Partners
"Which is the better investment: Gold or Stocks? It's a battle as old as markets. Gold Bugs and Stock Market Bulls are equally fervent about their investment of choice, often with complete disdain for the other side. The story goes something like this….2000-2011 - Gold Return: +443%, S&P 500 Return: +7% - Narrative: Stock investors have suffered through two 50% bear markets while Gold has more than quintupled. These are deflationary, depression-like conditions and only Gold can protect investors from what's to come. This is especially true given the endless 'money printing' by central banks. And by the way: stocks are terrible investments....2012-2018 - Gold Return: -22%, S&P 500 Return: +157% - Narrative: We're in a Goldilocks period of low inflation and easy money. This is unbelievably bullish for stocks and very bad for Gold. This environment will continue forever. And by the way: Gold is just a pet rock....By changing the start and end date, you can frame almost any argument you want in this business. Which is why the real winner is neither Stock Bulls nor Gold Bugs. It is the investor who can actually remain invested through tough times in a single asset class by maintaining a diversified portfolio of multiple assets: stocks, bonds, real estate, commodities, and alternative investments. Combining uncorrelated assets has been shown to reduce overall portfolio volatility and improve risk-adjusted returns."

Ten Years Later, There's Still No Economic Recovery -Real Clear Markets
"This week marks one of those ten-year anniversaries that has gotten lost in the noise of aftermath....On July 15, 2008, then-Chairman Bernanke was before the Senate attempting to be cautiously optimistic. Sure, there had been a lot of nasty surprises, he said, but there was a growing sense the worst was behind...While that was his main message, it was completely overwhelmed by Fannie. And Freddie....Using subprime as an excuse meant making a monetary event seem like something else, an exogenous factor beyond the scope of monetary policy. Irresponsible lending practices sounds just plausible enough to keep anyone from seeking the right answers....So, ten years later we still wait for recovery having supposedly avoided 'the collapse of the global financial system.' Many people now speak of the US economy in particular as if it is booming. They do so, however, from only one piece of evidence: the unemployment rate. The number itself is uncorroborated by any other data, especially wage growth."

The Fed Can't Stop What's Coming -Bonner/Bonner and Partners
"As you'll recall, Fed policy consists of the same three mistakes...The Fed is now making Mistake #2: It is raising rates to try normalizing the financial markets. Inflation is running at 2.9%. Its current fed funds target rate is between 1.75% and 2%. So it is still lending money at very un-normal, negative real rates. It claims it will make two more hikes this year to cut off the supply of EZ money and get ahead of inflation. But already, it is preparing for its Mistake #3 – cutting rates in a panic when Mistake #2 causes stocks to fall. Here's a report from Bloomberg: 'Federal Reserve Chairman Jerome Powell said the central bank will continue to gradually raise interest rates 'for now' to keep inflation near target amid a strong U.S. labor market.'....Yes, Jerome Powell is only admitting what we already knew...The Fed will never willingly revert to normal (market-discovered) interest rates. Instead, normalization will be forced upon it by a financial disaster - numbers that run amok."

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7.19.18 - 'Sell Tech, Buy Gold' Say Bank Strategists

Gold last traded at $1,224 an ounce. Silver at $15.40 an ounce.

NEWS SUMMARY: Precious metal prices steadied Thursday on dollar strength. U.S. stocks drifted lower as investors digested the latest corporate earnings, Trump's Fed criticism and trade war fears.

Gold at one-year low and a record number of investors in survey say it's a buy -CNBC
"Gold has lost its shine, falling to a one-year low. For contrarians, however, it may be the time to buy. A record number of fund managers, surveyed by Bank of America Merrill Lynch, said they see gold as undervalued. In the survey, 17 percent of the fund managers said the precious metal may be too cheap, while more than half of the 178 fund managers said the most crowded trade was in the FAANG stocks, a reference to Facebook, Apple, Amazon, Netflix and Google's parent Alphabet. The Bank of America strategists said investors trying to take an opposite view of the prevailing market trend should buy gold and sell tech shares. 'We cyclically advise contrarian bears to position for 'peak profit, peak policy stimulus' theme via long gold, short US tech,' they wrote in a note to clients."

aging bull Three Metrics Of Stock Market Overvaluation -Forbes
"Stocks are overpriced. This article will look at three ways to answer the question of just how much....Lowering expectations should cause present and future retirees to alter their behavior in two ways. They should, first of all, take another look at whatever return assumption is built into a retirement plan...The other thing investors need to do, in an era of historically rich stock prices, is to think about what they might do if and when a crash arrives....Measure I: Cape - Robert Shiller made the 'cyclically adjusted price/earnings' ratio famous....The Cape on Shiller's website is 32 today...It has averaged 18 since the end of 1935, and on that score stocks seems to be 78% too high right now....Measure II: Market Versus GDP - In 1975, you could purchase all the publicly traded stocks in the U.S. for a sum equal to 40% of that year’s gross domestic product. Today, your tab, per dollar of GDP, would run four times as high....Measure III: Price to Sales - Standard & Poor’s publishes sales for its 500 index, beginning in late 2010. The ratio has almost doubled in the last seven years....There you have them: three pieces of evidence that the market is getting a little crazy...Adjust your behavior accordingly."

Why Technology Prophet George Gilder Predicts Big Tech's Disruption -Forbes
"Over the last four decades, George Gilder has been one of the most influential writers on economic growth and prosperity, and technology’s key creative role in them....'In my last book, The Scandal of Money, I talk about governments having forgotten what money is for and how it works. As a result, they're issuing more and more of it, on the assumption that somehow money constitutes wealth, instead of realizing that money measures wealth. Now, the biggest industry in the world economy is the $5.1 trillion per day currency-trading carnival, which, in the end, doesn't even yield stable currencies....It's not good to have most of the stock market's advance be in five companies, which buy back their own stock and buy up the shares of their rivals. I'm talking about Google, Apple, Facebook, Amazon and Microsoft. Those companies are supremely great companies, but they're going over the hill....I think it's a Silicon Valley dementia that's going on, which probably results from a religious collapse. I think G.K. Chesterton put it very well: When people stop believing in God, they don’t believe in nothing; they start believing in anything....The Google paradigm of massive data centers and artificial intelligence determinism will be transcended in the next era. We'll leave behind the big tech view that human progress springs from some inexorable Darwinian model that allows the big winners to take all, and then project themselves into outer space....It's the Great Unbundling. We'll dissolve all the GAFA fab-five conglomerates. We'll disperse the clouds of concentrated computing and commerce. We're moving beyond digital and silicon to analog and carbon nanotubes and hybrid chips with sensors and 5G antennas everywhere. Even money is being disaggregated and reinvented."

Mr. Gilder's new book, "Life After Google" promises to explain how and why the economy and Internet is about to be transformed with the architecture of blockchain. Unsurprisingly, Gilder sees physical gold as playing a central role in upcoming cryptocurrencies, such as G Coin. Stay tuned for a more detailed book review in this space. Meanwhile, here is a review of George Gilder's important 2015 book, The 21st Century Case For Gold: A New Information Theory of Money.

Why Real Wages Still Aren’t Rising -New York Times
"The United States labor market is closing in on full employment in an economic expansion that just began its 10th year, and yet the real hourly wage for the working class has been essentially flat for two years running. Why is that?....Stagnant wages for factory workers and non-managers in the service sector - together they represent 82 percent of the labor force - is mainly the outcome of a long power struggle that workers are losing....Over the past year, for example, consumer price inflation was 2.9 percent, just about the same rate as hourly pay. Data released on Tuesday show that real weekly earnings for full-time, middle-wage workers hasn’t grown at all since early 2017....Even if workers' real wages do pick up, their gains may be too short-lived to make a lasting difference. The next recession is lurking out there, and when it hits, whatever gains American workers were able to wring out of the economic expansion will be lost to the long-term weakness of their bargaining clout."

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7.18.18 - Officials' warning: US underprepared for next crisis

Gold last traded at $1,227 an ounce. Silver at $15.57 an ounce.

News Summary: Precious metal prices ended higher Wednesday as the U.S. dollar trades near lows. U.S. stocks see gains as traders continue to digest latest U.S. economic reports.

Bernanke, Geithner, Paulson warn U.S. has weaker tools for dealing with crisis - Market Watch
"The three officials who were grappled with the start of the financial crisis in 2008 warned this week that present-day regulators don’t have all the tools needed to face another panic. 'You have a more stable [financial] system today because the defences are better —but you have a weaker set of tools for dealing with an extreme crisis,' Geithner said, according to the Financial Times. Under reforms passed by Congress in the wake of the crisis, the Fed cannot lend to an institution deemed “failing” and all lending must be approved by the Treasury Secretary. The three officials spoke with a small group of reporters earlier this week in advance of the tenth anniversary of the Great Recession. They said the U.S. financial system was healthier but expressed concern about the slow pace of reform in Europe. Paulson and Bernanke also said they were worried about the rising federal deficit."

money The great dollar dump: Russia liquidates US Treasury holdings- RT
"Russia is continuing to diversify state reserves away from US debt. The latest data from the US Treasury shows that Russia's share hit an 11-year minimum and totaled only $14.9 billion. The share of US sovereign debt bonds in Russia's portfolio has been reduced dramatically in recent months. Russia held $96.1 billion in US Treasuries in March before selling half its holdings in April, dropping to 22nd place among major foreign holders of American treasury securities at $48.7 billion. In 2010, Russia was among the top 10 holders of US Treasuries at $176.3 billion. With its holdings falling to $14.9 billion in May, the country is now below the $30 billion threshold for inclusion on the Treasury Department’s monthly report of major holders. On Tuesday, the Treasury released a list of 33 countries which includes the biggest holder China to the smallest Chile. Russia is no longer on the list....The head of the Central Bank of Russia (CBR) Elvira Nabiullina said in May that slashing of the holdings was result of the systematic assessment of all kinds of risks, including financial, economic and geopolitical. Meanwhile, Russia’s gold holdings have been steadily increasing, bringing its share of the precious metal to its highest level in nearly two decades. Russia’s gold holdings in May grew by one percent to 62 million troy ounces, worth $80.5 billion, according to the CBR. According to Nabiullina, gold purchases helped to diversify reserves."

Cyberthreat warnings ‘blinking red,’ says top U.S. intelligence official - The Globe and Mail
"Warning lights about cybethreats to U.S. national security are 'blinking red' and the digital attempts to undermine America are occurring daily, not just at election time, the nation’s top intelligence official said Friday. Russia has been the most aggressive foreign actor, but cybethreats also are coming from China, Iran and North Korea as well as criminal networks and individual hackers, said National Intelligence Director Dan Coats. Targets include U.S. businesses, the federal government, the military, state and local governments, academic and financial institutions and critical infrastructure, he said. 'The Department of Homeland Security and the FBI, in co-ordination with international partners, have detected Russian government actors targeting government and businesses in the energy, nuclear, water, aviation and critical manufacturing sectors,' Coats said....'These actions are persistent. They’re pervasive and they are meant to undermine America’s democracy on a daily basis, regardless of whether it is election time or not,' Coats said."

Economy is fragile, recession could occur, Harvard professor warns - Fox Business
"Renowned Harvard professor and economist Martin Feldstein said the Federal Reserve would not be prepared if a recession were to occur soon. Feldstein told FOX Business’ Maria Bartiromo during an interview on 'Mornings with Maria' on Wednesday that the economy is in good shape because of low unemployment and inflation, but despite that, it is still very fragile. While the former economic adviser for President Ronald Reagan said he can’t predict exactly when a recession could happen, he said, 'I think [the economy] is fragile because of the level of asset prices. And if the economy turns down, the Fed has no tools to offset that.' Feldstein said he’s worried that the Fed has not been preparing during the past few years for a future recession. 'The Fed made a mistake by not starting several years ago to push up the short rate,' he said, 'I think the loan rate is going to rise not just because the Fed is tightening, but because everybody sees these large fiscal deficits coming along.' As previously reported by FOX Business, more than 20 economists predicted that a big economic downturn could occur between the fourth quarter of 2019 and the second quarter of 2020, according to a report from the National Association for Business Economics."

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7.17.18 - CEOs are dumping stock in their companies

Gold last traded at $1,227 an ounce. Silver at $15.61 an ounce.

News Summary: Precious metal prices fell Tuesday on Fed Chairman Powell's statements. U.S. stocks recover losses as traders digest Powell comments and latest round of corporate earnings.

CEOs are dumping stock in their companies. Here's what that means- CNN Money
"The captains of Corporate America are steering a record amount of cash into stock buybacks....Yet with their own money, executives are quietly taking a much different approach: They're cashing out. Insiders dumped $8.4 billion of their shares in May and $9.2 billion in June, according to an analysis of regulatory filings by TrimTabs Investment Research. That's the biggest two-month period of insider selling in a year. 'They're buying back from the front door, and shoveling shares out the back door,' said John Mousseau, president of CEO of Cumberland Advisors, an investment firm that manages more than $3 billion. 'It would be like going on TV to tell everyone what stocks we like, and then selling them,' he said....Vast corporate purchases of stock are a reward for shareholders, at least in the short term. Not only do buybacks provide persistent demand, which lifts share prices, but they artificially inflate earnings per share....Despite authorizing massive buybacks, insiders aren't buying much themselves. In June, insiders sold about $8 of stock for every $1 they bought, according to TrimTabs. That ratio has climbed sharply since the end of last year."

interest rates Fed's Powell: Gradual rate hikes likely but trade fights are starting to hurt the economy- USA Today
"Federal Reserve Chairman Jerome Powell said Tuesday the central bank plans to continue raising interest rates gradually amid a solidly growing economy and rising inflation, but he acknowledged the widening negative effects of U.S. trade skirmishes with other countries. 'We’ve heard a rising chorus of concerns that speak to (capital spending plans) being put on hold' because of uncertainty about trade, Powell told the Senate banking committee in his semiannual report to Congress. If that kind of fallout deepens and hurts economic growth, it could lead Fed policymakers to slow the pace of rate increases, economists say. In June, Fed policymakers forecast a total of four hikes this year, up from their estimate of three in March....Committee members also pressed Powell on why average wage growth has not picked up more, particularly for low- and middle-income workers, in light of strong job gains and the low, 4% unemployment rate. Powell said wages are unlikely to increase faster over the longer term unless businesses achieve stronger growth in productivity, or output per worker. Productivity, he conceded, could be hampered by the trade fights if they continue to discourage investment in labor-saving technology. 'It may well be,' he said."

The Rising Federal Deficit Is Fueling Growth - Bloomberg
"The federal deficit has grown a lot over the past six months. This should come as no big surprise, given the tax cuts approved by Congress and signed by President Donald Trump in December and the spending deal reached in February, but it’s still striking to see the actual numbers from the Treasury Department, which last week released data on federal revenue and outlays in June. The U.S. government’s fiscal years begin in October, so we now have data for three quarters of fiscal 2018. The Congressional Budget Office’s latest projection, which I’ve included in the chart, is that the full fiscal-year deficit will add up to $793 billion, or 3.9 percent of gross domestic product....The CBO is still projecting that the deficit will keep rising to $973 billion (4.6 percent of projected GDP) in fiscal 2019 and just over $1 trillion (also 4.6 percent of GDP) in fiscal 2020. The CBO, in a long-term budget outlook published last month, also forecast that the deficit would reach 5.1 percent of GDP in 2028, 7.1 percent in 2038 and 9.5 percent in 2048, thanks mainly to burgeoning spending on Social Security, Medicare, Medicaid and other health-care programs, and interest on the national debt.... This deficit trajectory is also probably unsustainable, likely to bring on inflation, fiscal crisis or political crisis — or all three — well before 2048 if not addressed."

Chicago May Become Largest City in U.S. to Try Universal Basic Income - The Intercept
"Chicago Alderman Ameya Pawar is worried about the future. He is concerned that a coming wave of automation could put millions of people out of work and result in more extreme politics....Pawar thinks that one way to battle racial resentment is to address the economic precarity that politicians have used to stoke it. He has decided to endorse the universal basic income — an idea that has been picking up steam across the world. The UBI is based on a simple premise: People don’t have enough money to provide for their essential needs, so why not just give them more? UBI schemes entail giving a standard cash grant to everyone — regardless of need. Traditionally, the United States has addressed poverty by delivering in-kind goods. For instance, the Supplemental Nutrition Assistance Program, formerly known as the food stamp program, issues electronic cards that can be used to purchase certain types of food. But some economists have countered that simply giving people money is more beneficial."

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7.16.18 - Here's what to do before you retire

Gold last traded at $1,239 an ounce. Silver at $15.81 an ounce.

News Summary: Precious metal prices remained stable Monday as U.S. dollar fell. U.S. stocks struggled for direction as traders focused on earnings and economic data.

IMF says the global economic expansion has ‘plateaued’ - Market Watch
"The sunny outlook for the global economy seen this spring has gotten a lot darker, the International Monetary Fund said Monday. Growth is slowing in the euro area, Japan and the United Kingdom, the IMF said, in an update of its world economic outlook. The IMF continued to project global growth rates of 3.9% for this year and 2019, but said this strong growth is 'less even, more fragile [and] under threat.' 'The risk that current trade tensions escalate further - with adverse effects on confidence, asset prices and investment - is the greatest near-term threat to global growth,' said Maury Obstfeld, the IMF’s chief economist, in a statement. If current trade threats are realized and business confidence falls as a result, global output could be 0.5% below current projections by 2020, the IMF estimated. The U.S. is 'especially vulnerable' because it may find a relatively high share of its exports taxed in global markets, the report concluded....'Some of the momentum has gone out of European growth,' Obstfeld said in a briefing for reporters."

debt The $247 trillion global debt bomb- The Washington Post
"The untold story of the world economy — so far at least — is the potentially explosive interaction between the spreading trade war and the overhang of global debt, estimated at a staggering $247 trillion. That’s 'trillion' with a 't.' The numbers are so large as to be almost incomprehensible. Households, businesses and governments borrow on the assumption that they will service their debts either by paying the principal and interest or by rolling over the debts into new loans. But this works only if incomes grow fast enough to make the debts bearable or to justify new loans. When those ingredients go missing, delinquencies, defaults and (at worse) panics follow....Since 2003, global debt has soared. As a share of the world economy (gross domestic product), the increase went from 248 percent of GDP to 318 percent. In the first quarter of 2018 alone, global debt rose by a huge $8 trillion. The figures include all major countries and most types of debt: consumer, business and government. But to service these debts requires rising incomes, while an expanding trade war threatens to squeeze incomes. The resort to more tariffs and trade restrictions will make it harder for borrowers to pay their debts. At best, this could slow the global economy. At worst, it could trigger another financial crisis."

America's Social Security system is going broke — here's what to do before you retire - Business Insider
"We've spent a lot of time in our regular conversations talking about the looming retirement crisis around the world. The data is horrific. Pension and Social Security programs in nearly every developed nation are woefully underfunded. In the United States, senior government officials including the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services, have stated unequivocally that Social Security's trust funds will run out of money in 2034. More importantly, there simply aren't enough workers in the work force to sustain the program over the long-term. It's something known as the 'worker-to-retiree ratio'; essentially, Social Security requires a certain number of workers paying into the system for every retiree receiving benefits....Social Security tax in the US amounts to 12.4% of a worker's salary. So when the financial burden of a single retiree's benefits is paid by just 2.6 workers, the resulting tax revenue won't be sufficient to pay benefits unless: 1) Taxes on those workers are dramatically increased, and/or 2) Benefits for retirees are slashed. It will probably be a combination of the two. Bottom line, the people who run this program are telling the entire world that Social Security will soon run out of money; and they're publishing alarming statistics about the steep decline in the worker-to-retiree ratio."

U.S. files WTO disputes against five members including China, Canada, and the EU - The Washington Times
"The U.S. filed five disputes at the World Trade Organization on Monday against trading partners over retaliatory tariffs. China, the European Union, Canada, Mexico, and Turkey are all being accused of violating trade agreements with the U.S. after each responded to President Trump's tariffs on steel and aluminum with trade barriers of their own. 'These tariffs appear to breach each WTO Member’s commitments under the WTO Agreement. The United States will take all necessary actions to protect our interests, and we urge our trading partners to work constructively with us on the problems created by massive and persistent excess capacity in the steel and aluminum sectors,' U.S. Trade Representative Robert Lighthizer said in a statement. 'The actions taken by the President are wholly legitimate and fully justified as a matter of U.S. law and international trade rules. Instead of working with us to address a common problem, some of our trading partners have elected to respond with retaliatory tariffs designed to punish American workers, farmers and companies,' he said."

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