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7.5.22 - The Fed Is Causing Another Recession

Gold last traded at $1,765 an ounce. Silver at $19.13 an ounce.

NEWS SUMMARY: Precious metal prices fell Tuesday as the dollar topped 20-year highs. U.S. stocks extended heavy losses as concerns over a possible recession in the U.S. weighed on investor sentiment.

Zimbabwe to introduce gold coins as local currency tumbles -The Guardian

"Zimbabwe’s central bank will start selling gold coins this month as a store of value to tame runaway inflation, which has considerably weakened the local currency.

The central bank governor, John Mangudya, said in a statement on Monday that the coins would be available for sale from 25 July in local currency, US dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost of production.

The Mosi-oa-tunya coin, named after Victoria Falls, can be converted into cash and be traded locally and internationally, the central bank said.

The gold coin will contain one troy ounce of gold and will be sold by Fidelity Gold Refinery, Aurex and local banks, it added.

Gold coins are used by investors internationally to hedge against inflation and wars.

Last week, Zimbabwe more than doubled its policy rate to 200% from 80% and outlined plans to make the US dollar legal tender for the next five years to boost confidence."

money print The money-printing press has all but shut down -Scott Grannis Blog

"Since the end of January, M2 has grown at an annualized rate of just 1.3%. Over the past 3 months, growth has been a mere 0.08%—essentially flat. No longer is M2 surging at double-digit rates. If this keeps up, inflation could get back to something like 'normal' by early next year.

It's rather impressive that all this progress towards lowering inflation has been achieved while the Fed has only raised short-term rates to 1.75%. As I said in my last post, this is not your grandfather's tightening-which-inevitably-leads-to-recession. That's mainly because last year's burst of inflation was the inevitable fallout from a bout of money-printing the likes of which we have never before seen, and which is very unlikely to continue or recur.

Stop the money-printing—as seems to have occurred—and you take away a major source of inflation virtually overnight. On top of that, the mere expectation that the Fed will seek higher interest rates while also shrinking its balance is working overtime.

For example, 30-yr fixed rates on mortgages have zoomed up to 6%, almost twice what they were at the end of last year. This has slammed the brakes on the housing market by boosting financing costs and rendering housing unaffordable for many. Not surprisingly, lumber prices have fallen by more than half since March, suggesting a big cutback in new construction is coming. ...

Bottom line, the market expects inflation to normalize in fairly short order, which is not impossible given the sharp slowdown in M2 growth of late...I have been worrying about high and rising inflation for most of the past two years, and I think I was correct in doing so. But with the impressive slowdown in M2 growth and the strong likelihood that the banking system will no longer monetize federal deficits, the outlook has definitely improved.

Regardless, inflation is likely to continue at an elevated pace for most of this year. Wages are being bid up, rents are soaring (playing catch-up to housing prices), higher energy costs are being passed through to many areas of the economy, and some supply chains (Ukraine in particular, a huge source of global food production) are still strained. And, last but not least, money demand is likely going to continue to decline as households attempt to spend down their outsized money balances. It's going to be a bumpy road for awhile."

Atlanta Fed GDP tracker shows the U.S. economy is likely in a recession -CNBC

"A Federal Reserve tracker of economic growth is pointing to an increased chance that the U.S. economy has entered a recession.

Most Wall Street economists have been pointing to an increased chance of negative growth ahead, but figure it won’t come until at least 2023.

However, the Atlanta Fed’s GDPNow measure, which tracks economic data in real time and adjusts continuously, sees second-quarter output contracting by 2.1%. Coupled with the first-quarter’s decline of 1.6%, that would fit the technical definition of recession.

'GDPNow has a strong track record, and the closer we get to July 28th’s release [of the initial Q2 GDP estimate] the more accurate it becomes,' wrote Nicholas Colas, co-founder of DataTrek Research.

The tracker took a fairly precipitous fall from its last estimate of 0.3% growth on June 27. Data this week showing further weakness in consumer spending and inflation-adjusted domestic investment prompted the cut that put the April-through-June period into negative territory.

One big change in the quarter has been rising interest rates. In an effort to curb surging inflation, the Fed has jacked up its benchmark borrowing rate by 1.5 percentage points since March, with more increases likely to come through the remainder of the year and perhaps into 2023.

Fed officials have expressed optimism that they’ll be able to tame inflation without sending the economy into recession. However, Chair Jerome Powell earlier this week said getting inflation down is the paramount job now."

Here We Go Again: The Fed Is Causing Another Recession -Mises

"The primary cause of the recurring 'boom and bust' business cycle is central banks like the Federal Reserve creating money out of thin air. This was first explained by Austrian economist Ludwig von Mises over a century ago. His student F.A. Hayek won the 1974 Nobel Prize in economics for his work on this theory, which is now known as Austrian business cycle theory....

As this theory shows, the dreaded boom and bust business cycle is not inherent in a free market economy. It is caused by the legal privilege granted to central and fractional reserve commercial banks to create money out of thin air....

As a result of the stock market crash and global economic collapse caused by government covid policies in early 2020, the Fed panicked and aggressively increased the money supply by 40 percent, more than double the increase in the money supply in prior recessions....

Proven leading economic indices have weakened to recessionary levels. The Economic Cycle Research Institute’s Weekly Leading Index, which leads the US economy by at least six months, has declined from a high of around +28 percent last year to –6.3 percent now. This highly regarded economic forecasting firm has recently gone public with their forecast for a coming recession....

If the Fed succeeds in tightening financial conditions enough to try to maintain their reputation as an 'inflation fighter' (i.e., trying to lower the inflation they created in the first place), this will likely be the biggest government-caused economic catastrophe since the Great Depression, as we predicted here last year."

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7.1.22 - Why are Americans so grumpy about the economy? -Op Ed

Gold last traded at $1,807 an ounce. Silver at $19.84 an ounce.

News Summary: Precious metal prices saw slight pullback Friday on a stronger U.S. dollar and weaker-than-expected economic data. Stocks continued to fall as several companies lowered their profit guidance.

Gold Keeps Its Shine for Investors as Other Precious Metals Fade- Bloomberg

"Gold has held up well relative to silver and platinum. One ounce of gold now buys 90 ounces of silver, the most in almost two years. The resilience of gold offers yet more evidence to support its role as a component in portfolio asset allocation, in contrast to silver, platinum and palladium, which have more industrial uses and are therefore more exposed to economic downturns, according to Chad Hitzeman, senior business development manager at ETF Securities.

'Where broader markets remain negative, pressured by inflation and central bank hawkishness in taming prices, we see investors holding fast to gold ETFs as a risk-off haven,' said Hitzeman, whose company offers several precious metals products to investors.

Giovanni Staunovo, a strategist at UBS Group AG’s wealth management unit, shared this sentiment. 'If market recession fears are increasing, you prefer to hold exposure to gold and not to the white metals, which have a high industrial usage,' he said."

wall street S&P 500 posts worst first half since 1970, Nasdaq falls more than 1% to end the quarter- CNBC

“Stocks fell on Thursday, as the S&P 500 capped its worst first half in more than 50 years....

Thursday marked the final day of the second quarter. The Dow and S&P 500 posted their worst quarter since the first quarter of 2020 when Covid lockdowns sent stocks tumbling. The tech-heavy Nasdaq Composite is down 22.4% for the second quarter, its worst stretch since 2008.

The S&P 500 posted its worst first half of the year since 1970, hurt by worries about surging inflation and Federal Reserve rate hikes, as well as Russia’s ongoing war on Ukraine and Covid-19 lockdowns in China.

'We had the unprecedented pandemic that shut the world down and the unprecedented response, both fiscal and monetary,' Stephanie Lang, chief investment officer at Homrich Berg, told CNBC. 'It created the perfect storm with regard to surging demand and supply chain disruptions, and now there’s inflation that we haven’t seen in decades and a Fed that was caught off guard.'

'Now the market is forced to adjust to this new reality where the Fed is trying to play catch up and slow growth,' she added.

A surge in bond yields earlier in the year and historically pricey equity valuations sent tech stocks tumbling first, as investors rotated out of growth-oriented areas of the market. Rising rates make future profits, like those promised by growth companies, less attractive.

The tech-heavy Nasdaq has been hit especially hard this year. The index is now more than 31% below its Nov. 22 all-time high. Some of the largest technology companies have registered sizeable declines this year, with Netflix down 71%. Apple and Alphabet have lost roughly 23% and 24.8%, respectively, while Facebook-parent Meta has slid 52%.”

Managers have been living in a pressure cooker. Many have had it- CNN Business

"Inspire your team. Deliver results. Keep costs under control. Those have always been top responsibilities for leaders and managers at work. But their job duties have grown more time-consuming and complex thanks to the stress of the pandemic, searing political discord, urgent social justice issues, geopolitical earthquakes, the Great Resignation and now recession fears.

Keeping employees focused and happy through it all -- while striving to accommodate everyone's scheduling needs, health concerns and personal obligations on top of their own bosses' demands -- has been ... well, a lot.

'We've never been here, where the entirety of the workforce is experiencing social, economic and psychological change,' said attorney Claire Deason at employment law firm Littler Mendelson P.C., who advises clients on their remote work arrangements and the pandemic's impact on the workplace....

A recent survey of 2,100 respondents from four countries conducted by Deloitte and Workplace Intelligence found that ‘nearly 70% of the C-suite are seriously considering quitting for a job that better supports their well-being.’ A large majority of executives (81%) said improving their well-being is now more important than advancing at work.

Meanwhile, in the first five months of 2022, global outplacement firm Challenger Gray & Christmas found that 668 US-based CEOs have left their positions, making it the highest January-through-May total recorded since the firm began tracking monthly CEO changes in 2002.

'The CEO exodus continues. Economic conditions, rising inflation, and recession concerns are making boards rethink leadership and leaders rethink if they want to take on these challenges,' said Andrew Challenger, the company's senior vice president."

Opinion: Why are Americans so grumpy about the economy? They’ve never lost so much purchasing power in one year, as the stimulus dries up and inflation boils over- Market Watch

“If you want to know why Americans are so grumpy about the economy, let’s start with the fact that despite strong job growth and sizable increases in wages, their incomes are simply not keeping up with inflation.

Americans just don’t feel poorer—they are poorer. In fact, they have never lost so much purchasing power in one year.

And if you think that our inflation crisis stems from ‘too much money chasing too few goods,’ you should breathe easy now that American families are no longer getting all that money from Uncle Sam and Uncle Joe. Inflation will surely fade away now, right?

Probably not. My view is that inflation has more to do with supply issues than with excess demand. I think inflation will stay high until the supply constraints are resolved or the economy crashes.

Real disposable incomes—how much is left after subtracting taxes and inflation—fell at a 7.8% annual rate in the first quarter of the year, the Bureau of Economic Analysis estimated Wednesday. A drop of that magnitude is virtually unheard of outside of recession....

It gets worse. Real disposable incomes have fallen in each of the past four quarters and were down 12% from a year earlier as of the end of March, a decline that shattered the prepandemic record of -2.6% set in 1974."

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6.30.22 - Govts have 'scandalously mistreated' their currencies

Gold last traded at $1,807 an ounce. Silver at $20.28 an ounce.

News Summary: Precious metal prices pulled back slightly Thursday on expectations of aggresive Fed action. Stocks see sharp losses as brutal first half of the year comes to a close.

Hold gold as governments have 'scandalously mistreated' their currencies – Byron King- Kitco

"The gold market remains trapped in consolidation below $1,850 an ounce. Still, one analyst said that the precious metal's long-term bullish setup remains firmly in place.

In a recent interview with Kitco News, Byron King, editor and precious metals expert at Agora Financial, said that he expects it's only a matter of time before gold once again becomes an essential monetary metal.

King said that with inflation rising out of control, consumers are losing faith in fiat currencies. He added that the situation can still get worse as governments continue to create money out of thin air.

'The way Western currencies have been mistreated by their own governments, mismanaged and mistreated, is scandalous,' he said.

King said that the issues consumers currently face can be traced back to the 2008 financial crisis. Nearly 15 years ago, the government and the Federal Reserve flooded financial markets with money and liquidity that helped support the economy during the worst financial crisis since the Great Depression.

'We would've had a bad recession back then, but it would have cleaned out all the muck in the Augeas' stables,' said King. 'We would have had one hell of a miserable time for a year or two back then. Instead, the powers that be didn't want that, so they just kicked the can down the road. Well, guess what? We're at the end of the road'"

GDP U.S. first-quarter GDP shrank 1.6%. The second quarter isn’t looking much better for the economy- Market Watch

"The numbers: The first quarter is in the books: The economy shrank at a 1.6% annual pace, based on the final update. And the second quarter isn’t looking all that great, either.

The contraction in gross domestic product — the official scorecard for the economy — was the first since the deep recession caused by the pandemic in 2020...

Big picture: GDP in the second quarter is on track to grow less than 1%, according to the latest Wall Street estimates. Some forecasters put growth at as little as 0.1% but others see the economy expanding by 3%-plus.

The trade deficit has fallen from a record high and won’t be as big a drag. Yet businesses appear to have slowed the buildup in inventories and tempered investment. Consumer spending might have also softened again.

Regardless of where second-quarter GDP clocks in, the economy is likely to continue to slow. The Federal Reserve is jacking up interest rates to try to the quell the highest inflation in 40 years.

Higher borrowing costs typically slow the economy and sometimes even trigger recessions. An increasing number of forecasters predict a recession is likely by next year."

Crypto Crash Widens a Divide: ‘Those With Money Will End Up Being Fine’- New York Times

"The cryptocurrency market was in ruins. But Tyler and Cameron Winklevoss were jamming.

The billionaire twins, best known for their supporting role in the creation of Facebook, twirled and shimmied across the stage with their new cover band, Mars Junction, at a concert venue outside Denver last week, the latest stop on a coast-to-coast tour. They belted out hits like the Killers’ 'Mr. Brightside' and Journey’s 'Don’t Stop Believin’.' Tickets cost $25.

The Winklevosses were moonlighting as rockers just weeks after their $7 billion company, Gemini, which offers a platform for buying and selling digital currencies, laid off 10 percent of its staff. Since early May, more than $700 billion has been wiped out in a devastating crypto crash, plunging investors into financial ruin and forcing companies like Gemini to slash costs....

Cryptocurrencies have long been held up as a vehicle for economic empowerment. Enthusiasts promote the digital coins — which are exchanged using networks of computers that verify transactions, rather than through a centralized entity like a bank — as a means for people of all backgrounds to achieve transformational wealth outside the traditional finance system.

But for all those supposedly egalitarian principles, crypto’s collapse has revealed a yawning divide: As employees of crypto companies lose their jobs and ordinary investors suffer huge losses, top executives have emerged relatively unscathed...

The fallout from the crypto crash follows the pattern of other financial downturns, said Todd Phillips, the director of financial regulation and corporate governance at the Center for American Progress, a liberal think tank.

'No matter what, those with money will end up being fine,' he said."

Key inflation gauge tracked by the Fed remains a high 6.3%- AP News

“A measure of inflation that is closely tracked by the Federal Reserve jumped 6.3% in May from a year earlier, unchanged from its level in April.

Thursday’s report from the Commerce Department provided the latest evidence that painfully high inflation is pressuring American households and inflicting particular harm on low-income families and people of color.

The report also said that consumer spending rose at a sluggish 0.2% rate from April to May. Consumer spending is beginning to weaken in the face of high inflation. But it’s still helping fuel inflation itself, especially as demand grows for services ranging from airline tickets and hotel rooms to restaurant meals and new and used autos.

'It should really come as no surprise that U.S. consumers are paring their spending due to the high costs of, well, almost everything,' Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research note. After adjusting for inflation, she noted, consumer spending actually fell 0.4% from April to May.

On a month-to-month basis, Thursday’s report showed, prices rose 0.6% from April to May, up from the 0.2% increase from March to April."

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