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11.26.14 - Gold Set for Major Turnaround

According to George Gero of RBC Capital Markets the gold market is set to rise in 2015.

Gero says "now you're going to see some changes based on all the stimulus in Europe, in China and in Japan."

In 2014, gold hasn't been helped by the dollar's rally. The greenback has shown serious strength against other currencies, which has reduced gold's attractiveness. After all, since gold is priced in dollars, an increase in the value of a dollar means a decrease in the value of an ounce of gold.

Our view is that the dollar rally is a mirage. The dollar isn't showing strength for any fundamental reasons. The dollar is only strong relative to other currencies, notably the euro and the Japanese yen, which are now declining as the European Central Bank and the Bank of Japan escalate loose, easy money policies.

A strong dollar over the long-term is a sucker's bet but the hedge fund industry, which has badly underperformed benchmarks for some time now, have pushed net bullish-dollar positions to a record $48 billion.

This might be the bubble of all bubbles.

What have we seen to justify such an optimistic view of the dollar?

Is the US economy hitting on all cylinders? Hardly.

In reality, the US national debt is still soaring toward $18 trillion and the federal government continues to rack up huge budget deficits every fiscal year.

Nothing has changed. Nonetheless, the lemmings are pushing the dollar as the latest flavor of the month.

Perhaps if the US economy was booming, there might be some justification for the sudden adoration of the dollar; but today we were treated yet again to two new disappointing economic reports that show the US economy is not on a solid foundation.

The number of people who applied for new unemployment benefits in the week before Thanksgiving jumped to an 11-week high and topped the 300,000 mark for the first time since early September. Initial jobless claims leaped by 21,000 to 313,000 in the week ended Nov. 22, the Labor Department said. Economists had forecast claims to total a seasonally adjusted 288,000.

Initial claims from two weeks ago, meanwhile, were revised up to 292,000 from 291,000.

Predictably, Wall Street is already spinning these figures as a mere aberration but some 18 million Americans who want a full-time job say they cannot find one. Moreover, millions of Americans have also dropped out of the labor force entirely, and it’s not just baby boomers hitting retirement age.

To go with the disappointing employment report was a disappointing report from the housing market.

Contracts to purchase previously owned homes unexpectedly dropped in October as tighter credit and weak wage gains held back would-be buyers. The pending home sales index declined 1.1% the National Association of Realtors reported today. Economists had expected the index to rise 0.5%.

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11.25.14 - What Will 2015 Bring for the Stock Market?

Predicting the direction of the stock market can be difficult, especially when a market goes as long as this one has without a major correction.

Nevertheless, investors need to stay informed.

There are some new reports out this week about the stock market worth reviewing.

The U.S. market is breaking records, with the S&P 500 and the Dow Jones industrial average both at all-time highs. However, the road to even higher returns will be rocky, according to Dan Morris, global investment strategist for TIAA-CREF, which holds $840 billion in assets under management.

He sees vulnerabilities ahead, as the U.S. transitions out of QE and into a market where rates are higher. “That’s going to be a bumpy transition,” he said. " We’re more likely than not to get another bout of volatility like we had recently as the market starts focusing again on rising interest rates in the U.S.”

Morris isn't alone in predicting rough times ahead.

Other traders and analysts don't expect to be blown away by the stock market performance in 2015.

Wall Street stock pickers tend to be a very bullish bunch, but caution is the word heading into the New Year.

Goldman Sachs predicts the popular S&P 500 benchmark of U.S. stocks will end next year at just 2,100. That's less than 2% above where the index is right now.

Deutsche Bank believes the S&P 500 could climb to 2,150 by the end of the year, good for a 4% advance.

The stock market has been on a massive winning streak, rising nearly 200% since it bottomed out in March of 2009, but many are wondering how much longer that winning streak can continue.

Perhaps concerns about the stock market are one reason why consumer confidence in the US declined from October to November.

In fact, consumers are feeling the worst about the economy since June.

The Conference Board's Consumer Confidence Index declined in November, the group said today, despite expectations that lower oil prices would lead to a strong number.

November's 88.7 figure marked a decrease from a revised 94.1 in October. According to Reuters, economists had expected a reading of 96.0 for November. It was the lowest reading since June, when it registered 86.4.

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11.24.14 - Will China's Monetary Policy Boost Gold?

Not long ago, many were prepared to write gold's obituary.

We've seen this many times before of course, but in early November strength in the US dollar was supposed to mean all but the end for gold.

Now gold has risen for three straight weeks.

It turns out the US dollar is not the only factor impacting the price of gold after all.

More and more, China is playing a large role in the gold market.

Physical demand for gold in China has been robust recently and it now appears China's monetary policy is becoming accommodative in a manner not unlike other central banks.

China has now joined the Bank of Japan and the European Central Bank in cutting interest rates. This has prompted a new outlook for gold among many traders with hedge funds in particular becoming suddenly bullish.

Of course, the Bank of Japan and the European Central Bank have gone beyond just cutting interest rates in an effort to boost their economies through monetary policy.

But one European is warning that monetary policy is not sufficient to boost Europe's stagnating economy.

Jens Weidmann, a member of the European Central Bank's rate-setting council has said monetary policy cannot boost long-term growth and called for reforms by governments to make the weak economy more investment-friendly.

Weidmann said in the text of a speech in Madrid today that low interest rates and stimulus measures can boost short-term demand but that central bank action "cannot permanently boost growth prospects."

Weidmann, who also heads Germany's Bundesbank central bank, said that long-term growth depended on countries' willingness to lower barriers to investment by streamlining bureaucracy and rules on hiring and firing.

Meanwhile, business confidence is on the wane around the world, suggesting that government efforts to boost the economy are running behind.

According to a survey of business executives released yesterday by Markit, U.S. and global business confidence slumped in the third quarter.

Markit said its U.S. business outlook survey showed that a net 31.2% of executives saw growing activity for the next 12 months in October, down from a net 51.4% when they were surveyed in June.

That’s the lowest reading since the survey started in 2009.

A global survey conducted by Markit saw a net 28% expecting higher activity, down from 39% in June, to mark a five-year low.

Finally, Iran's nuclear program is back in the news. Israel, concerned that the US administration may ink a bad deal with the Ayatollahs thus leaving the Jewish state vulnerable, is said to once again be considering military action against Iran's nuclear program.

No matter what your view of this issue, there can be no denying that the potential for conflict could have enormous implications for the financial markets and global economy.

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11.21.14 - Chinese Central Bank's Surprise Rate Cut

Today, in an unexpected move, the Chinese central bank cut interest rates for the first time in two years. The bank announced it was cutting its benchmark lending and deposit rates, effective on the 22nd.

With this move, China joined other world central banks in a race to cut interest rates, attempt to stimulate their national economies and, in the process, undermine the value of their currencies.

First the US Federal Reserve minutes showed the Fed is in no hurry to raise interest rates any time soon, leaving them near zero. Then Japan announced a stimulus package that goes even beyond what Quantitative Easing involved. The ECB has announced its own bond buying program as well. Now China, whose economy has been slowing as of late, has joined the party.

The surprise move by China helped buoy gold, which is now heading for its third-straight weekly gain.

Also contributing to gold's rise has been rising physical demand, particularly in China.

Despite the 3-week rally, gold still represents one of the most attractive bargains in the investment world, as stock markets continue to be overvalued.

Ahead of China's announcement, the president of the European Central Bank Mario Draghi, made a speech at a European banking conference in Frankfurt. He said that the euro zone economy is likely to remain stagnant in the short-to-medium term. He added that the central bank stands ready to act fast to combat low inflation and that the inflation situation in the euro area has become increasingly challenging.

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11.20.14 - Interest Rates to Remain Low?

Yesterday saw the release of the minutes from the Federal Reserve Open Market Committee's meeting in late October and the reports indicate the members of the committee saw little reason to shift course. In other words, the Fed is not ready to start raising interest rates.

In fact, Fed officials are increasingly worried about signs that inflation is rising too slowly.

The minutes also showed that members of the committee are complacent about signs of economic weakness in Europe and Asia, as well as recent market volatility.

If the minutes are to be believed, the Fed plans to hold short-term interest rates near zero for a “considerable time.”

As if on cue, two economic reports in the US were released today and both came in shy of estimates.

The number of Americans filing new claims for unemployment benefits fell less than expected last week. Moreover, the prior week's data was revised to show 3,000 more applications received than previously reported.

The four-week moving average of claims - considered a better measure of labor market trends as it irons out week-to-week volatility - increased 1,750 to 287,500.

Wall Street and the Obama administration are spinning these numbers, but the economy continues to disappoint no matter how one looks at it.

This was further confirmed by the U.S. Manufacturing Purchasing Managers Index report, an industry report from financial data firm Markit. It showed the U.S. manufacturing sector slowed in November, falling to its lowest rate of growth since January while a gauge of new orders also fell for a third straight month.

The Immigration Angle

With President Obama poised to take executive action on immigration, there is an economic aspect now being discussed.

President Barack Obama’s unilateral amnesty will quickly add as many foreign workers to the nation’s legal labor force as the total number of new jobs created by his economy since 2009. The plan will distribute five million work permits to illegal immigrants and also create a new inflow of foreign college graduates for prestigious, salaried jobs.

Obama has already provided or promised almost five million extra work permits to foreigners, while his economy has only added six million jobs since 2009.

The five million work permits will add to Obama’s prior giveaways, which have provided work permits to almost one million foreigners.

This suggests that federal employment figures are being skewed by these numbers and the amnesty program will likely intensify this phenomenon.

Gold's Recovery

Finally, gold bulls are coming out of the woodwork as prices for the yellow metal rebound off four-and-a-half-year lows.

Market pundit Peter Boockvar, chief market analyst at The Lindsey Group, an economic advisory firm, is the latest to call a bottom for gold:

"Bottom line, gold is money and is not just a contra dollar play, it is a contra fiat currency asset in a world where fiat currencies are being created to an extent the world has never seen.”

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