11.19.14 - More Fed Watching
Traders on Wall Street, economists and mainstream investors are all awaiting the release of the Federal Reserve minutes later today.
The dollar strengthened overnight on speculation those minutes could reveal that the Federal Reserve Open Market Committee sees the US economy as stronger relative to other world economies.
As usual, traders will be looking for clues on when the Fed will raise rates.
The Fed minutes from its October 28-29 policy meeting are due at 2 p.m. Eastern Time.
One possible concern regarding US interest rate policy is the prospect that, similar to what occurred from 2004-2006 under Fed Chairman Alan Greenspan, the Janet Yellen Fed's ability to tighten long-term interest rates may be limited. The bond market is signaling that the past may be prologue as Yellen’s Fed prepares to raise rates next year. The yield on the 10-year U.S. Treasury note has fallen 0.71 percentage points in 2014 even as the Fed wound down its bond-buying program and mapped out a strategy to raise the benchmark federal funds rate from near zero, where it has been since 2008.
Greenspan's inability to overcome market forces to raise long-term rates back in 2004-2006, which he called a “conundrum”, contributed to the worst financial crisis in 80 years in 2007-2008.
In other news, the gold market is also watching for the release today of an opinion poll ahead of next week's Swiss gold referendum. Speculation has been building over Switzerland's gold holdings ahead of the November 30 vote on a proposal that would require the Swiss National Bank to hold at least 20 percent of its assets in gold.
Russia and the conflict with Ukraine is once again the focus of news reports as well.
Russia's central bank has been accumulating gold on a massive scale in an effort to protect itself from European Union and U.S. sanctions. The Russian economy is in real trouble with a serious surge in inflation combined with stagnant wages, pushing the country into a stagflationary quagmire. Much of Russia's national income has come from oil and gas revenue and the prices of oil and natural gas have been falling precipitously.
Meanwhile, one of the factors that has Russia in this fix, the conflict in Ukraine, shows no signs of letting up. The president of Ukraine, Petro Poroshenko, has declared his country is ready for "total war" with neighboring Russia as tensions between the two nations show no signs of ending.
11.18.14 - Gold Rebounds
For the past few weeks gold has been under pressure from a stronger US dollar. That appears to be coming to an end, at least temporarily.
We have maintained all along that the US dollar cannot sustain strength for long given the US fiscal situation and Fed monetary policy.
Now, gold has rebounded to a two and a half week high as the dollar has retreated.
In fact, gold has rebounded 6.4 percent from a 4-1/2-year low of $1,131.85 on November 7.
Much of Wall Street and the Obama administration have been touting a strengthening economy in recent weeks and months. But Bank of America seems to have broken ranks with its latest forecast and there are other anecdotes that indicate the US economy isn't as healthy as some would have us believe.
There may not be a recession next year, but don't expect a year of stellar growth either, according to the latest Bank of America Merrill Lynch survey of fund managers.
Fewer than one in ten fund managers expect a recession next year, according to the poll, but almost 80 percent forecast "below trend" growth according to a new survey.
There are two phenomena that point to long-term weakness in the US economy.
First, while much has been written about millennial children boomeranging back to live with their parents, there’s another group of people who have been quietly doubling up: baby boomers and their own aging parents. And some expect this particular trend to hold as people live longer and require more expensive care at the end of their lives.
A recent survey by the American Institute of Architects found that dedicated guest rooms, including in-law suites (that can be as simple as a secondary master bedroom suite with a bathroom), have been gaining in popularity over the past couple of years. As many households become caretakers for aging relatives, separate living suites have become popular options for accommodations.
Of course not everyone has the money to make big changes to a home. Many can’t add on another suite.
Second, the news is not good on the other end of the age spectrum.
The number of homeless children in the U.S. has surged in recent years to an all-time high, amounting to one child in every 30, according to a report issued by the National Center on Family Homelessness. Nearly 2.5 million American children were homeless at some point in 2013. Child homelessness increased by 8 percent nationally from 2012 to 2013, according to the report.
11.17.14 - Global Economy in the Spotlight
As we start another new week, the news is dominated by warnings about the global economy and financial markets.
The first warning came from the Prime Minister of the United Kingdom, David Cameron.
According to Cameron, the global economy is again showing worrying signs of an imminent financial crisis and he is warning of a dangerous backdrop of instability and uncertainty.
Writing in the U.K.'s Guardian newspaper, he said that this weekend's G-20 summit in Brisbane had further underlined the problems facing the global economy.
"Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy," he said in the article published late Sunday.
Global trade talks have stalled, the euro zone is teetering on the brink of recession and emerging markets are now slowing down, he said. The spread of Ebola, the conflict in the Middle East and Russia's illegal actions in Ukraine are all adding to the global insecurity, according to Cameron.
The crisis may have already started in Japan, where the economy has in fact entered recession. This shock to the global economic system comes as euro zone economies stagnate.
The world’s third-largest economy contracted at a 1.6 percent annual pace in the July-September quarter, the government said Monday, confounding expectations it would rebound after a big drop the quarter before. Economists had forecast that the Japanese economy would actually grow by a healthy 2.2 percent in the quarter.
The big worry is that the slowdown in Japan could have a domino effect in other economies. Even China is showing signs of a slowdown.
Geopolitical tensions are not helping matters.
The war in Syria and Iraq is just one of the wild cards. Amid fresh clashes in Ukraine, tensions between Russia and the West are rising again. European officials were meeting this week to consider adding more Russian individuals to their list of sanctions. EU leaders could agree on new sanctions aimed at Russia's economy next month.
It's no wonder economists have trimmed their forecasts for U.S. economic growth in the fourth quarter with the rest of the world slowing down. Analysts see the economy growing at an annual rate of 2.7 percent in the current quarter, according to the Philadelphia Federal Reserve's quarterly survey of 42 forecasters, released on Monday. In last quarter's survey, growth for this quarter was forecast at 3.1 percent.
11.14.14 - Eurozone GDP Report Released, Poll Shows Pessimism and Al Qaeda and ISIS Reach Accord
Eurozone gross domestic product (GDP) grew by 0.2 percent in the third quarter according to data from Eurostat, the European Union's statistics service.
While this figure beat the consensus forecast from economists of 0.1%; it is still an anemic number. The only reason anyone is happy with this figure is because many traders feared the report might actually show that Europe had entered a recession already.
Italy remained in recession in the third quarter with its economy shrinking by 0.1 percent, after unexpectedly slipping back into recession in the second quarter.
Nancy Curtin, chief investment officer of Close Brothers Asset Management, said the figures were "nothing to write home about" and warned of a "heavily clouded" outlook for the region.
The European Central Bank (ECB) has already launched a host of stimulus measures to reverse disinflation, including cutting interest rates to record lows and announcing plans to purchase covered bonds and asset-backed securities (ABS) - and now a number of experts are calling for the bank to do more.
Full-blown quantitative easing in the shape of buying government bonds remains a very real possibility.
Given these anemic growth figures from Europe, it's little wonder that the world economy is in its worst shape in two years; with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors.
A plurality of 38 percent of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.
Europe isn’t the only source of concern in the global economy, according to the quarterly poll of 510 investors, traders and analysts who are Bloomberg subscribers. More than half of those contacted said conditions in the BRIC economies - Brazil, Russia, India and China - are getting worse.
One professional observer who has consistently expressed worries over the global economy is reminding investors of trouble ahead.
Dr. Marc Faber warned CNBC viewers late Thursday that stocks could fall all the way down to his early bearish targets.
"Two years ago, I was of the view that it would be healthy for the market to have a 20 percent correction, and that's what I've expected. And many stocks have actually had 20 percent corrections over the last two years. But a limited number of stocks have driven up the indices. And of course, let me remind you ... in three years, we've almost doubled. If you really believe that every three years the market will double, then go and buy shares. I don't believe that," warned Faber.
One darling of the bull market in stocks has been Twitter, the social media giant that has thus far failed to produce a profitable business model. Standard & Poor's assigned a junk rating to Twitter's debt yesterday. S&P's unsolicited rating of "BB-" is three notches below investment grade. The company sold $1.8 billion worth of convertible notes in September.
Finally, in geopolitical news, Jihadist terrorist leaders from the Islamic State group and Al Qaeda have agreed on a plan to stop fighting each other and work together against their enemies. Such an accord presents new difficulties and could result in an escalating threat to the West, both through economic interests around the world and a threat to Western nations directly, which in turn could potentially have economic side effects.
11.12.14 - Focus on Europe
With no significant economic reports due out in the US this week, much of the news is understandably focused on various events in Europe, particularly Russia.
Nato officials report that Russian military equipment and Russian combat troops entered Ukraine this week.
"Russian tanks, Russian artillery, Russian air defense systems and Russian combat troops" were sighted, US General Philip Breedlove said.
The United Nations Security Council is convening an emergency session today to discuss the reported sightings. Given that Russia has veto power on the Security Council, it is virtually certain nothing will come of this.
If something does come of it, it is likely to be more sanctions from the European Union; something that would impact the already fragile EU and Russian economies.
Russian military activity in the Ukraine isn't the only military activity of concern to the Europeans.
Russia’s military is engaging in “dangerous brinkmanship,” according to a new report documenting dozens of recent incidents in which Russian warplanes and ships have taken aggressive or provocative actions, often in locations far away from the fighting in Ukraine.
A report by the European Leadership Network, a London-based group including former European political and military leaders, says the actions, taken together, present a “highly disturbing picture.” According to the report, the incidents include “violations of national airspace, emergency scrambles, narrowly avoided mid-air collisions, close encounters at sea, simulated attack runs and other dangerous actions happening on a regular basis over a very wide geographical area.”
The result, according to the European Leadership Network report, is a “volatile stand-off” between Russia and NATO. With both sides possessing nuclear weapons, the situation “is risky at best. It could prove catastrophic at worst,” the report says. It calls on Russia to “urgently re-evaluate the costs and risks of continuing its more assertive military posture,” and says both sides should “improve military-to-military communication and transparency.”
Worries over Russia are not the only thing on the minds of investment analysts when it comes to Europe.
The European funds industry experienced its second significant slowdown in fund sales in consecutive months according to the latest industry data from Lipper.
Lipper said the reversal in long-term fund flows was mainly driven by withdrawals from equity funds and high yield bond funds.
This is an indication that investors are increasingly worried about the future of the European economy and financial markets and are becoming more risk averse.
Finally, in both Europe and the US, banks were hit with with billions in fines and vigorous rebukes today for failing to stop traders from repeatedly rigging the currency markets for half a decade at the expense of customers and the wider financial system.
Royal Bank of Scotland (RBS), HSBC, JPMorgan, UBS, Citibank and Bank of America Merrill Lynch were each fined hundreds of millions of dollars following lengthy investigations.
11.11.14 - Veterans Day
**Swiss America would like to thank the gallant men and women who risked everything - and in some cases gave their lives - for our liberty and freedom. We appreciate your service and are grateful for your sacrifice.**
Today may be a normal trading day in the financial markets, but this day is often characterized by lower than normal trading volumes in US markets as we commemorate Veterans Day.
As we get closer and closer to the full implementation of Obamacare and the aspects of the socialized health care program are phased in, we will increasingly see Obamacare dominate the news--and especially the economic and financial news.
That's because Obamacare is going to have an escalating role in US fiscal policy, as well as in the expenditures of American households going forward.
So far, the news on Obamacare is far from pleasing.
Obamacare architect Jonathan Gruber, an MIT professor, said in a videotaped speech at the University of Pennsylvania that lack of transparency was a major part of getting Obamacare passed, and that it was written in such a way as to take advantage of "the stupidity of the American voter."
In other words, Obamacare was purposefully designed to obfuscate how it was financed, how the subsidies worked and the other unpleasant features of the law.
More than four years after Obama signed Obamacare into law, it has become increasingly clear that Gruber wasn't exaggerating. The law's vast web of accounting gimmicks, cross subsidies, taxes and fees makes it increasingly difficult to know what Obamacare costs are for consumers, businesses and taxpayers.
Not surprisingly, many Americans are feeling as if they were cheated and the already-waning support for Obamacare will likely suffer from this revelation.
But more importantly, the eventual fiscal costs of Obamacare and its impact on consumers are simply not knowable due to the underhanded and dishonest way in which Gruber purposely structured it. This will inevitably lead to economic uncertainty, which will in turn impact the financial markets at some point.
Russia's Grand Plan
Sanctions imposed on Russia this year have had an impact on official demand for gold from Russia's central bank for a variety of reasons. First, Russia has sought to de-emphasize the US dollar as a reserve asset and replace it with gold and other assets. Another reason is that Russia is a gold mining and exporting nation and sanctions have made it difficult for Russian mining firms to export gold mined inside Russia via Russian commercial banks. The Russian central bank has stepped in to buy up the additional gold.
The main reason for the sanctions on Russia has been its involvement in the conflict in Ukraine. Sources out of Germany are now warning of a possible new escalation in the violence there.
“Everything suggests that the parties are making renewed preparations for violent conflict,” German Foreign Minister Frank-Walter Steinmeier told reporters at a foreign-policy conference in Berlin.
Ukraine said separatists in its rebel eastern regions have announced a full mobilization. As a result, the European Union has threatened further sanctions against Russia, something that won't help anyone's economy.
Hedge Funds Teetering
We are still seeing the fallout from October's stock market volatility. The industry that seems to have taken the brunt of this is the hedge fund industry.
Last month's sharp rise in volatility did not work in hedge funds' favor, as the industry posted its sixth month of negative returns for the year. Far from producing what they promise - namely market-beating investment performance - hedge funds seem to have lost investors' hard-earned wealth at an alarming rate.
Income Inequality Still Widening
Finally, an issue that both Fed Chair Janet Yellen and President Obama repeatedly address; income inequality in the US. Yellen has claimed it is a threat to the US economy and financial markets. Yellen has even emphasized this issue in public statements when observers have been seeking her views on economic and monetary policy. Critics have called Yellen hypocritical, pointing out that Fed policies have actually contributed to income inequality by producing a bubble in the financial markets while the overall economy has been lackluster.
Now, according to a new research paper published by the University of California at Berkeley, US inequality in wealth is approaching record levels.
This could be dangerous for our economic and financial future. The authors examine the share of total wealth held by the bottom 90% of families relative to those at the very top. In the late 1920s the bottom 90% held just 16% of America’s wealth—considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929.
Today, the top 0.1% (consisting of 160,000 families worth $73 million on average) hold 22% of America’s wealth, just shy of the 1929 peak—and almost the same share as the bottom 90% of the population.
11.10.14 - Voices from the Past
Gold prices end slightly lower on higher stocks and a stronger U.S. dollar. U.S. stocks end higher as investors focus on record level benchmarks and volatile commodity prices. Gold last traded at $1,159 an ounce. Silver at $15.67 an ounce.
Two famous voices from the past have some interesting things to say as we embark upon another trading week.
Those two voices belong to former Fed Chairman Alan Greenspan and former Soviet leader Mikhail Gorbachev.
We've reported recently about Greenspan's comments about Fed monetary policy and the end of Quantitative Easing. But now we find out that in the course of those comments - in which he recommended individual investors buy gold - he had much more to say on the topic.
For some reason, these comments (below) were not purposely removed from the transcripts sent to media outlets:
Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.
Gold has always been and likely will continue to be the ultimate form of real money.
In addition to Greenspan, another voice from the past has surfaced: that of former Soviet leader Mikhail Gorbachev.
Over the weekend Gorbachev said that tensions between the major powers have pushed the world closer to a new Cold War.
"The world is on the brink of a new Cold War. Some are even saying that it's already begun," Gorbachev said at an event marking the 25th anniversary of the fall of the Berlin Wall.
Tensions between Russia and the West are having an impact on the world economy as the Russian ruble comes under pressure.
Dozens of international companies depend on Russia for a significant portion of their sales and, with the ruble down over 20% in the last 3 months alone, those companies are suffering because the Russian economy is suffering.
Increasingly, Russia has turned to China for relief. Russia and China have inked trade deals and targeted the US dollar.
At this week's major Asia-Pacific Economic Cooperation summit in China, China and Russia deepened their energy ties with a second blockbuster deal that lessens Russian reliance on Europe and would secure almost a fifth of the gas supplies China needs by the end of the decade.
For their part, the Chinese see President Obama as a weak leader on his way out, which probably means China will continue to spend the next two years working to overtake America's economic supremacy and the supremacy of the US dollar.
Finally, there is yet another credible forecast that economic trouble lies ahead.
The Jerome Levy Forecasting Center is saying there is a 65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year. This is especially worrisome because this same firm correctly predicted both the Great Depression and the financial crisis of 2007-2008.
11.7.14 - Gold Rebounds, Russia Rattles Europe
Gold prices end higher on downbeat U.S. jobs data. U.S. stocks end with third straight week of gains. Gold last traded at $1,169 an ounce. Silver at $15.71 an ounce.
The price of gold is on the rebound today after U.S. payroll data missed forecasts and depressed the dollar. US Labor Department data showed the US added 214,000 jobs in October. Forecasters had predicted the economy would add 231,000 in October.
Gold has been under pressure for a week from a rising dollar. The dollar surrendered some of those gains after the data from the Labor Department showed job creation was weaker than expected.
Gold may also have been buoyed by reports that a Russian mechanized column, consisting of 32 tanks and 16 self-propelled howitzers, had crossed over into Ukraine. The cross-border incursion, if confirmed, is a significant escalation of the conflict between Russia and Ukraine. A NATO military officer was quoted as saying the alliance had seen an increase in Russian troops and equipment along the border. Stock markets in Germany and France fell sharply in response.
These developments illustrate why gold has been called the "crisis commodity" for decades. During times of tension, paper assets tend to depreciate while gold is unique in its ability to provide security and stability.
11.6.14 - Bullish Factor Emerges in Gold Market
Gold prices end slightly lower ahead of the much anticipated October employment report. U.S. stocks close at record levels after ECB hints at more aggressive stimulus measures. Gold last traded at $1,142 an ounce. Silver at $15.41 an ounce.
We have maintained all along that the price of gold at a 4-year low, combined with stocks unjustifiably at or near an all-time high, makes for one of the most attractive opportunities in gold in the 21st century.
Now a bullish factor has emerged in the gold market that reinforces this terrific opportunity to take advantage of multi-year lows in gold.
It seems a major physical shortage of both gold and silver has developed.
Silver American Eagle sales have soared to their highest level in two years and now the US Mint says it has sold out of all silver American Eagles due to the tremendous demand. They also report that they do not know exactly when they will be able to start sales back up again.
Meanwhile, statistical figures indicate there is also a physical shortage of gold. In fact, the physical shortage in gold is the most acute it has been since 2001.
Clearly something is happening in the precious metals markets which seem to be like a coiled spring ready to be released. When will the spring be released? It's impossible to know precisely. History tells us that some exogenous event will be the catalyst.
One possible catalyst of course would be a serious setback in the gravity-defying stock market.
Paul Craig Roberts of the Institute for Political Economy seems to be saying that gravity could catch up with the stock market, declaring that the "American financial markets have no relationship to reality. The divergence of markets from economic reality disturbs neither public policymakers nor economists, who promote the interests of the government and its allied interest groups. The result is an economy that is a house of cards."
Ultimately, the financial markets can only be sustained by healthy underlying economic conditions.
Two new reports call into question the health of the US economy.
The pace of growth in the U.S. services sector slowed more than previously estimated in October from a month earlier, hitting its lowest level in six months and pointing to a year-end slowdown in economic growth.
The final services sector Purchasing Managers Index compiled by information services company Markit slipped to 57.1 in October from 58.9 in September, hitting its lowest rate since April. Markit had initially estimated the index at 57.3 in its preliminary, or "flash," reading released in late October.
Taken together with Markit's manufacturing activity survey for October, which fell to a three-month low, the data suggests the brisk U.S. economic growth rate of the previous two quarters will not be sustained in the fourth quarter.
Additionally, US companies laid off over 51,000 people in October, the most since May. This is a 68% surge month over month (and a 11.9% rise year over year) - the biggest monthly rise since September 2011. Retail, Computer, and Pharma industries saw the biggest layoffs. Hiring also collapsed from the record 567,705 in September to just 147,935 in October. This was the worst October for layoffs since 2009.
Finally, Russia's assault on the US dollar continues apace. Russia may ban the circulation of the US dollar. The State Duma has been submitted a bill banning and terminating the circulation of the US dollar in Russia.
If the bill is approved, Russian citizens will have to close their dollar accounts in Russian banks within a year and exchange their dollars in cash to Russian ruble or other countries’ currencies.
Otherwise their accounts will be frozen and cash dollars will be confiscated.
After the law enters into force, it will be impossible to obtain cash dollars in Russia.
11.5.14 - And Now, Back to Reality
Gold prices end sharply lower as the U.S. dollar soars. U.S. stocks end mostly higher on a rebound in oil prices. Gold last traded at $1,145 an ounce. Silver at $15.44 an ounce.
The mid-term Congressional and state-level elections are now, for the most part, behind us and it appears the political landscape in America has changed overnight.
Today the markets are digesting the gains made by the GOP.
We would caution investors not to focus too much on the game of charades so often played out in our nation's capital.
Historically, political developments have had less impact on the investment world and financial markets than economic developments and fiscal and monetary policy. The key going forward will be the future of those factors.
And the news marches on.
Gold has fallen below $1,150 per ounce today - its lowest price since mid-2010.
Gold at a 4-year low and stocks at, or near, an all-time high stand out as one of the most obvious value trades of all time, especially with the slowdown in the European and Chinese economies and Japan's recent moves to artificially stimulate its economy by debasing the yen.
As if to warn America that the results of the election will soon be forgotten, we received a rather unpleasant warning from IRS commissioner John Koskinen that the 2015 tax filing season will be a miserable one.
Meanwhile, New York Post and Washington Times columnist Charles Hurt, warns that " America now enters the two most dangerous years of her existence — or certainly the most dangerous since the Great Depression and possibly going all the way back to the Civil War."
This is not the time to be complacent. Now is the time to be more vigilant than ever. This goes double for your financial future.
11.4.14 - Election Day
Gold prices end lower on a stronger U.S. dollar. U.S. stocks end lower on global growth and oil concerns. Gold last traded at $1,167 an ounce. Silver at $15.95 an ounce.
Today is election day in America, and even though the financial markets are understandably focused on non-political issues in the news today, the election also has implications for the investment world.
There are many economic issues voters have their attention focused on as they go to the polls today, but none more prominent than Obamacare. President Obama's unpopularity has Republican candidates using Obamacare as a weapon against Democrat candidates, while Democrats are seen as fleeing from any issue closely associated with Obama.
One potential outcome of the election could be closer scrutiny of the Federal Reserve.
A Republican takeover of the U.S. Senate on Election Day would promise increased political turbulence for the Federal Reserve.
Financial executives say a GOP-led Senate would ratchet up congressional scrutiny of the central bank's interest rate policies as well as its regulatory duties as overseer of the nation's largest financial firms. Republicans haven't controlled the Senate since before the 2008 financial crisis and recession, which put a spotlight on the Fed and its powers.
"If the Republicans take control of the Senate and thus have control of both the House and the Senate--two words for the Federal Reserve: Watch out," said Camden Fine, president of the Independent Community Bankers of America.
But no matter the outcome of the election, the markets will ultimately be driven by non-political factors, such as economic growth.
Here in the US, more evidence is trickling in that the real estate market is slowing. The U.S. housing market cooled off in September, as home prices rose at an ever-slowing pace.
Globally, Europe's economic growth is foundering.
The European Commission today cut its growth forecasts for the eurozone and the European Union, citing the tensions in Ukraine and the Middle East along with a lack of investment.
The forecasts for the eurozone were dragged down by lower than-expected growth in big countries including Germany, France and Italy; the latter of which is expected to fall back into recession this year.
The biggest economies on the continent are slowing. This does not bode well for the rest of Europe. Considering Europe is one of the world's major economic and financial regions, the global economy is in trouble as well.
11.3.14 - Complacency Returns
Gold prices end lower on a stronger U.S. dollar. U.S. stocks end choppy session lower on a batch of mixed economic reports. Gold last traded at $1,166 an ounce. Silver at $15.87 an ounce.
As the first trading day of November 2014 kicks into high gear, complacency has clearly returned to Wall Street; though that complacency is flying directly in the face of some stark warnings from some extremely well-respected investment professionals.
Before we get to the situation on Wall Street, we should address the recent decline in gold to below $1200 per ounce. This is mainly the result of strength in the US dollar. Because of that, the current weakness simply has to be regarded as temporary.
There is no long-term scenario that even tries to make a case for dollar strength over the long-term.
America's fiscal and monetary situation virtually dictate dollar weakness over the long-term. The US national debt is now just over $17.9 trillion. Each day, we add $2.4 billion to the debt. This means that before 2015 makes its debut, it is likely our national debt will eclipse the $18 trillion mark. With a population of 319 million people, each citizen's share of the debt is $56,000.
Meanwhile, the federal government's annual budget deficit is still in the half a trillion dollar range, meaning we are still spending far more than we take in, so the debt will continue to grow.
This has created a Catch 22 situation. Low interest rates in the US have kept the debt artificially low. But recent rises--and rumors of rises--in interest rates are pushing the dollar higher. The problem for policymakers in Washington is that higher interest rates translate into higher interest on the debt; a potentially crippling component of our federal expenditures.
In other words, America cannot afford a stronger dollar.
The US Treasury will eventually be forced to do service our debt with dollars cheapened through the printing press.
That's why taking advantage of gold prices at current levels is so important. Over the long-term, the current gold price is going to be remembered as an amazing bargain.
There is yet more evidence that the federal debt and deficits are setting America up for big trouble ahead.
The debt-to-tax ratio in the US is now at levels unseen since World War II, the greatest armed conflict in our nation's history. Our debt levels are higher and our tax burden is higher. This does not point to a healthy US economy down the road.
Make no mistake about it: without a healthy economy, the bull market in stocks is unsustainable. Despite the complacency we are seeing on Wall Street and in Silicon Valley right now, some professionals are issuing fresh warnings about both the US economy and the stock market.
While the recent selloff in stocks seems to be in the rearview mirror for many, there's a bigger one coming within the next three months, Empire Execution president Peter Costa warns:
"The market has been on a tear for over five years. We had a small pullback of 8 percent. I don't think that's enough. I think that the market needs to come back a little bit more than that for a longer duration," Costa says.
Hedge fund veteran and newsletter editor Michael Lewitt echoes these sentiments in his latest bulletin to subscribers of his The Credit Strategist letter: "Investors should hedge their investments in order to protect themselves from the potential risks that are building as stock markets reach ever higher levels of valuation. Investors may have gotten ahead of themselves with this latest rally. Investing in stocks is not supposed to be this easy."
Finally, bond market guru Bill Gross has a new warning about the economy in general, which does not bode well for stocks. He warned today that deflation remains a growing possibility. He went on to explain that deflation is the enemy of stability and growth.
The roughly $7 trillion pumped into the financial system since the financial crisis by the world's three biggest central banks has succeeded mostly in lifting asset prices rather than the cost of goods and workers' wages, he said.