Latest GDP Numbers Prove Fed Is Clueless

Do you know how bad the U.S. economy is performing? Over the last four quarters, real GDP is up just 1.2%, the lowest annual rate since 2010. Last Friday, we learned that first quarter real growth was marked down to 0.8% while the second quarter was only 1.2% compared to expectations of 2.6%. In fact, new data marked down performance all the way back to early 2013.

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Gold Enters Correction Mode

Gold has broken down from the trading range it has been in since late June, breaching key support at $1320. It could have gone either way but a break down is not surprising given the extended COMEX speculative long position that has been hanging over the metal for the past two months. If gold had broken higher, it would only have delayed a correction that was long overdue based on previous bull market history.

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Why are stocks going higher?

You could agree with JP Morgan’s July 13 note that stocks have gone to new all-time highs because: (1) they are not quite as ridiculously expensive as bonds; (2) corporate earnings are about to roar higher after four straight quarters of declines; and (3) investors are taking more risk, rotating out of safe haven stocks into underperforming cyclicals and financials, tech hardware, semis, materials, autos and airlines. Or you could wise up and smell the coffee.

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Brexit Means Banks

As reported earlier this week, Brexit’s impact on the world economy, while unknown, is likely to be very little. But the impact on the financial sector is another matter, especially the banks. The Brexit losses in the equity markets have been recovered. It is as if the vote never happened. But not in banks stocks. Here is the one year daily chart of the ratio of European bank stocks (EUFN) to European equities generally. Using the ratio makes the underperformance of the banks easy to see. The Brexit-induced bank stock collapse is clear and there has been NO recovery.

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