For the first time in many months, there is a hint of backwardation in the physical gold market. It means that demand is rising, dear reader, possibly a trend change. It means that holding physical gold may now be slightly preferred to holding U.S. dollars.
Any reasonable, objective estimate of real U.S. GDP growth over the next few years comes in at 2% per year or less. But markets are expecting a Trump economic miracle with real growth of 4% and more. The cheer leaders cite tax cuts, infrastructure spending and de-regulation unleashing a wave of new economic activity. But that’s not where growth comes from.
Today we learned that core retail sales growth in December was the weakest in almost three years. Except for continued strength in autos and gas, the data disappointed across the board. Excluding autos and gas, total sales were unchanged in December against expectations of a 0.4% surge during the key holiday period. Now you know why there has been an explosion of store closing announcements this month from Macy’s to Sears.
While you were sleeping, the Grinch came and stole pension money from millions of Americans.
In my last post, I explained how the rapid rise in financial assets is going to destroy retirement for many Americans. Counter intuitive isn’t it? Wealth in the form of financial assets measured in dollars has grown far too large for the economy measured in dollars, mostly due to central bank-induced ultra-low interest rates. Central bank policy has driven financial markets up without stimulating real economic growth. Now we have all sorts of claims on the economy in the form of rising debt, soaring stock prices and real estate that are far too large for the real economy.
As debt levels continue to soar, investors seem to have forgotten what debt means and the impact it will have on their retirement.
Over the Christmas holiday, while hopefully no one was watching, the Italian government organized a ‘bail-in’ of the country’s third largest bank, Monte dei Paschi (MPS), which stood on the edge of insolvency and illiquidity. There are three things you need to know about this deal:
While everyone else is fixated on the U.S. stock market, I’m watching something more important…credit markets…because that’s where the next big thing is coming from.
Over the last week, another of those issues that no one seems to care about has worsened: the bloodbath in Chinese bonds. Last night, futures plunged back to last week’s lows overnight amid liquidity fears (with short-term lending rates inverting, rising above longer rates) and growing anxiety over China’s unprecedented debt load.
Does a Fed rate hike mean that you should sell gold? Not if history means anything. The rate hike is fully priced in. But that’s not all.