KITCO NEWS/Neils Christensen

Gold prices lose some ground as inflation pressures ease

April 30, 2020

“Gold prices are off their highs but still holding on to gains as inflation pressures eased in line with expectations last month. Thursday, the Department of Commerce said that its Core Personal Consumption Expenditures Index, dropped 0.1% in March, in line with expectations. For the year core inflation showed a reading of 1.7%, down from a previous 1.8%. Along with weak inflation the report noted a sharp drop in consumer spending as incomes dropped more than expected.

According to the report, personal spending dropped 7.5% last month. Economists were expecting to see a decline of 4.8%. Meanwhile, income dropped 2%; consensus forecasts were expecting a 1.6% decline. The economic data is appears to be having little impact on gold prices, which have fallen from their overnight highs. June gold futures last traded at $1,722.10 an ounce, up 0.51% on the day.

Some economists are not surprised that personal consumption and income data were weaker than expected as consumers are forced to stay at home after state governments shut down all non-essential businesses.  Economists noted that the sharp drop in consumer spending does not bode well for second quarter economic activity. ‘This provides a taste of what’s to come in Q2, with a dramatic drop in consumer spending behind our forecast for a 40% annualized decline in GDP over Q2,’ said economists at CIBC.”

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FOX BUSINESS/Megan Henney

Over 3.8 million Americans applied for unemployment last week

April 30, 2020

need a job sign“More than 3.8 million Americans filed for unemployment last week, the Labor Department reported on Thursday, as the tidal wave of job losses triggered by the pandemic continues to grow. The new report, which covers the week ending April 25, pushes the six-week total of job losses to 30.2 million. Unemployment at this scale hasn’t been recorded since the Great Depression, when the jobless rate peaked at 25 percent. With a total workforce of about 162 individuals, this brings the unemployment rate around 18.5 percent. Economists had forecast 3.5 million.

The latest evidence of the virus outbreak’s impact on the labor market follows the Commerce Department’s report on Wednesday that revealed the U.S. economy shrank by 4.8 percent in the first three months of the year. Economists expect growth in the second quarter to hit a historical low, with some estimates as low as a 34 percent decline.”

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CNN POLITICS/Zachary B. Wolf

Welcome to the worst economy ever

April 30, 2020

empty manhattan street“Let’s start with some bad news. And we won’t sugarcoat it. This is the worst economy ever. That’s according to Federal Reserve Chairman Jerome Powell, who previewed some truly awful economic data headed our way when he spoke to reporters Wednesday. ‘We are going to see economic data for the second quarter that is worse than any data we have seen for the economy,’ Powell said. ‘There are direct consequences of the disease and measures we are taking to protect ourselves from it.’ It’s worse for minorities than for white Americans. Powell noted that a few months ago, the US labor market was the best ever for minorities. But as stay-at-home orders have shuttered restaurants, movie theaters, retailers and many other businesses, a disproportionate number of non-white Americans have lost their jobs. ‘It is heartbreaking, frankly, to see that all threatened now,’ Powell said of previous gains in non-white unemployment.”

“CNN’s Stephen Collinson put it extremely well (as he always does), when he stated the clear fact that Trump still doesn’t grasp the enormity of this: Humanity is facing three crises at the very least — medical, economic and social — that will cause financial and geopolitical reverberations for years. The grim state of the economy was underscored Wednesday morning when it was reported that first-quarter GDP fell 4.8%, the worst contraction since the Great Recession. Yet Trump says he sees ‘light at the end of the tunnel’ and acts as if America is nearly home free.”

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BLOOMBERG/A. Gary Shilling

Stock Traders Should Heed the Lessons of the 1930s

April 30, 2020

man in uniform with hand on head“Don’t be fooled by the recent rebound in stocks; the investment scene is beginning to resemble the 1929 market crash and the early 1930s Great Depression. In the Roaring ‘20s, the Dow Jones Industrial Average jumped 500% from August 1921 to September 1929. It then plunged 48% from Sept. 3 to Nov. 13, 1929. To many, that seemed like a reasonable correction of the 1920s exuberance. The economy was fully employed and growing rapidly and most looked forward to more expansion and higher stock prices. Only days before the crash, prominent economist Irving Fisher stated that ‘stock prices have reached what looks like a permanently high plateau’ and the market was ‘only shaking out of the lunatic fringe.’

Also, a 48% stock drop wasn’t exactly unique. The Dow fell 48.5% from Jan. 19, 1906 to Jan. 7, 1907 in conjunction with the Panic of 1907. Still, the economy didn’t collapse and stocks steadily recovered to close at the Dow’s old high by the end of 1909. If it hadn’t been for what followed, the 1929 Crash would probably have been recorded as just one more correction in the wild stock markets at that time. Despite the widespread interest in equities, only 10% of Americans owned equities in the 1920s, according to the Federal Deposit Insurance Corp. Stocks rallied 48% until April 17, 1930 representing a 52% retracement. But as the Great Depression unfolded, stockholders bailed out and the Dow fell steadily until July 8, 1932, an 86% swoon and a drop of 89% from the September 1929 top.”

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THE WALL STREET JOURNAL/Melissa Korn, Douglas Belkin and Juliet Chung

Coronavirus Pushes Colleges to the Breaking Point, Forcing ‘Hard Choices’

April 30, 2020

charts“MacMurray College survived the Civil War, the Great Depression and two world wars, but not the coronavirus pandemic. The private liberal-arts school in central Illinois announced recently it will shut its doors for good in May, after 174 years. Like many small schools, it faced declining enrollment and financial shortfalls. To lure prospective students, it was using steep discounts to its $30,000 listed tuition. Then the global health crisis brought unexpected costs for shifting classes online and partially reimbursing room and board for students forced to finish out the spring term at home. The loss of a $3-million-plus bridge loan was the final straw.

The pandemic ‘squeezed out the last rays of hope,’ said President Beverly Rodgers. From schools already on the brink to the loftiest institutions, the pandemic is changing higher education in America. Schools sent students home when the coronavirus began to spread, and no one knows if they will be back on campus come fall. Some colleges say large lecture classes and shared living and dining spaces may not return. Athletics are suspended, and there is no sense of when, or if, packed stadiums, and their lucrative revenue streams, will return. Every source of funding is in doubt. Schools face tuition shortfalls because of unpredictable enrollment and endowment losses. Public institutions are digesting steep budget cuts, while families are questioning whether it’s worth paying for a private school. To brace for the pain, colleges and universities are cutting spending, freezing salaries and halting plans for building.”

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MARKET WATCH/Steve Goldstein

Three years of eurozone economic growth wiped away

April 30, 2020

world flags“Three years of the eurozone’s economic activity have been wiped away, and it is likely going to get worse. Eurostat reported eurozone first-quarter GDP fell 3.8% compared with the fourth quarter. European data is reported on a quarter-on-quarter basis, so on an annualized basis, the economy fell 14.4%, worse than the U.S. gross domestic product decline of 4.8%. ‘In level terms, real GDP is back to its level three years ago, illustrating the scale of the hit to economic activity,’ said economists at Citi.

Separately, France reported a 5.8% decline, Spain reported a 5.2% drop and Italy reported a 4.7% decline after also contracting in the fourth quarter.  Those three countries have been hardest hit from the coronavirus crisis, in terms of confirmed cases, in Europe.  Economists are expecting still worse to come. ‘The gradual, tentative lockdown exit path laid out by Prime Minister Philippe supports our base case of a shallow recovery,’ said François Cabau, an economist at Barclays who forecasts French GDP to drop 11.7% in the second quarter. At a press conference, ECB President Christine Lagarde said the eurozone economy could fall between 5% and 12% this year. While stark, so are other forecasts — the International Monetary Fund in April said the eurozone economy would fall 7.5% this year. The Stoxx Europe 600 extended losses, falling 1%. The euro slipped 0.3%.”

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