KITCO NEWS/Neil Christensen

Gold prices holding steady after the U.S. economy created 225K jobs in January

February 7, 2020

“Gold prices are holding relatively steady as the U.S. economy once again created more jobs than expected, according to the according to the Bureau of Labor Statistics. The employment numbers show that the U.S. labor market continues to be the bright spot in the U.S. economy, according to economists. ‘Markets were expecting a strong payrolls print for January and the US labor market delivered it. The 225K jobs created is above the average pace of employment growth seen over the past six months,’ said Katherine Judge, senior economist at CIBC. U.S. nonfarm payrolls rose by 225,000 in January, the report said. The monthly figure came in well above market consensus projecting 163,000 new positions.

The U.S. unemployment rate rose slightly higher to 3.6%, December’s 50-year low. Economists were expecting to see an unchanged reading at 3.5% According to some market analysts, although the headline data was better than expected, the gold market appears to reacting to weak wage numbers. The report said that average hourly earnings increased seven cents or 0.2% in January; however, economists were expecting to see a 0.3% increase. For the year, wages have risen 3.1% … Although the data was better than expected some markets analysts said that it won’t have a major impact on gold because it won’t shift the Federal’s reserves accommodative monetary policy.”

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MARKET WATCH/Steve Goldstein

A ‘technical correction is inevitable’ for Tesla, says global bubble report

February 7, 2020

A ‘technical correction is inevitable’ for Tesla, says global bubble report“Tesla is reminiscent of the dot-com bubble—many believe there is an overvaluation, but those who try to short the stock get burned. The monthly global bubble status report from the Financial Crisis Observatory … has devoted a special section to the electric-vehicle producer. ‘Weak fundamentals, high valuation and lots of exciting good news: it is a typical dot-com-like bubble and very dangerous for short sellers,’ the report says, comparing the Tesla situation to Julian Robertson’s bet against technology stocks in 2000.

“The report also sounded a dark note on the global economy. ‘Rising stock prices such as Tesla is no indication of increased wealth in absence of real economic growth. Rising stock prices are an indication of an erosion of purchasing power of the currency,’ the report said. ‘The middle class is already facing recession-like pressure. The majority of people continue to become poorer as the cost of living outpaces any real wage growth. Most people are already living in recession even when stocks are going up, their medical, college costs and taxes are going up.’”

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BLOOMBERG/Claire Ballentine and Vildana Hajric

U.S. Stocks Slump on Virus Fear; Treasuries Rally: Markets Wrap

February 7, 2020

U.S. Stocks Slump on Virus Fear; Treasuries Rally: Markets Wrap“U.S. equities slumped amid speculation the recent rally may have gone too far too fast and as concern about the economic impact of the coronavirus overshadowed data showing a strong American jobs market. Treasuries climbed and oil fell. The S&P 500 Index snapped a four-day winning streak, while drops in miners and carmakers led the Stoxx Europe 600 Index lower. Yields on 10-year Treasuries fell below 1.6% after data showed U.S. employers hired at a faster-than-expected pace in January as wage gains rebounded … Apple Inc.’s iPhone maker Foxconn told employees not to return to work at its Shenzhen facility when the extended Lunar New Year break ends Feb. 10.

Stocks got off to a roaring start this week as investors bet that the economic damage from the deadly respiratory virus that originated in China would be contained. But with fresh reports of further infections, more deaths and more quarantines, the fallout for companies is starting to come into focus, with corporations such as Toyota Motor Corp. and Honda Motor Co. temporarily halting operations in China. ‘The market moved up so quickly over the last few days and I think papered over the continued risk associated with the coronavirus,’ said Robin Anderson, senior global economist at Principal Global Investors. ‘There’s still a lot of unknowns out there.’”

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THE WALL STREET JOURNAL/Liza Lin and Stu Woo

World Health Authorities Warn Virus Hasn’t Peaked After China’s Deadliest Day

February 6, 2020

World Health Authorities Warn Virus Hasn’t Peaked After China’s Deadliest Day“The World Health Organization said Thursday it was too early to declare a peak in the spread of the coronavirus, a day after China marked its deadliest day since the outbreak began. Separately, Singapore—home to the second-largest number of cases outside mainland China—reported two new infections, including one with no apparent link to China. The city-state warned the public to be ‘prepared for the possibility of new infection clusters involving locals within the community,’ and that future cases might not arise from recent travel to China or contact with travelers from that country.

Early Friday in China, government health authorities raised the death toll from the virus to 636 from 563. There were 31,161 confirmed illnesses, up from 28,018. The deaths and new cases have been concentrated in the central Chinese city of Wuhan, where the outbreak began, and the surrounding province of Hubei, an area of nearly 60 million people that has been quarantined. Though the number of new cases world-wide declined from Wednesday’s 3,925, ‘this is nothing to celebrate—it’s still a great worry,’ said Mike Ryan, executive director of the WHO’s Health Emergencies Program, speaking at a news conference in Geneva. ‘It’s right now too early to make predictions on numbers.’ As deaths and infections from coronavirus-caused respiratory illnesses rise, governments including the U.S., Taiwan and Japan are taking increasingly aggressive steps to evacuate and quarantine citizens, while companies are scaling back operations in China.”

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CNN BUSINESS/Matt Egan

Oil is in a tailspin over coronavirus and OPEC might not be coming to the rescue

February 6, 2020

“The rapidly-spreading coronavirus in China poses the biggest demand threat to the oil market since the 2008 financial crisis. Yet OPEC and Russia can’t agree on a rescue plan. Saudi Arabia, seeking to cushion the blow from the coronavirus, proposed further production cuts in Vienna this week. But Russia is pushing back — even though fears about the coronavirus have sent oil prices crashing into yet another bear market.  The Russians said ‘they need more time’ to weigh recommendations from the group’s technical committee and assess the impact of the coronavirus on the market, a source told CNN Business.

The coronavirus has clobbered oil prices because it is destroying demand in China, the world’s largest oil importer and the epicenter of global oil demand growth. The crisis has brought large parts of the world’s second-largest economy to a standstill.  The compromise proposal from Saudi Arabia was to cut oil production by 600,000 barrels per day, down from 800,000 to 1 million barrels, a senior OPEC source confirmed to CNN. The apparent conflict between OPEC and Russia dashes hopes that the group will be able to arrest the sharp decline in prices. ‘The coronavirus has completely taken the oil market hostage,’ said Michael Tran, director of global energy strategy at RBC Capital Markets. ‘The market is watching what OPEC does with bated breath. If OPEC is not able to stick the landing, it will have a big psychological hit to the market.’”

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CNBC/Jeff Cox

Junk bond scare is rising: ‘No one cares. People are buying everything’

February 7, 2020

Junk bond scare is rising: ‘No one cares. People are buying everything’“Even as interest rates remain low and investor appetite is strong, the ever-rising high-yield corporate debt levels are continuing to raise concerns on Wall Street. The latest warning comes from Charles Schwab strategists, who are advising clients to reduce their exposure, or underweight, to a part of the market that will see a record number of maturities over the next five years. ‘We think risks are elevated. We are concerned about the level of corporate profits,’ said Collin Martin, a fixed income strategist at Schwab. ‘We think too many people are reaching for yield.’

Investors for the past decade-plus have been in a race for yield as the Fed has kept benchmark rates low and as borrowing costs for corporates, even at the lowest end of the credit spectrum, remain cheap. The ICE BofAML High Yield Master II effective yield is around 5.3%, near the lowest its been for the entire recovery cycle and well off the most recent high near 10% in February 2016. That has come with default rates that had been extremely low on a historical basis. However, that is changing. The junk default rate in 2019 rose to 3.3%, the highest level in three years and well above the non-recession norm of 2.4%, according to Fitch Ratings. Those defaults amounted to $38.6 billion, a 32% surge from 2018 … The easy availability of refinancing is helping low-rated companies continue to revolve their debt and avoid obligations. Investors don’t seem to mind, continuing to scoop up speculative debt regardless of the risks. Covenant protection, or the insurance investors get that borrowers have the ability to pay, was near its lowest levels on record at the end of the 2019, according to Moody’s. ‘It’s a risk, but no one cares,’ Collins said. ‘People are buying everything.’”

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