KITCO NEWS/Jim Wyckoff

Gold prices sink following strong U.S. jobs report

December 6, 2019

Gold and silver prices are trading lower in the wake of a very upbeat U.S. economic report that falls squarely into the camp of the U.S. monetary policy hawks, who do not want to see the Federal Reserve continue on its present path of lowering interest rates. February gold futures were last down $11.00 an ounce at 1,472.00. March Comex silver prices were last down $0.129 at $16.935 an ounce. The U.S. economic data point of the week, if not the month saw Friday morning’s employment situation report for November from the Labor Department show the key non-farm payroll number up a strong 266,000. It was expected to come in at up around 185,000 jobs. Wednesday’s ADP national employment report for November came in at up just 67,000 jobs, which was a big miss to the downside and had many thinking Friday’s job’s number would be a downside miss, too. October’s payrolls were also revised up modestly.

Asian and European stock indexes were mostly up overnight. The U.S. stock indexes are pointed toward solidly higher openings when the New York day session begins. Today’s strong jobs report injected some fresh risk appetite into the marketplace. European equities shrugged off a very downbeat report on German industrial production for October, which come in at down 1.7% from September and down 5.3%, year-on-year. That was the biggest drop in 10 years.”

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MARKET WATCH/William Watts

Chart watcher says, ‘Don’t fall asleep on gold’ as it gears up for another run

December 5, 2019

Don't Fall Asleep on Gold“Investor ardor for gold, as measured by inflows into exchange-traded products, is finally cooling as the metal pulls back from a six-year high set earlier in 2019 — and that might be the contrarian, positive development it needs to make another run higher, said one of Wall Street’s most widely followed chart watchers. ‘The noise around gold during its big run in the summer has certainly quieted down as the metal has been consolidating for over three months. ETF inflows for gold have finally moderated from extreme levels as investor exuberance fades,’ said Jeff deGraaf, chairman of Renaissance Macro Research, in a note highlighting ETF flows.

‘We don’t want you to fall asleep on gold, the charts are too good,’ deGraaf said. ‘A drop in extreme sentiment during a period of consolidation as the overbought condition works off after breaking out of a large basing pattern is exactly the type of action you want to see.’ Gold futures accelerated a move to the upside in June. The rally saw gold briefly top the $1,570 an ounce level in September — its highest since 2013 — before beginning a pullback.”

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Goldman Sachs says that every one of its private equity clients is preparing for recession

December 5, 2019

“Goldman Sachs’ private equity clients are bracing for the worst.  According to the bank’s chairman of investment banking, Alison Mass, ‘Every one of our clients is focused on being prepared for a recession.’ Speaking to Bloomberg TV, Mass said that she was ‘in Asia earlier this fall and saw the head of a private equity firm that has assets all over the world. He said he had given a recession checklist to each one of his CEOs with nine things on that checklist that he wanted all of them to work on and come back to him.’ According to Mass, that checklist included asking suppliers to extend terms, putting limits on capital expenditure and taking on only essential staff.

It’s a stark warning that a recession could be looming. However, Goldman’s own economists aren’t anywhere near as bearish: The bank said last month that it sees growth gaining pace next year, to between 2.25% and 2.5%, and expect unemployment to drop to Korean War-era lows. Risk of recession in 2020 is one in five, they say. The bank, in a recent note outlining key themes for 2020, also said it sees market upside limited by global central bank policy, including the Federal Reserve and European Central Bank. Mass also told Bloomberg that she expects more large-scale deals to continue, as deals of $10 billion or more accounted for 23% of the bank’s private equity transactions.

‘Our clients are looking to put large amounts of capital to work, so we at Goldman Sachs are looking through our industry teams as well as around the globe at large transactions,’ Mass added.”

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Muni-Bond Ratings Are All Over the Place. Here’s Why.

December 6, 2019

Multi Bond Ratings All Over“Chicago is in bad financial shape, with an unsustainable pension burden and a towering debt load. Yet the city will shortly issue bonds that are likely to be rated as super-safe, even though similar investments have lost money. Bond-ratings firms are struggling to judge the creditworthiness of cities and local governments with deep financial problems. There have been widely disparate ratings, errors in analysis and a fight for market share that may have produced optimistic outlooks. Chicago has the most pension debt of any major U.S. city, according to Merritt Research Services, and a shrinking population. To help cover an $838 million budget shortfall, the city is planning to sell up to $1.5 billion in bonds beginning as soon as this month.

One goal of the bond sale is to lower the city’s interest costs. To do that, Chicago is pledging its sales-tax revenue to fund the bonds, which is supposed to make them safer than the city’s conventional bonds. The strategy worked in 2017, when Chicago issued a similar sales-tax bond and credit-ratings firms deemed it nearly riskless. That may be an overly optimistic assessment. Puerto Rico issued similar bonds, but when it went bust, the bonds lost money. Chicago’s chief financial officer and some raters said the bonds are safer than Puerto Rico’s because of additional protections granted to investors. But investors don’t agree and have treated Chicago’s existing sales-tax bonds as if they were rated junk, according to recent data from Refinitiv’s Municipal Market Data.”

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German industry hit by biggest downturn since 2009

December 6, 2019
“Germany’s sprawling industrial sector is suffering its steepest downturn for a decade, underlining how the engine of the eurozone’s biggest economy is sputtering. Industrial output, which includes Germany’s dominant factory sector, dropped 5.3% in October from the same month in 2018, according to the Federal Statistics Office. The figures suggest that the German industrial slowdown is likely to weigh on eurozone growth in the fourth quarter.  Combined with data published this week showing industrial orders fell sharply in October, and with most manufacturers expecting a further shrinkage in November, the figures suggest that the two-year downturn in German manufacturing is nowhere near close to ending. ‘Far from bottoming out, Germany’s industrial recession may be getting worse,’ said Andrew Kenningham at Capital Economics. ‘The latest data support our view that a recession is still more likely than not.’

Germany’s export-focused economy has been hit by the US-China trade war, uncertainty over Brexit and a sharp decline in car industry output, which has been disrupted by new emissions rules and the shift to electric vehicles. The 1.7% monthly drop in German manufacturing in October was concentrated in production of capital goods, including tools, buildings, vehicles, machinery and equipment, which fell 4.4%. Production of intermediate goods and consumer goods both increased. The German car industry, which directly employs 830,000 people and supports a further 2m jobs in the wider economy, is in the eye of the storm.”

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The Federal Reserve is prolonging the trade war, keeping the biggest financial bubble in history going – and risking the entire global system

December 6, 2019

“After the interest rate surged in the dollar repo market in September, the Fed stepped in with US$260 billion to bring down the rate, bailing out the distressed borrowers. They were probably from the shadow banking system. This new quantitative easing has led to the US market setting record highs again, and for good reason. If the Fed could bail out the shadow banking system, why not the stock market? … Ever since the US-China trade war began, the financial world has been in constant fear of the world order crashing. China and the US have accounted for most of the growth in the global economy in the past 10 or 20 years. Their symbiotic relationship has sustained global growth.

The US economy is based on debt-financed overconsumption, while China’s is based on debt-financed overinvestment. They lean on each other for balance, like two one-legged men walking along with interlocking arms. The renminbi’s peg to the dollar is both the symbol and substance of this mutual dependence. If this relationship breaks, the world is likely to go into a prolonged adjustment to reach a new equilibrium. The uncertainty in the world order is occurring amid the biggest bubble ever in the global financial world. Quantitative easing by China and the US in response to the 2008 crisis led to massive debt build-up and asset appreciation along the way.”

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