by Sean Kelly

It was the economic buzz word of the 1980’s and the big bad wolf of spending, purchasing power, and economic growth. ‘Inflation’ was top of mind whether you were buying a loaf of bread or pumping a gallon of gas. Those were the days that 48-month car loans were over 15% and 30-year fixed mortgage rates hovered at 18%. For those of us that lived through it, inflation sapped our spirit and tapped our paychecks. It was an altered reality where the cost of everything was rising all at once, and the value of money just couldn’t keep up.

Ronald Reagan famously called inflation “as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.” Indeed, it triggers a fall in real income, raises the cost of borrowing, suppresses business sentiment, and undermines our overall standard of living. The most perilous aspect of inflation, however, is that it is self-perpetuating and self-feeding. It unleashes an animal spirit that creates even more inflation.

In the decades following the second World War, the U.S. inflation rate averaged under 4%. The oil embargo of 1973-1974, however, pushed it into double digits — crippling consumer purchasing power and stretching American households. The surge was blamed on everything from supply side issues, to increased defense spending, rising wages, currency manipulation, and flat-out greed.

Hindsight has taught us, however, that monetary policy mistakes also played a role. ‘The Great Inflation’ report by the Federal Reserve Bank of Atlanta claimed that a combination of bad data and miscalculations caused policymakers to underestimate the inflationary impact of their policies:

“Motivated by a mandate to create full employment with little or no anchor for the management of reserves, the Federal Reserve accommodated large and rising fiscal imbalances and leaned against the headwinds produced by energy costs. These policies accelerated the expansion of the money supply and raised overall prices without reducing unemployment.”

Despite running as a fiscal Conservative, President Richard Nixon continued to fund the Vietnam War, increase social welfare spending, and rack up massive budget deficits throughout the early 1970’s. He also pushed the Fed to maintain low interest rates which temporarily stimulated the economy before eventually fueling higher inflation. Wharton Professor Jeremy Siegel called it, “the greatest failure of American macroeconomic policy in the postwar period.”

As we approach a new decade, much of this sounds familiar and yet we find ourselves in a wholly different predicament. Since the Fed established its 2% target seven years ago, the inflation rate has spent the majority of time hovering below it. Why is this a concern? Because too-low inflation can signal a coming recession and limit the Fed’s ability to turn things around. This has prompted calls to revamp inflation benchmarks across the globe. The rationale is that higher inflation will result in higher interest rates and this will give central banks more tools to fight the next crisis.

According to Alan Greenspan however, a re-calibration of inflation targets may not be necessary. The economist and former Fed Chair recently issued a warning that the rise of loose money and historic deficits could bring inflation back in a big way. Current interest rates remain historically low and the U.S. deficit for 2019 is just shy of an unfathomable $1 trillion. Historically, when cheap money abounds and federal expenditures dramatically exceed revenue, inflation follows.

And in some places, it’s already here.  Venezuela’s inflation rate is an astonishing 282,972.80%. Zimbabwe’s is over 175% and Argentina, North Korea and South Sudan are all over 50%. Food inflation is making headlines in India and China, credit inflation is soaring around the world, and the cost of education, healthcare, and housing in the U.S. has skyrocketed. In an economy where consumer spending accounts for 70% of economic growth, even a modest rise in these areas is worrisome.

Indeed, Credit Suisse’s chief economist stated that U.S. inflation could be “surprisingly high” if global growth holds in light of the Fed’s decision to stop raising rates. Similarly, some market strategists are warning of an “inflation scare” in 2020. While fund managers around the world are re-examining asset allocations due to inflationary risks.

In the current low rate, high debt environment — inflation is not going down. So, if you want to protect your purchasing power, now the time to diversify. Rising inflation will likely put gold back in the headlines as a safe haven and one of the most durable assets to hold in the face of an eroding dollar.

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December 20, 2019

“Gold edged lower in range-bound trade on Friday, pressured by increased risk appetite on hopes of an interim Sino-U.S. deal, while investors awaited U.S. GDP data for fresh cues on the state of economy. Treasury Secretary Mnuchin said on Thursday the United States and China would sign their so-called Phase one trade pact at the beginning of January, adding that it would not be subject to any renegotiation. Spot gold fell 0.1% to $1,477.95 per ounce by 0808 GMT.

‘The real driver for gold markets has been trade-war risk and with its de-escalation in phase one on the back of Mnuchin’s comments is not bullish for gold,’ said Stephen Innes, a strategist at AxiTrader. China’s finance ministry unveiled a new list of import tariff exemptions for a duration of one year starting Dec. 26 for chemical and oil products from the U.S. The easing of the trade dispute boosted share markets. The dollar was steady, as it was set to gain for the first week in four, supported by better-than-expected U.S. economic data. The initial U.S. jobless claims report was strong with applications for unemployment benefits slipping from a more than 2-year high.”

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MARKET WATCH/Jeffry Bartash

Third-quarter GDP left at 2.1% — stronger consumer spending offset by weaker business investment

December 20, 2019

Stronger Consumer Spending“The pace of growth in the U.S. economy was left at 2.1% in the third quarter, as strong consumer spending was offset by weaker business investment in inventories, in the final estimate from the Commerce Department on Friday. The data showed frothier consumer spending than previously reported in the period running from July to September, but the increase in inventories, or unsold goods, was also marked down to leave GDP unchanged.

The increase in consumer spending, the main engine of U.S. economic growth, was raised to a 3.2% annual pace from 2.9%, which was not quite as strong as the second quarter’s heady 4.6% rate but still very robust.  Americans spent more in the third quarter on services such as financial advice and personal care, revised figures show. Business investment didn’t decline quite as much as the earlier estimates revealed, but it was still negative. Investment in structures fell 2.3% vs. a prior 2.7%. The decline in spending on equipment was lowered to 9.9% from 12%. More notably, the change in the value of inventories was reduced to $69.4 billion from a previous $79.8 billion.”

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KITCO NEWS/Neils Christensen

Inflation garners little attention for 2020, but gold market is watching

December 19, 2019

Inflation for 2020“There is a global push under way to drive inflation higher and while that could be good for gold, it is not clear central banks will achieve their goal. In his last press conference of 2019, Federal Reserve Chair Jerome Powell made a bold statement, noting that inflation hasn’t hit the central bank’s 2% target since he joined the board of governors in 2012. But by the Federal Reserve’s own estimates, 2020 might be the year that Powell sees the central bank reach its goal. In its December projections, the Federal Reserve looks for inflation to rise 1.9% next year. However, even by Powell’s admission, the Fed’s outlook won’t be enough to force a shift in its firmly neutral stance.

‘In order to move rates up, I would want to see inflation that’s persistent and that’s significant—a significant move-up in inflation that’s also persistent before raising rates to address inflation concerns,’ he said. While the Federal Reserve is hoping to reach its inflation target next year, another central bank is less optimistic. In its December projections, the European Central Bank downgraded its inflation forecast to 1% for next year, down a tick from its previous estimate of 1.1%. However, newly minted ECB President Christine Lagarde said that the central bank is confident that its loose monetary policy will eventually drive inflation higher. For most economists, inflation has been at most a back-burner issue, not a significant factor in U.S. economic activity. In their 2020 outlook, economists at Bank of America Merrill Lynch said that they see inflation pushing to 2% next year as the U.S. economy posts growth of 1.7%.”

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BLOOMBERG/Sarah Ponczek

Maybe It’s Time to Start Worrying About Euphoria in U.S. Stocks

December 20, 2019

Start Worrying About Stocks“Mom and pop are rushing back to risk. The ultra-rich want in. Positioning in bellwether mutual funds has virtually never been so bullish. This as the S&P 500 has surged 11% in less than three months. Word is getting around about stocks, music to the ears of anyone who sells or manages them. But if you’re the type of market contrarian who thinks a better backdrop for gains is gloom, all the elation is worrying.

‘Investors jump on momentum and ride the rally and then become convinced that it’s going to continue forever,’ said Aron Pataki, a portfolio manager at Newton Investment Management, with $62 billion in assets. ‘Typically, there is euphoria before pullbacks.’ Not that enthusiasm isn’t warranted. The S&P 500 is up 30% this year with dividends. People who stress about euphoria can sound like they’re complaining about a rising market. It’s just that over the long term, enthusiasm hasn’t been the fuel that drove U.S. equities to a $25 trillion bull run. The latest survey of fund managers from BofA Global Research showed ‘the bulls are alive,’ according to a report. Expectations for global economic growth jumped the most on record, while investor allocations to equities rose to the highest level in a year. Meanwhile, the firm found cash levels among those surveyed are the lowest in six years.”

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MARKET WATCH/Chris Matthews

Most stock investors think the Fed has restarted emergency stimulus, despite denials, says RBC survey

December 19, 2019

Emergency Stimulus“Investors don’t think the Federal Reserve is being straight with them, according to a survey published Wednesday by RBC Capital Markets. In October, the Federal Reserve announced it would expand its balance sheet by purchasing U.S. government debt from major banks, in exchange for newly created bank reserves, but has been eager to tell markets that this action is not a resumption of quantitative easing (QE) — its post-crisis program of purchases of long-term government debt and mortgage bonds meant to stimulate economic growth and avoid deflation.

‘I want to emphasize that growth of our balance sheet should in no way be confused with the large-scale asset purchase program that we deployed after the financial crisis,’ Fed Chairman Jerome Powell said in October.  Powell said that because the balance sheet expansion will only involve the purchase of short-term securities, and is aimed at managing the level of bank reserves in the financial system rather than pushing down long-term interest rates, the actions should be seen as a simple extension of the Fed’s day-to-day market operations. But investors are not heeding this advice, according to RBC’s December survey of institutional investors, with 52% of those surveyed saying that the Fed’s action is ‘effectively a form of QE,’ while only 19% agreed with Powell’s description of the program and 23% said they don’t know.”

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SOUTH CHINA MORNING POST/Nicholas Spiro

US-China trade deal and Boris Johnson’s election victory in Britain have stock market bulls cheering, but for how long?

December 20, 2019

Trump and Johnson“Judging by the recent performance of the MSCI All-Country World Index, a gauge of stocks in developed and developing economies, investor sentiment has been given a significant boost by the majority secured by the ruling Conservative Party in Britain’s parliamentary election and the signing of a ‘phase one’ trade deal between Washington and Beijing. The index has hit a record high, surpassing its January 2018 peak before an outbreak of volatility sent equities tumbling. Over the past several weeks, mounting expectations of a reduction in political risk in Britain and a de-escalation of US-China trade tensions have contributed greatly to a surge in optimism in markets.”

“At a time when investors are looking for reasons to take on more risk – in stark contrast to a year ago when pervasive fears about growth and tariffs caused equity markets  to plummet – the latest developments in British politics and the trade war give the bulls reason to cheer. However, any rally that has its roots in an extremely volatile, politically driven and protracted negotiation process, such as Brexit and the trade conflict, is inherently unsustainable. On Tuesday, the pound came under pressure again as Johnson’s government signalled it would enact legislation that would preclude it from prolonging the transition period covering trade relations with the EU beyond the December 2020 deadline, setting the stage for another ‘cliff-edge’ Brexit in 12 months.”

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December 19, 2019

“Gold prices edged higher on Thursday after the U.S. House of Representatives voted to impeach President Donald Trump, stoking fears of political uncertainty in the world’s largest economy. Spot gold was up 0.1% at $1,476.69 per ounce. U.S. gold futures edged up 0.1% to $1,480.70 per ounce. Trump became the third U.S. president to be impeached as the Democratic-led House formally charged him with abuse of power and obstruction of Congress in a step that will inflame partisan tensions.

Cautious sentiment supported bullion, often seen as an alternative investment during times of political and financial uncertainty. ‘The impeachment is resulting in a slight increase of the uncertainties and we’re seeing gold inch higher on the back of that,’ said ANZ analyst Daniel Hynes. ‘This news is also offsetting headwinds such as strong equity markets, the trade deal and better economic

data.’ Although the reaction to impeachment was muted, Asian shares pulled back from a one-and-a-half-year peak, while the U.S. dollar eased slightly against a basket of currencies, making gold cheaper for holders of other currencies. If the U.S. Senate convicts, ‘… then that throws next year’s election in a very uncertain place,’ Ilya Spivak, a senior currency strategist at DailyFx said.”

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KITCO NEWS/Neil Christensen

Gold prices up slightly following disappointing Philly Fed Survey data

December 19, 2019

Gold Prices“The gold market continues to spin its wheels, seeing only a little movement as U.S. regional manufacturing data disappoints expectations, according to the Philadelphia Federal Reserve. The Philly Fed said that its manufacturing business outlook dropped to a reading of 0.3 in December, down from November’s reading of 10.4 and significantly missing expectations; Consensus forecasts were calling for a reading around 8.1.  ‘The December Manufacturing Business Outlook Survey indicated essentially flat growth in the region’s manufacturing sector this month.

February gold futures last traded at $1,480.50 an ounce, up 0.12% on the day. Despite the weaker-than-expected data, the components of the report were relatively positive; the new orders index rose to 9.4, up from November’s reading of 8.4 … One major weak spot in the region’s manufacturing sector was the labor market. The report said that its number of employees index dropped to 17.8, down from November’s reading of 21.5. Some good news for gold prices, inflation pressure appears to be on the rise. The Prices paid index rose to 19, up from November’s reading of 7.8.”

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THE WALL STREET JOURNAL/Amara Omeokwe and Josh Mitchell

U.S. Existing Home Sales Decreased 1.7% in November

December 19, 2019

Housing Market“Sales of previously owned U.S. homes declined more than expected in November, the second drop in three months and a sign limited inventory is constraining would-be home buyers. Existing-home sales fell 1.7% in November to a seasonally adjusted annual rate of 5.35 million, the National Association of Realtors said. Economists a 0.4% decrease.  Sales were up 2.7% last month from November 2018, the fifth straight month of year-over-year gains. October sales were revised down to 5.44 million compared with an earlier estimate of 5.46 million.

A lack of sufficient housing inventory to meet buyer demand continues to be a limiting factor for the housing market, according to Jessica Lautz, the trade group’s vice president of demographics.

There was a 3.7 month-supply of homes on the market at the end of November, at the current sales pace … Inventory has been particularly limited for homes priced at the lower end, according to NAR. Sales of homes priced at $250,000 and below declined in November from the prior year, while sales priced $500,000 to $750,000 saw the strongest gains, rising 8.0% year-over-year.”

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BLOOMBERG/Daniel Alpert and Robert C. Hockett

The Jobs Market Isn’t as Healthy as It Seems

December 19, 2019

Unhealthy Job Market“A hallmark of the U.S. economy’s record expansion has been steady growth in employment. Judging from the jobless rate, in fact, the labor market is the best it’s been in half a century. But what is missing in the focus on the numbers is a troubling deterioration in the quality of jobs created. A close look at labor trends reveals that while the U.S. jobs market has expanded, the caliber of the positions created in the largest chunk of the workforce has steadily and significantly declined, leaving Americans working fewer hours on average, and in lower-paying positions. These changes to what we call job quality as distinguished from quantity — account for much that now ails the American economy and, as a consequence, society more broadly.”

“Increasingly, a greater share of job gains are occurring within the lowest quality job subsectors – in particular retail, leisure and hospitality, administrative, waste management, and health-care and social assistance services. While not all the positions in these subsectors are low quality, both the average job and the vast majority of the positions in these subsectors offer less than the mean weekly income of all U.S. P&NS jobs. In fact, the percentage of P&NS jobs created in just these four subsectors corresponds almost exactly to the percentage of goods-producing jobs lost in America from 1990 through today. We have, in other words, replaced most of our highest quality jobs not merely with lower quality jobs, but with lowest quality jobs.”

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CNN BUSINESS/Nathaniel Meyersohn

More than 9,300 stores closed in 2019

December 19, 2019

Stores Closing“2019 was another bruising year for many American retailers, despite healthy consumers and a strong economy. This year, US retailers announced 9,302 store closings, a 59% jump from 2018 and the highest number since Coresight Research began tracking the data in 2012. Bankruptcies in the retail sector intensified this year and many struggling chains cut stores. That led to a spike in closings.

Payless, Gymboree, Charlotte Russe and Shopko all filed for bankruptcy and closed a combined 3,720 stores, according to Coresight. The majority of those were because of Payless, which filed for its second bankruptcy in February and shuttered 2,100 US stores.  Discount chain Fred’s filed for bankruptcy in September and closed 564 stores. Forever 21 also filed for bankruptcy that month and said it will close up to 178 stores. Forever 21’s closures are not in Coresight’s report since they are not finalized. Other retailers, such as Ann Taylor parent Ascena Retail (ASNA), Family Dollar, GNC (GNC), Walgreens (WBA), Signet Jewelers (SIG), Victoria’s Secret and JCPenney (JCP), slashed their store footprints to save money and prop up higher-performing stores. Family Dollar closed 359 this year, while Signet, the parent company of mall stalwarts Kay, Jared and Zales, announced 159 closures.”

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YAHOO FINANCE/Sibile Marcellus

‘We squandered a major economic recovery’: Harvard professor

December 18, 2019

Squandered Economic Recovery“The nation wasted the major economic recovery, according to a new report by Harvard Business School on U.S. competitiveness.  ‘We had this wonderful recovery. It could have given us the chance to take some significant resources and devote them to some of our well-known challenges, like infrastructure or health care…none of that happened. Instead, we squandered a major economic recovery and didn’t use it to make things better,’ said Harvard Business School professor Michael Porter, a co-author of the study.

The business community’s role in politics has made a significant contribution to Washington’s dysfunction, according to HBS’s report. The majority of the business leaders surveyed said businesses’ overall engagement worsened the political system by advancing policies that benefited special interests.  The report lays out the different ways in which businesses engage in politics today. The $6 billion spent annually on lobbying is just one facet; others include spending on elections and ballot initiatives, efforts to influence employees’ votes and donations, and adding former government officials to companies’ payrolls. The overwhelming majority of business leaders surveyed in the report said lobbying primarily advanced company interests, sometimes at the expense of the public interest.”

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December 18, 2019

“Gold eased on Wednesday as a rising dollar offset support for the safe haven metal from lingering U.S.-China trade uncertainty, while palladium slipped after a record run to the key $2,000 an ounce level. Spot gold was 0.3% lower at $1,471.96 per ounce by 1410 GMT, reversing gains from earlier in the session. U.S. gold futures were down 0.3% at $1,476. ‘The dollar is a little bit stronger,’ said Afshin Nabavi, senior vice president at precious metals trader MKS SA, adding, that due to a lack of follow-through on the upside, investors had started modestly selling gold. A break of the $1,465-$1,495 range could attract fresh interest, Nabavi added.

The dollar strengthened as U.S. economic data suggested the Federal Reserve was unlikely to cut interest rates further and as liquidity waned before the coming holidays. World stocks also remained just off record highs. Gold, often used as a hedge against political and economic uncertainties, is however on track for its biggest annual gain since 2010, bolstered by interest rate cuts by major central banks and the protracted tariff dispute.”

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CNBC/Christina Wilkie

House counts down the final hours to historic Trump impeachment vote

December 18, 2019

Nancy Pelosi“The House convenes Wednesday morning for a final day of debate before members vote on whether to make President Donald Trump the third president in the nation’s history to be formally impeached. Following the debate, the Democratic-controlled chamber is expected to approve two separate articles of impeachment, charging Trump with abuse of power and obstruction of Congress. The historic vote is slated to take place Wednesday evening, and the vote breakdown will almost certainly fall along party lines.

While House Democrats use their debate time to condemn the president’s actions, the minority House Republicans are expected to interject with procedural motions, appeals and objections throughout the day. These tactics are a time-honored part of any major House debate — for the party in the minority they serve as symbolic expressions of opposition, in this case to impeaching Trump, and as delay tactics intended to drag out the debate. Despite their serious-sounding names, like ‘motion to adjourn,’ these motions don’t actually accomplish anything. In nearly all cases, either the Democratic leadership will deny the GOP’s requests, or the Democratic majority will vote down last-minute motions that Republicans force members to vote on.”

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MARKET WATCH/Associated Press

Asian markets little changed as Brexit fears temper Wall Street’s optimism

December 18, 2019

Brexit News“Asian shares were mixed Wednesday after record highs on Wall Street amid investor optimism about an interim U.S.-China trade deal announced last week were tempered by fresh worries of a hard Brexit. Japan’s benchmark Nikkei 225 erased earlier gains to inch down 0.4% in morning trading. Hong Kong’s Hang Seng also gave up early gains and was last down 0.1% while the Shanghai Composite was headed in the same direction. Australia’s S&P/ASX 200 gained 0.2% while South Korea’s Kospi was little changed. Benchmark indexes in Taiwan, Singapore, Malaysia and Indonesia were mixed.

The U.S. Fed said Tuesday that industrial production and manufacturing were stronger last month than economists expected, though they are weaker than a year ago. Industrial production rebounded to 1.1% growth in November from October, better than the 0.8% that the market was expecting. But it remains 0.8% below year-ago levels … But in the U.K., British Prime Minister Boris Johnson signalled that he won’t soften his Brexit stance now that he has a majority in Parliament, seeking to rule out any extension of an end-of 2020 deadline to strike a trade deal with the European Union. Analysts say it will be difficult to complete a trade deal within a year, which could mean Britain leaving without a deal at the start of 2021 — a prospect that alarms many U.K. businesses.”

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KITCO NEWS/Allen Sykora

BMO Sees Gold Averaging $1,501/Oz, Profitable Producers In 2020

December 18, 2019

BMO“BMO Capital Markets looks for gold to benefit from loose central-bank monetary policy in 2020, allowing the metal to post an average price of $1,501/oz. The ‘vast majority’ of gold producers should be profitable at these prices, BMO added. Analysts called for silver to average $18.20 an ounce. Shortly before 8:30 a.m. EST, spot gold was at $1,472.40 and silver was at $16.90. ‘With inflation stubbornly low and surprisingly well correlated across global economies, monetary policy looks set to remain loose through 2020 ¾ indeed the bias of risk is for further cuts,’ BMO said.

‘This will keep macro asset allocation supporting gold and precious-metals markets. However, in our view, 2020 is more likely to be a year of consolidation than aggressive upside for gold and silver prices ¾ while many of the tailwinds are still blowing, they are not doing so with the same strength that drove prices higher through Q3.’ … ‘In our view, the gold price moves in ranges, and while global monetary policy is trending toward loosening, a range centered around $1,500/oz looks well based,’ BMO said. “For gold to push out the top of its current range would likely require significant portfolio rotation, most likely at a time of emerging-market panic or equity-market sell-off. For a downside breakout, this would involve a significant risk-on rally for which gold would be the funding source.” Central banks are likely to support gold not only by keeping interest rates low or even negative, but through continued gold buying ‘as they seek to dedollarize their own holdings,’ BMO said.”

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BBC/Europe News

Poland may have to leave EU, Supreme Court warns

December 17, 2019

Polexit“Poland could have to leave the EU over its judicial reform proposals, the country’s Supreme Court has warned.  The proposals would allow judges to be dismissed if they questioned the government’s judicial reforms.  Judges say the proposals threaten the primacy of EU law and could be an attempt to gag the judiciary. Poland has already been referred to the European Court of Justice (ECJ) regarding rules for judges. Under the proposals put forward by the socially conservative Law and Justice party government, judges can be punished for engaging in ‘political activity’. Any judge that questioned the legitimacy of judges nominated by the National Council of the Judiciary could be handed a fine or in some cases dismissed. Politicians will start discussing the proposals on Thursday.

The ruling party claims changes to the law are needed to tackle corruption and overhaul the judicial system, which it says is still haunted by the communist era. But the EU accused Law and Justice (PiS) of politicising the judiciary since it came to power in 2015.  The Supreme Court said the party was undermining the principle of the primacy of EU law over national law. It said in a statement: ‘Contradictions between Polish and EU law…. will in all likelihood lead to an intervention by EU institutions regarding an infringement of EU treaties, and in the longer run [will lead to] the need to leave the European Union.’”

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CNBC/Jeff Cox

‘Decade of the central bank’ ends with the Fed and its global cohorts in need of some new tricks

December 17, 2019

Decade of Central Bank“On Nov. 25, 2008, the Federal Reserve launched the shot heard around the financial world. The central bank announced it would start using digitally created money to buy mortgage debt in an effort to drive down interest rates and resuscitate a dead housing market. Along with a series of cuts that ultimately would take short-term interest rates close to zero, the move was part of an ambitious gambit to take the country out of its worst economic crisis since the Great Depression. It quickly expanded to the purchase of government bonds in a total of three rounds that spanned six years. Flash forward 11 years. The Fed’s campaign of ‘quantitative easing,’ along with keeping rates historically low, coincided with the longest expansion and most robust bull market in U.S. history.”

“As the decade ended, the institutions found themselves in quite a different position from where they started, particularly considering the worries over the state of the economy and potential asset bubbles. Where they once had plenty of space to offer policy accommodation in the case of a downturn, central banks now face severe restrictions. Policy rates among G-7 countries all are below 2% and countries that practiced QE face bloated balance sheets that threaten to pose financial imbalances … ‘This is a new paradigm. This is the world central banks are going to have to operate in where zero percent policy rates are more the norm,’ said Tom Garretson, fixed income strategist at RBC Wealth Management.”

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December 17, 2019

“The gold market continues to trade in a tight range seeing little reaction to growing momentum in the U.S. housing sector.  U.S. housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units in November, the Commerce Department said. Consensus forecasts called for starts to be around 1.34 million. October’s data was upwardly revised to 1.323 million units. For the year, housing starts are up more than 13%, compared to November 2018 levels. At the same time, building permits data, which is a precursor to future projects, was up 1.4% at 1.482 million last month, up from October’s revised level of 1.461 million. Economists were expecting to see 1.41 million permits. Building permits are up 11% from last year.

With most traders and investors looking ahead to the holiday season, gold is seeing little reaction to economic data. February gold futures last traded at $1,481.70 an ounce, relatively unchanged on the day.  Katherine Judge, senior economist at CIBC, said that more positive data in the housing market will continue to ease slowdown fears. ‘With homebuilder confidence at its highest level in over two decades amidst lower interest rates, and a strong labor market, residential investment should contribute to growth in the US in the first quarter,’ she said.”

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FORBES/Simon Constable

Gold Headed To $1,700 By March, Analysts Say

December 16, 2019

Gold Up By March“Get ready for a fast and sizable pop in gold prices.  The cost of buying one troy ounce of the metal will likely rise by around 15% over the next couple of months, analysts say. The reason gets to the heart of how prices of financial assets move over time. They go up, and they go down in somewhat predictable patterns, at least for those who know. In the case of gold, the price fell from $1,546 a troy ounce in September down to $1,455 on November 12, according to data from the London Bullion Market Association. The SPDR Gold Shares (GLD) exchange-traded fund, which holds bars of solid bullion, performed similarly.

Since then, the gold price has mostly moved broadly sideways, but is now beginning to turn upwards once again and should continue to rally over the next few weeks. ‘Gold got very overbought into late August / early September, and since then it corrected its overbought reading,’ states a recent report from Wolfe Research by John Roque and his colleague Rob Ginsburg. They are technical analysts who read charts to forecast where asset prices may move next.”

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BARRON’S/Steven M. Sears

Gold Has Taken a Beating — but Hasn’t Lost Its Shine. How to Play a Rally.

December 17, 2019

Gold Takes a BeatingGold is back. Despite what you may have read in recent days about gold’s price decline, institutional investors are aggressively positioning for the yellow metal to rally through summer since the Federal Reserve recently indicated that it was pausing future rate hikes. Since last week’s meeting of the Fed’s interest-rate setting committee, investors have rushed into the sector and aggressively established large positions in response to the Federal Reserve confirming what everyone already knew—it is unlikely to raise interest rates anytime soon.

This enhanced clarity sparked a push into many so-called risk assets, including gold, that benefit from low rates and an emaciated U.S. dollar. Some notable precious metal trades included the purchase of 15,000 SPDR Gold Shares (ticker: GLD) December $142 calls, and 20,000 VanEck Vectors Gold Miners ETF (GDX) June $30 calls, and a 50,000 ‘call spread’ that entailed buying the GDX March $30 calls and selling the GDX March $33 calls. The gold miners trade, in particular, is audacious. The exchange-traded fund is up about 31% this year, and the trade proves profitable if the fund moves into a new, higher trading range by March. During the past 52 weeks, GDX has ranged from $19.90 to $30.96. The interest in gold reflects the reality that precious metals benefit from low interest rates and a weak dollar. Inexpensive money also aids many so-called risk assets, ranging from stocks to emerging market debt, which is probably the most extreme destination on the risk curve.”

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CNBC/Weizhen Tan

Chinese corporate debt is the ‘biggest threat’ to the global economy

December 17, 2019

Chinese Corporate Debt“Chinese corporate debt is the ‘biggest threat’ to the global economy, warned a Moody’s Analytics economist, who described such risks as a ‘very significant fault line.’ That followed similar comments by Fitch Ratings last week, which said that private companies in China have defaulted on their debts at a record pace this year. While corporate debt is a ‘fault line in the financial system and the broader economy,’ Moody’s Chief Economist Mark Zandi flagged indebted Chinese companies as the larger risk. ‘I would point to Chinese corporate debt as the biggest threat,’ he said, adding that it’s growing very rapidly in China.

Zandi explained that many companies are struggling to deal with a slowdown in growth stemming from the trade war and other factors. ‘In the United States, it’s similar kind of picture — not to the same degree — but we have seen very significant increase in so-called leveraged lending, as in lending to highly indebted companies, and they are vulnerable if the economy were to slow,’ Zandi said. Debt has been a problem in the world’s second largest economy, which has been trying to reduce its reliance on it by tightening regulations to speed up deleveraging — or the process of reducing debt. However, the trade war is putting a dent in its efforts to pare its massive debt levels as China seeks ways to boost its slowing economy, which has been hit by U.S. tariffs. The country has this year more or less paused its deleveraging efforts and put in place more stimulus.”

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MARKET WATCH/Mark DeCambre

Why Wall Street sees the stock market on the verge of a ‘melt-up’

December 17, 2019

Wall Street Melt Up“Is the stock market on the brink of breaking into an unmitigated run-up to fresh records? That is the question a number of market strategists are exploring as the Dow Jones Industrial Average the S&P 500, and the Nasdaq Composite indexes mount their latest concerted assault on all-time closing highs, powered by hope that the U.S. and China can forge a preliminary trade accord to resolve a prolonged battle over import duties. A number of other geopolitical headwinds, at least momentarily, have died down, including concerns about market-roiling effects of uncertainty surrounding the Byzantine pathway toward a U.K. exit from the European Union.

Analysts at Bank of America Merrill Lynch, led by strategists Michael Hartnett, described the market as ‘primed for Q1 2020 risk asset melt-up,’ with the Federal Reserve and the European Central Bank still providing ample support to portions of the market and economy that have shown some signs of softness.  UBS Global Wealth Management Chief Investment Officer Mark Haefele said that a partial Sino-American trade resolution contributes mightily to the bullish thesis that a number of strategists have adopted. ‘This could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment,’ Haefele wrote … It is important to note that a so-called melt-up is considered by market pundits as the end phase of an asset bubble and is usually, but not always, followed by a significant downturn in stock values … some analysts are pointing to growing signs that Wall Street investors are becoming overcomplacent about market buoyancy.”

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BLOOMBERG/Mark Gilbert

Negative Interest Rates Are Destroying Our Pensions

December 16, 2019

Negative Interest Rates Destroy Pensions“It’s becoming increasingly apparent that the negative interest rates introduced in several countries in the wake of the global financial crisis are trashing bank profitability. Less obvious, are their debilitating impact on pension plans. And that’s why the days of sub-zero borrowing costs may be drawing to a close. Sweden’s central bank is poised to abandon the negative interest rate policy it’s pursued for half a decade by increasing its policy rate to zero even though inflation is expected to remain stubbornly below target for years to come.

Riksbank Governor Stefan Ingves has said negative rates were always meant to be ‘a temporary measure,’ and that the central bank would ‘probably’ raise borrowing costs when it meets on Thursday … The emergency measures introduced to resuscitate growth, including central banks expanding their balance sheets by embarking on quantitative easing, were supposed to be transient. Instead, they’ve become fixtures of the economic firmament. It’s been disastrous for pension plans. A 1% decline in interest rates increases calculated pension liabilities by about 20%. It reduces the funding ratio, which measures a pension provider’s ability to meet its future commitments, by about 10% … With about $11.7 trillion of the world’s debt yielding less than zero, the funds that run pension plans are anticipating meager returns from the assets they manage.”

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If you’re like most Americans, you have a healthy sense of skepticism. When things sound too good to be true, you get a little nervous — even cynical. Whether we’re presented with zero percent financing, one-penny Whoppers, or a free shopping spree — deep down we’re suspicious. We can’t help thinking, ‘what’s the catch’ because it is within the parameters of the ‘catch’ that good deals turn detrimental, money is lost, and what we thought was the best thing since sliced bread turns out to be the worst thing since bread-making.

As consumers, our economic sixth sense has served us well. We tend to shy away from Nigerian prince emails, shady sweepstakes, and fishy tax collection notices. We’re wary of fake discounts, bait and switch deals, and extreme markdowns.

Our instincts often get scuttled, however, when it comes to a booming stock market. The Head of Wealth Planning at Vanguard recently suggested that the recommended 60/40 stocks-to-bonds portfolio split has skewed to 75/25 for investors captivated by the upside of the sustained bull market. This dramatically elevates risk, particularly for those with a short-term retirement horizon.

Why do we do this? There are two main reasons. The first has to do with all the economic warnings that consumed the financial media for the better part of the year regarding the U.S.-China trade war. Indeed, the manufacturing woes, business uncertainty, and hits to American farmers, Chinese factories, and German auto makers were all very real. Then there was the prospect of a no-deal Brexit which threatened to shrink the U.K.’s GDP by up to 8%. And we were told the global economy was buckling under the weight of a severe and sustained manufacturing contraction. But now that we’ve arrived at a ‘Phase One’ trade deal, an orderly Brexit process, and a global economy that has seems to have regained its footing — Wall Street is melting-up and a stampede of optimism is pushing the market to recurrent highs.

This brings us to the second reason that we tend to suppress all that healthy skepticism that has steered us clear of financial danger — the so-called “fear of missing out.” It is that urgent feeling that someone is benefiting from something that we’re not participating in. It is the gnawing belief that everyone else is making more money, enjoying a greater upside, and riding higher than we are. The FOMO with respect to the current bull market, overpowers any concerns of a correction, an economic pull back, or a financial realignment. And, it is that “caution to the wind” approach to money and retirement that prompts us to make bad decisions.

Engaging in risky behavior because everyone else does, does not make for a sound financial plan. It wasn’t all that long ago that countless consumers followed the crowd into the ‘no money down,’ subprime traps that pushed their homes underwater. Or, signed up for credit cards with fleeting introductory rates, or used their houses as piggy banks with hefty cash-out re-fi’s that dramatically inflated their mortgage debt.

Just as we do when we buy anything — when we invest, particularly in equities, we have to tap into our innate sense of cynicism and ask the hard questions. What if monetary policy can’t be normalized? What if there is a corporate debt-driven recession? What if more countries exit the EU? What if the global economy continues to wobble?

So, whether it’s a BOGO, FOMO or Door Buster Deal that lures you to the Wall Street risk party, make yourself aware of the exits. This is not about having the right coupon at the right time. It’s about having the right money in the right place — right now. Amid the dark pools and the unicorns, the fat tails and the fallen angels — we must again summon our inner skeptic. Is Wall Street riding new highs because of market fundamentals or because the world just dodged another trade war bullet?

Those that come upon the real answer, will likely leave the party as quickly and as quietly as possible.

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December 16, 2019

“Gold steadied on Monday as a weaker dollar and a lack of details on the ‘phase one’ U.S.-China trade deal offset pressure from gains in the markets. Spot gold inched 0.1% higher to $1,477.16 per ounce by 1106 GMT. U.S. gold futures were steady at $1,481.60. ‘Based on gold’s reaction, it appears the market is not very convinced about the deal… in the sense that this is not really a breakthrough in terms of lifting growth globally, in the U.S. or China,’ said Julius Baer analyst Carsten Menke.

‘Gold market investors are still a bit sceptical about the growth outlook next year so they prefer to hold onto their positions.’ The deal, announced on Friday, will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of U.S. agricultural, manufactured and energy products by some $200 billion over the next two years. The news pushed up world stock markets, which were trading a notch below a record high hit last week. U.S. Trade Representative Robert Lighthizer said U.S. exports to China will nearly double over the next two years. ‘There still remain concerns about what this deal entails and how much this phase one trade deal will alleviate the downward pressure on the global economy going into 2020,’ said FXTM market analyst Han Tan.”

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CNN BUSINESS/Julia Horowitz

A ‘black swan’ market indicator flashes a warning

December 15, 2019

Black Swan Market“A ‘phase one’ US-China trade deal. A resounding election victory for UK Prime Minister Boris Johnson that removes ambiguity on Brexit. In recent days, some of the political fog that’s hung over markets has lifted. Investors have responded by pouring into riskier assets. Stocks in the United States and Europe have reached fresh records amid the euphoria. But look at options markets, and a more cautious story emerges. Take the CBOE Skew Index, otherwise known as the ‘Black Swan’ index, since it tracks demand for options that would pay out if the S&P 500 were to see a sharp, unexpected drop. That index jumped to its highest level in nearly 15 months last week. This signals that investors are looking for protection in case the rally goes awry.

‘This options-based measure of the cost of disaster insurance on US stocks seems to indicate trouble ahead,’ Nicholas Colas, co-founder of DataTrek research, said … Right now, investors generally appear to be in the Colas camp. Demand for safe havens remains muted, with gold prices down more than 3.5% since September. But with all the excitement heading into the end of the year, talk of smart hedges looks poised to ramp up.”

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POLITICO/Kyle Cheney and Andrew Desiderio

Judiciary Committee impeachment report alleges Trump committed ‘multiple federal crimes’

December 16, 2019

Impeachment Report“President Donald Trump committed criminal bribery and wire fraud, the House Judiciary Committee alleges in a report that will accompany articles of impeachment this week.  The report, a 169-page assessment of the case for Trump’s removal from office, contends that Trump committed ‘multiple federal crimes’ — ones that Democrats addressed under the broad umbrella of ‘abuse of power,’ the first article of impeachment against the president.  ‘Although President Trump’s actions need not rise to the level of a criminal violation to justify impeachment, his conduct here was criminal,’ the panel’s Democrats argue, labeling Trump’s behavior ‘both constitutional and criminal in character’ and contending that the president ‘betrayed the people of this nation’ and should be removed from office.

The staff report, which was filed to the House Rules Committee just after midnight Monday, argues that Trump directed a months-long scheme to solicit foreign interference in the 2020 election, the allegation that forms the core of the two articles of impeachment — abuse of power and obstruction of Congress — approved by the Judiciary Committee last week. Democrats emphasized that proving a criminal violation is not required to justify impeachment. ‘The Framers were not fools. They authorized impeachment for a reason, and that reason would have been gutted if impeachment were limited to crimes,’ the report states.”

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THE WALL STREET JOURNAL/Paul Hannon

Global Economy Steadies but Europe Remains a Weak Spot

December 16, 2019

Global Economy Steadies“The global economy seems likely to avoid a further slowdown next year, with a raft of supportive government policies lifting activity in China and the U.S. still on a robust path. However, Europe remains a weak spot, according to surveys of purchasing managers released Monday, with few signs that a long decline in manufacturing is nearing its end. Global economic growth steadied in the three months through September, as output in the Group of 20 leading economies expanded at the same rate as in the second quarter. But while there are signs the Fed’s rate cuts earlier in the year have helped to keep the U.S. economy on a robust growth path, the ECB’s have had a less noticeable impact.”

“‘The eurozone economy closes out 2019… with businesses struggling against the headwinds of near-stagnant demand and gloomy prospects for the year ahead,’ said Chris Williamson, chief business economist at IHS Markit. Eurozone factories have seen their overseas sales slow sharply since early 2018, partly reflecting a global cooling of trade linked to an exchange of tariff increases between the U.S. and China. The ECB’s economists Thursday lowered their economic growth forecast for next year to just 1.1%, the latest in a series of downgrades that stretches back to June 2018. However, ECB President Christine Lagarde gave no indication that policy makers are considering another round of stimulus measures to follow those announced in September, instead pointing to “some initial signs of stabilization.”

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BLOOMBERG/Catherine Bosley and Niclas Rolander

The Most Momentous Rate Decision This Month Isn’t Fed or ECB

December 14, 2019

Most Momentus Rate Decision“The world’s oldest central bank stands to be the most significant this month as it pioneers a shift away from negative interest rates. Sweden was among the handful of economies that reduced key interest rates half a decade ago below zero. Now officials at the Riksbank — founded in 1668 — insist the policy has done its stimulus work, so their so-called repo rate can stop being negative. That puts the rich Nordic country in the spotlight of global monetary policy as counterparts watch nervously to see how easy it is for subzero rates to be unwound. While the Fed has resisted President Trump’s calls to venture into negative territory, the euro zone, as well as Switzerland, Denmark and Japan, find themselves in the same boat as Sweden.

‘A Riksbank hike in December would be a signal that central banks admit that there’s a downside to too-low interest rates,’ said Thomas Elofsson, portfolio manager at Catella. ‘It will be interesting to follow how the SNB and the ECB communicates and acts with this new mindset.’ The Riksbank decision on Dec. 19 promises more monetary action than central banks in the U.S. and the euro zone delivered last week. 18 economists surveyed by Bloomberg predict a quarter-point increase in Sweden’s policy rate from the current minus 0.25% …  Sweden’s shift is taking place against a global backdrop of worries about the harmful effects of subzero policy. Complaints by banks about profit margins have grown louder, while both the Riksbank and the ECB were among central banks warning last month about the financial stability risks.”

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THE GUARDIAN/Mohamed El-Erian

What if the global economy’s luck runs out?

December 16, 2019

Global Economy and Luck“This year is ending on a relatively positive note, especially when compared with the same time last year … As tempting as it is to dwell on current financial and macroeconomic conditions, doing so risks obfuscating a key element in the outlook for the future. There is a curious contrast between the relative clarity of expectations for the near term and the murkiness and uncertainty that comes when one extends the horizon further – say, to the next five years.  Many countries are facing structural uncertainties that could have far-reaching, systemic implications for markets and the global economy.

For example, over the next five years, the EU will seek to establish a new working relationship with the UK, while also dealing with the harmful social and political effects of slow, insufficiently inclusive growth. The EU will have to navigate the perils of a prolonged period of negative interest rates, while also shoring up its economic and financial core. As long as the eurozone’s architecture is incomplete, consistent risks of instability will remain … Such fluidity clouds the economic, financial, institutional, political, and/or social outlook for other countries. Today’s macroeconomic and geopolitical uncertainties will amplify those fuelled by technological disruptions, climate change, and demographics. And they will raise questions about the functioning and resilience of the global economy and markets.”

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It’s a fairly simple rule of thumb — if we borrow more money than we can pay back, we’re overleveraged.

Consumers become overleveraged when they have more bills and expenses than income to pay them with. Businesses become overleveraged when they have a high ratio of debt to capital. Countries become overleveraged when their liabilities exceed their overall economic output.

These are not unfamiliar scenarios. Cheap credit, excessive borrowing, and vast gaps between income and debt were among the root causes of the Great Recession. And when the financial crisis hit back in 2007-2008, central banks from Western and Eastern Europe, Asia, Scandinavia, the Middle East, and North America stepped in to save their economies from collapse by lowering borrowing costs, underwriting bank debt, guaranteeing deposits, and bailing out lenders. So, in order to restore confidence, stimulate growth, and ignite a recovery — they dramatically stretched their balance sheets.

As we approach 2020, household debt has reached unprecedented levels, corporations are carrying unwieldy liabilities, and governments worldwide are swimming in a deeper and murkier sea of red than at any other time in history. According to a November report by the International Institute of Finance (IIF), world debt is on track to exceed $250 trillion this year, three times global economic output. This comes on the heels of another reckless era of cheap money, easy credit, and rampant borrowing. It is the highest cumulative debt load the world has ever known, and it shows no signs of abating.

This has brought us to a breaking point. The world’s reserve banks have managed to deliver the economy from crisis-to-recovery for hundreds of years, but now find themselves overloaded and under stress. Faced with balance sheets that are too high and interest rates that are too low, they are short on stimulus and shy on firepower.

So, as we sit atop this towering mountain of debt and default and once again look to monetary authorities to save the global economy — we realize that they may not even be able to save themselves. Fiscal cycle after fiscal cycle, deficits have increased and budgets have exploded to unsustainable levels. And, for the first time ever we’re forced to contemplate the desperate notion of what comes next —The Implausible? The Unworkable? The Impossible?

With a $23 trillion liability, the threat of de-dollarization, and the prospect of massive new spending initiatives like ‘Medicare for All’ and the Green New Deal — the Fed, in particular, has little room to increase spending or encourage borrowing. And if Powell and company lose control of the economy, America could be headed for a crisis far worse than 2008 with no foreseeable escape.

So, where does a cash-strapped, belly-up world turn? To one place and one place only. In 2019 central bank, net gold purchases will shatter 50-year highs. This is no coincidence. In a world that has seen empires rise and fall, civilizations come and go, watersheds, turning points, depressions, recessions, defining moments and monumental indebtedness — there has never been anything as safe, steadfast and as enduring as solid gold.

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KITCO NEWS/Jim Wyckoff

Gold prices resilient despite apparent U.S.-China partial trade deal

December 13, 2019

Gold prices are slightly higher in early U.S. trading Thursday, and are showing surprising resilience in the face of a geopolitical scene that appears to have become more stable late this week. Some downbeat U.S. economic data is working in favor of the precious metals bulls Friday, as is a slumping greenback on the world foreign exchange market. February gold futures were last up $1.30 an ounce at 1,473.50.

U.S. retail sales in November came in up a paltry 0.2% from October, which was a downside miss from expectations for a 0.5% rise. Asian and European stock indexes were higher overnight. The U.S. stock indexes are pointed toward higher openings and new record highs. Risk is back on the table for traders and investors following reports the U.S. and China are very close to a partial trade deal, as was reported at midday. However, the marketplace is now wondering why there is ‘radio silence’ coming from Chinese officials Friday … Reports said the partial trade deal involves China purchasing $50 billion of U.S. goods—mostly agricultural products—in 2020, in exchange for the U.S. not imposing new tariffs on Chinese imports into the U.S., and cutting in half the current tariffs in place.”

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MARKET WATCH/Shawn Langlois

Here’s proof that 401(k) plans are not working for most Americans — can you guess who they ARE working for?

December 12, 2019

Retirement Gap Has Grown“Those golden years aren’t looking so golden for most Americans. Clearly, the country’s in the midst of a savings crisis as families struggle to cover rising home costs, hefty student-loan debt and everything in between. And it seems it’s only getting worse, unless you’re at the top of the wealth pyramid.

The Economic Policy Institute nonprofit, nonpartisan think tank this week published a series of telling charts that ‘paint a picture of increasingly inadequate retirement savings for successive generations of Americans — and large disparities by income, race, ethnicity, education, and marital status.’ … With almost half of all working-age families having ZERO in retirement savings, the fact that the median family had only $7,800 in these accounts shouldn’t come as a surprise. At the same time, the 90th percentile family had $320,000 and the top 1% of families (which isn’t shown on the chart) had $1,663,000 or more.”

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THE WALL STREET JOURNAL/Harriet Torry

Holiday Retail Sales Had a Lackluster November Start

December 13, 2019

Holiday Retail Sales“Retail sales advanced at a lackluster pace in November, signaling a slower-than-expected start to the critical holiday shopping season. Retail sales, a measure of consumer spending at stores, restaurants and online, increased a seasonally adjusted 0.2% in November from a month earlier to $528.0 billion, the Commerce Department said Friday. Sales declined sharply in November across a number of categories that are closely tied with holiday gift-giving, including clothing, electronics, department and sporting goods stores. Spending at bars and restaurants also dropped 0.3% last month, the steepest monthly decline since December last year.

Excluding the volatile categories of autos and gas, retail sales were flat in November. Robert Frick, corporate economist at Navy Federal Credit Union, said that ‘retail sales point to more consumer caution’ in a commentary note. Still, Friday’s report suggests consumers are spending enough to support the expansion, he added. As the traditional start of the holiday-shopping season, November is a key month for retailers, especially for department stores, clothing outlets and online sellers.

The month includes Thanksgiving Day and Black Friday, days in which Americans crowd malls and shop online for deals. Due to a late Thanksgiving, there are six fewer days in the holiday shopping season this year compared with 2018. Cyber Monday fell in December this year, and so wasn’t accounted for in Friday’s report … November sales at electronics and appliance stores rose 0.7% last month but slid 1.5% from a year earlier. Sales at non-store retailers, a category that includes internet merchants like Amazon.com, were up 0.8% from October and grew 11.5% from a year earlier.”

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CNBC/Yelena Dzhanova and Christie Wilkie

Judiciary Committee votes to advance articles of impeachment against Trump

December 13, 2019

Articles of Impeachment“Following two days of heated debate, the House Judiciary Committee on Friday approved two articles of impeachment against President Trump, sending them to the House floor for a final vote. Both articles were passed by a 23-17 margin along party lines. The articles charge Trump with abuse of power and obstruction of Congress for a months’ long campaign to pressure Ukraine to launch investigations into his political opponents and his subsequent refusal to allow senior White House aides to testify before Congress as it investigated the matter.

Trump campaign spokeswoman Kayleigh McEnany said in a tweet immediately after the vote that the move ‘will backfire and on November 3, 2020, voters will re-elect’ Trump.  The full House vote on the articles is expected next week, before Congress goes on recess for the Christmas holiday. Friday’s vote followed two days of public debate during which members of the Judiciary Committee proposed various amendments to the legislation. None of the amendments was accepted by the Democratic controlled committee … If articles of impeachment pass the House next week, the Republican-controlled Senate will conduct a formal trial of the president, likely in January. It is unclear whether the Senate plans to call witnesses to defend the president or merely mount a legal defense without the added drama of live witnesses.”

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ASSOCIATED PRESS/Jill Lawless, Danica Kirka and Mike Corder

Johnson claims Brexit mandate with new conservative majority

December 13, 2019

Boris Johnson“Boris Johnson’s gamble on early elections paid off as voters gave the UK prime minister a commanding majority to take the country out of the European Union by the end of January, a decisive result after more than three years of stalemate over Brexit. Johnson’s promise to ‘get Brexit done’ and widespread unease with opposition leader Jeremy Corbyn’s leadership style and socialist policies combined to give the ruling Conservative Party 365 seats in the House of Commons, its best performance since party icon Margaret Thatcher’s last victory in 1987. Corbyn’s Labour Party slumped to 203 seats, 59 fewer than it won two years ago, vote totals showed Friday.

 

The results offer Johnson a new mandate to push his EU withdrawal agreement through Parliament. Since taking office in July, he had led a minority government and, after the House of Commons stalled his Brexit deal at the end of October, he called the election two years ahead of schedule in hopes of winning a clear majority. ‘I will put an end to all that nonsense, and we will get Brexit done on time by the January 31 – no ifs, no buts, no maybes,’ he said as supporters cheered. ‘Leaving the European Union as one United Kingdom, taking back control of our laws, borders, money, our trade, immigration system, delivering on the democratic mandate of the people.’”

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YAHOO FINANCE/Arkadiusz Sieroń/FX Empire

Fed Says No Hikes In 2020. What About Gold?

December 12, 2019

Gold Prices“Yesterday, the FOMC published the monetary policy statement from its latest meeting that took place on December 10-11th. In line with expectations, the U.S. central bank left the federal funds rate unchanged at 1.50 to 1.75 percent: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1 1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”

Curiously enough, the Fed’s stance will be easier without any particular economic justification: the whole path of expected growth in GDP and overall inflation is unchanged, core inflation is slightly down this year, while the unemployment rate got reduced over the whole path! But the lower level of the federal funds rate should be supportive for the gold prices. Indeed, the immediate reaction of gold to the FOMC statement was positive. The price of the yellow metal rose from $1,470 to $1,478 during the first hour after the publication of the fresh announcement and economic projections … But what to expect in the future? Well, the Fed will certainly talk a good deal about its neutral stance. However, we all know that the U.S. central bank is not truly neutral, for it has clear dovish bias. For years, the Fed projected higher interest rates that they actually turned out to be in reality. And the U.S. central bank is not eager to take interest rates back to the pre-crisis level. Not at all! As Powell said during his press conference, ‘I would want to see inflation that’s persistent and significant’ before raising rates again. That’s huge declaration which means that Powell gave up on any try to normalize the interest rates.”

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KITCO NEWS/Neils Christensen

Gold sees short term boost as ECB’s Lagarde reiterates ‘highly accommodative’ monetary policy

December 12, 2019

Gold Sees Boost“The gold market found some short-term momentum, hitting a five-week high after the European Central Bank (ECB) maintains its ‘highly accommodative’ monetary policy in a continued attempt to push inflation higher. The latest ECB meeting and decision was a historic moment as Christine Lagarde took the reins as the central bank’s first female president. In Lagarde’s debut opening statement, she highlighted that although conditions have improved, the risks still tilt to the downside.

 

‘Let’s face it; it’s weak growth. Economic growth is not at its potential,’ Lagarde said during the question-and-answer portion of her press conference. The central bank’s latest economic projections points to meek growth through 2022 and shows inflation will remain subdued. The ECB sees the eurozone economy growing 1.2% in 2020, up a tick from September’s estimate of 1.1%. Economic growth is expected to rise to 1.4% in 2021 and 2022 … The latest comments from Lagarde helped to push gold prices to a five-week high and back within striking distance of $1,500 an ounce. However, after the initial pop, the market has given back some of those gains.”

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MARKET WATCH/Jeffry Bartash

Jobless claims soar to 2-year high of 252,000 in wake of Thanksgiving

December 12, 2019

Jobless Claim 2 Year High“The number of Americans who applied for unemployment benefits in early December soared to highest level in more than two years, but the spike was likely tied to a later than usual Thanksgiving holiday instead of rising layoffs.  Initial jobless claims jumped 49,000 to a seasonally adjusted 252,000 in the first week of December., the government said Thursday. That’s the highest level since September 2017. Economists polled by MarketWatch estimated new claims would total 220,000 in the seven days ended Dec. 7.

Raw or unadjusted jobless claims show unusually large increases in a number of states, including California, New York, Texas, Pennsylvania, Georgia and Minnesota. Jobless claims often gyrate during the long holiday season that starts after Thanksgiving. Laid-off workers wait longer to file claims, unemployment offices are closed more often and companies add and drop temporary workers. Poor weather can also skew the numbers.”

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BLOOMBERG/Nir Kaissar

Don’t Expect the Roaring ’10s for Stocks to Repeat in the ’20s

December 12, 2019

“As the 2010s come to a close, it’s safe to say that the decade has been an enchanted one for U.S. stocks. The hard question is what lies in the decade ahead, and the data suggests that investors shouldn’t expect a repeat performance…. Earnings are extraordinarily volatile, even more unstable than stock prices by some measures. The volatility of yearly changes in earnings per share has been nearly three times greater than that of stock prices since 1871, as measured by annualized standard deviation — a whopping 52% for earnings compared with 19% for stock prices. And lest you’re tempted to conclude that much of that earnings volatility is a relic of the ancient past, consider that two of the three most severe earnings recessions on record were the previous two around the dot-com and housing busts. The only one that rivaled them was the 1920-21 recession (no, not even the Great Depression).”

“Given that volatility, it’s unlikely that the last decade’s record earnings growth will spill into the next one. Unfortunately, investors can’t expect much more from the other two sources of stock returns. The dividend yield is likely to remain around 2%, which is roughly where it’s been for decades. And the 12-month trailing P/E ratio is roughly 24, which is 50% higher than its long-term average of 16, so future changes in the market’s valuation are more likely to eat into returns than enhance them. Those sobering figures explain why most Wall Street firms expect U.S. stocks to deliver more muted returns during the next decade. It’s a good reminder that what appears in the rearview mirror is no indication of the road ahead.”

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THE NEW YORK TIMES/Alexandra Stevenson

China’s Companies Binged on Debt. Now They Can’t Pay the Bill.

December 12, 2019

China Companies Debt“China’s companies racked up some towering bills as they expanded, and the world’s investors and lenders rushed to offer them even more money. Now the bills are coming due, and a growing number of Chinese companies can’t pay up, in a sign that the world’s No. 2 economy is feeling the stress from its worst slowdown in nearly three decades.  Two high-profile companies — a giant government-run trading firm and a conglomerate backed by China’s most distinguished university — are the latest to join a long list of Chinese businesses that have run short of cash when it was time to pay back their debts. Chinese corporate borrowers have defaulted on nearly $20 billion in loans this year.

The amount is small compared with China’s overall economy, but the toll is rising. Chinese companies owe hundreds of billions of dollars in debt that is coming due over the next two years, including more than $200 billion owed to lenders and investors around the globe. China now faces the difficult task of figuring out which of these companies it will allow to fail. The central government in Beijing keeps a tight grip on the Chinese financial system and often rescues companies to preserve jobs. But Beijing has shown a greater willingness to let companies go insolvent to teach them a lesson about borrowing too much, and many local governments now lack the funds to help their hometown champions.”

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THE WALL STREET JOURNAL/Nina Trentmann

CFOs Brace for Potential Recession in 2020

December 11, 2019

CFOs Brace for Recession“Chief financial officers are bracing for a recession, cutting costs and hoarding cash to ride out an expected downturn ahead of next year’s presidential election, new research indicates. Fifty-six percent of CFOs at U.S. companies said they are preparing for a recession, which economists define as two consecutive quarters of declining performance across an economy, according to a survey conducted by Duke University’s Fuqua School of Business. More than half of all finance chiefs expect the U.S. to be in a recession by the end of 2020, according to the survey.

 

‘Companies are worried about the big picture,’ said John Graham, a Duke University professor who oversees the survey. ‘At the same time, their orders are still coming in reasonably strong right now, so for their own company’s circumstances and plans, things look good in the short run.’ CFOs say they are pursuing cost-reduction efforts, paying down debt, extending maturity schedules of their debt and locking in low interest rates to prepare for a potential downturn, Mr. Graham said. Wednesday’s survey echoed sentiment in a recent Association of International Certified Professional Accountants report, in which finance executives indicated lower expectations for revenue and profit growth, as well as caution around capital spending. U.S. business investment and corporate profits fell in the third quarter, even though gross domestic product grew at a stronger than expected 2.1% annual rate.”

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MARKET WATCH/Shawn Langlois

Beware of the ‘toxic concoction’ that could finally crush the U.S. economy

December 11, 2019

Toxic Mix Could Crush Economy“President George W. Bush famously uttered those words a decade ago as the U.S. government was scrambling to restore liquidity and calm panicky markets during the upheaval of the financial crisis. A few years after that, Berkshire Hathaway’s Warren Buffett hailed Bush’s comment as ‘the greatest economic statement of all time.’ At the time, Buffett said Berkshire always has at least $20 billion in cash. ‘Some day in the next 100 years when the world stops again, we will be ready,’ he explained to a group of M.B.A. students in 2013. ‘There will be some incident, it could be tomorrow — at that time, you need cash. Cash at that time is like oxygen.’

Fast forward to this week, and that day could soon be upon us, according to Charles Hugh Smith of the Of Two Minds blog, who warned that this ‘sucker is finally going down’ and no amount of ‘loose money’ will be able to stop it. ‘We live in a bizarre world dominated by magical-thinking,’ he wrote in his latest post, ‘a world in which the Federal Reserve creating more dollars out of thin air is supposedly the solution to everything.’  But that’s clearly not the case. There are several ‘knotty structural problems’ that he says can’t be helped by an accommodative monetary policy, including unsupportable pensions, mounting consumer debt, a health-care system that’s bankrupting the country, outrageous student loan debt, funding unwinnable wars, etc.  The ‘loose money’ approach is actually ‘metastasizing’ a new set of problems that will ultimately ‘bring this sucker down.’ … It all adds up to what Smith sees as the same ‘toxic concoction’ that has led to the destruction of economies throughout history.”

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REUTERS/ Diptendu Lahiri

Gold firms ahead of tariffs deadline and central bank decisions

December 11, 2019

“Gold inched up on Wednesday as investors sought safety from the threat of new U.S. tariffs on Chinese goods coming into effect on Dec. 15, while also awaiting policy decisions from major central banks. Autocatalyst metal palladium held just shy of an all-time record high. Spot gold had gained 0.2% to $1,467.31 per ounce by 1048 GMT. U.S. gold futures rose 0.3% to $1,471.90. ‘Trade war continues to be a factor supporting gold, there’s no easy solution to it and that uncertainty will keep gold prices up,’ said Commerzbank analyst Eugen Weinberg.

President Trump has days to decide whether to impose tariffs on nearly $160 billion worth of Chinese goods, scheduled to take effect on Sunday … Washington is laying the groundwork for a delay in the latest tariffs, but a final decision has not been made, the person said. ‘Should both parties (U.S. and China) fail to reach positive consensus, gold prices will receive strength over lackluster risk appetites for the near term,’ Phillip Futures analyst Benjamin Lu said in a note. Gold is considered a safe investment during political and economic uncertainty.”

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USA TODAY/Jessica Menton

Millionaires sour on U.S. economy, with their views at the lowest level since before the recession

December 10, 2019

Millionaires on Economy“Millionaires are the most cautious they’ve been on the direction of the economy since the years leading up to the global financial crisis. Investor sentiment on the economy for the next 12 months dropped 14 points from a year ago to – 7, its lowest level since 2006, according to Fidelity Investments’ annual Millionaire Outlook Confidence Index. That marked its lowest level since the index began that same year.

 

Fidelity’s 11th Millionaire Outlook Study surveyed 2,026 investors, including 1,102 millionaires and 924 investors that Fidelity calls the ‘millionaires of tomorrow.’ The study focused on five key measures for its confidence index: the economy, the stock market, real-estate values and consumer and business spending. The outlook wasn’t taken in 2007, 2011 and 2015.  The latest data signals that some wealthy investors are skittish about the longevity of the 10-year economic expansion, even as job creation remains robust and stocks touch record highs.”

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YAHOO FINANCE/Myles Udland

The world’s super-rich are hoarding physical gold

December 10, 2019

Super Rich Are Hoarding“Gold has had a great run in 2019. Over the last year, gold prices are up nearly 20%. The yellow metal is on pace for its best year since 2010. In a note to clients published over the weekend, analysts at Goldman Sachs outlined why the strategic case for owning gold remains strong. The firm cites political uncertainty and recession fears that are unlikely to abate as primary catalysts, among other worries among the global elite like wealth taxes and increasing talk about MMT and central bank effectiveness. By 2020, the firm thinks the price of gold will reach $1,600 an ounce; on Monday, gold was trading near $1,460.

But the firm also surfaces some really interesting data on how investors have expressed their desire to own gold. Which is that owning the physical metal seems to be the global elite’s preferred way to hedge against tail events. ‘Since the end of 2016 the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs,’ the firm writes … this means that for those including gold in their end-of-the-world trade, owning gold bullion is a must. ‘This [data] is consistent with reports that vault demand globally is surging,’ the firm writes. ‘Political risks, in our view, help explain this because if an individual is trying to minimize the risks of sanctions or wealth taxes, then buying physical gold bars and storing them in a vault, where it is more difficult for governments to reach them, makes sense.’ ‘Finally, this build can also reflect hedges by global high net worth individuals against tail economic and political risk scenarios.’”

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CNN BUSINESS/Julia Horowitz

British pound has been riding high. An election surprise could send it crashing

December 11, 2019

The British Pound“Investors are betting that Prime Minister Boris Johnson will sweep to victory in Thursday’s election. If he doesn’t, the pound and UK stocks are poised to plunge. The pound has strengthened about 2% since the general election was called in late October, and on Wednesday was trading near a seven-month high around $1.31, and way above a low of $1.20 hit in August. The FTSE 250 index of midsize British companies has gained roughly 3%. Traders are counting on Johnson, who has held his lead in the polls against Labour leader Jeremy Corbyn, to score a majority in parliament on December 12. This would allow the Conservative leader to take the country out of the European Union by January 31 — removing Brexit uncertainty.

‘It means more clarity about what government intends to do,’ said Jordan Rochester, a strategist at Nomura. Should Johnson win, UK markets are expected to hold onto recent gains … particularly if the margin of victory is slim … An unexpectedly strong showing from Labour, meanwhile, could result in a shock. The odds of the opposition party winning an outright majority look small. But recent polling suggests there’s still the chance of a hung parliament, which would open the door to Labour forming a minority government with the support of a smaller party.”

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FOX BUSINESS/Megan Henney

Corporate pension plans could become a thing of the past

December 11, 2019

Corporate Pension Plans in the Past“Despite record-breaking gains in the stock market this year, U.S. pension plans are near their worst financial state in two years. That’s according to a new report from Mercer, a human resources consulting firm, which found that nearly 63 percent of pension funds are considering ‘termination’ of guaranteed benefits to new workers within the next five years. That would close off the pensions to future participants.

The reason pension plans are on their death bed essentially comes down to the escalating cost of the promised payments to former employees: Historically low interest rates have pushed funded positions lower in 2019. By the end of 2019, the average pension plan had 85 percent of the funds necessary to meet its obligations, hovering near a two-year low, according to Mercer. The report comes amid a diaspora of pension plans in corporate America, which are increasingly turning to more risk-averse retirement plans, such as 401(k)s. In fact, a majority of American companies no longer offer a long-term, defined-benefit pension plan, which guarantees workers a monthly payment when they retire.

In October, embattled General Electric became the latest company to offer lump-sum buy-outs to about 100,000 former employees who have not begun receiving their pension, while freezing the retiree payments for about 20,700 salaried pensioners … The number of pension plans offering defined benefits dropped by about 73 percent between 1986 to 2016, according to data from the Department of Labor’s Employee Benefits Security Administration.”

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CNBC/Elliott Smith

Rising debt is one of the two biggest global economic risks, former Barclays CEO Diamond says

December 10, 2019

Rising Global Debt“Rising debt is one of the two biggest risks facing the global economy, according to Atlas Merchant Capital CEO Bob Diamond. Aside from the U.S.-China trade war, Diamond cited negative-yielding bonds and a rise in outstanding credit worldwide as a key concern for investors. ‘It may be 2020, it may be 2021, but at some point we need to begin to worry about the proliferation of credit,’ Diamond, who served as CEO of British bank Barclays from January 2011 until July 2012, told CNBC at the SALT Conference in Abu Dhabi.

‘One of the very positive things that has happened over the last 10 years since the financial crisis is the quick reaction of monetary policy and lowering interest rates, but I worry about the $17 trillion in negative interest rate bonds, and we worry about the overall size of the amount of credit that is outstanding now,’ he added. In its recent Global Financial Stability Report, the IMF (International Monetary Fund) escalated its warnings about high levels of risky corporate debt, which have been exacerbated by persistent low interest rates from banks. Last month, ratings agency Moody’s issued a negative outlook for sovereign creditworthiness in 2020, citing a ‘disruptive and unpredictable’ political environment for the $63.2 trillion in outstanding government debt across the 142 sovereigns it rates.”

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REUTERS/Karthika Suresh Namboothiri

Gold firms as trade deadline nears; investors await Fed verdict

December 10, 2019

Gold Prices Today“Gold rose on Tuesday on uncertainty over U.S.-China trade talks ahead of a Dec. 15 tariff deadline while investors looked to the U.S. Fed’s policy meeting for cues on its 2020 monetary outlook. Spot gold rose 0.4% to $1,467.00 an ounce at 1323 GMT while U.S. gold futures gained 0.5% to $1,471.50. ‘Gold is riding higher on dollar weakness and caution ahead of a looming tariff deadline,’ said analyst Lukman Otunuga. If Washington proceeds with the earmarked tariffs, risk aversion is likely to engulf financial markets until the end of the year.

Agriculture Secretary Sonny Perdue said President Trump does not want to implement the next round of scheduled tariffs against Chinese goods on Dec. 15 but wants ‘movement’ to avoid them. The protracted trade war between the world’s two largest economies has fanned recessionary fears, putting safe-haven gold on track for its best year since 2010. A weaker dollar versus major currencies also offered support. ‘Gold has defended the $1,450/oz level despite a U.S.-China trade deal appearing increasingly likely and unexpectedly strong U.S. jobs data,’ UBS analysts said in a note.”

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KITCO NEWS/Allen Sykora

Commerzbank: Loose monetary policy to lift gold in 2020

December 10, 2019

Loose Monetary PolicyGold should benefit from continued ‘ultra-loose’ monetary policy in 2020, rising to an average price of $1,550 an ounce in the fourth quarter of the New Year, Commerzbank said Tuesday. Silver and platinum are likely to ride the coattails of gold higher, analysts said. However, the bank looks for high-flying palladium to finally run into an ‘overdue correction’ and push lower. Gold has backed down from its September high just shy of $1,560 an ounce, but remains 14% stronger for the year, Commerzbank said.

This would be the strongest annual gain since 2010. The metal last traded at $1,465.80 an ounce. ‘We envisage an increase to $1,550 per troy ounce by the end of 2020,’ the bank said. ‘The high optimism among speculative financial investors and the subdued demand in Asia will initially preclude any higher prices, so we expect to see the lion’s share of the upswing in the second half of the year.’ Prospects for the yellow metal are ‘positive,’ the bank said. ‘Monetary policy pursued by the major central banks will remain ultra-loose next year,’ analysts said. ‘Admittedly, the Fed ruled out any further rate cuts. Still, they are not entirely off the table, and are still more likely than rate hikes.”

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MARKET WATCH/Sunny Oh

Wall Street players without access to Fed liquidity may feel pain if repo market seizes up at year end

December 10, 2019

Wall Street Feels Pain“By most accounts the Federal Reserve has moved aggressively to prevent the recurrence of strains in the multi-trillion dollar repo market, where banks and hedge funds borrow and lend funds on a short-term basis.  Yet for those who aren’t primary dealers and thus don’t benefit from the U.S. central bank’s regular injections of liquidity, the end of year could prove a treacherous period when short-term funding turns scarce according to market participants.  Banks across Wall Street typically pull back their lending at the end of the quarterly and yearly period to avoid receiving steep regulatory surcharges that demand too-big-to-fail financial institutions carry additional capital on their balance sheets.

‘Current open market operations in their current form are still not getting to those who still need term funding,’ said Nick Maroutsos, co-head of global bonds at Janus Henderson Investors, referring to repo funding contracts that extend beyond a day and which have been deployed by the Fed to help market participants get past the year-end hurdle. ‘The money is not getting where it needs to go,’ he said. Since September, the Fed has halted the shrinking of its balance sheet and has lent out billions of U.S. dollars through open market operations, parceling out cash in return for collateral in the form of U.S. Treasurys. These injections have helped keep a ceiling on overnight lending rates for the repo market which surged three months ago and prompted the central bank’s interventions.”

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CNBC/Jeff Cox

Credit Suisse shocking call: Fed will launch ‘QE4’ before year-end to stem Street cash crunch

December 10, 2019

“The Federal Reserve could be launching another round of money-printing in the next few weeks as problems in the overnight lending markets re-emerge and force the central bank into more aggressive action, according to Credit Suisse.  A fourth version of quantitative easing — often referred to as ‘money-printing’ for the way the Fed uses digitally created money to buy bonds from big financial institutions — would be needed by year’s end to bridge a funding gap as banks scramble for scarce reserves, Zoltan Pozsar, Credit Suisse’s managing director for investment strategy and research, said. ‘If we’re right about funding stresses, the Fed will be doing QE4 by year-end,’ Pozsar wrote. ‘Treasury yields can spike into year-end, and the Fed will have to shift from buying bills to buying what’s on sale – coupons.’

That would mean a shift from purchasing short-term Treasury debt and expanding into longer duration and more aggressive balance sheet expansion … ‘The Fed’s liquidity operations have not been sufficient to relax the constraints banks will face in the upcoming year-end turn,’ he said … ‘If carry makes the world go ’round, and reserves make carry possible … the day we run out of reserves would be the day when the world would stop spinning.’ Pozsar said. “No, this is not an overstatement.’”

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SOUTH CHINA MORNING POST/Anthony Rowley

A stock market correction – long overdue – will tip the global economy into a perfect storm

December 9, 2019

Stock Market Correction“Leading stock markets may finally be connecting with the real economy after a long period of in-denial euphoria. Even before US President Donald Trump signalled that trade wars may persist (only to be refuted by rumours of an imminent deal), there were signs that stock dumping might be imminent. After a  veritable frenzy of buying back their stocks, some big companies in the US and elsewhere are using their overvalued shares or ‘scrip’ as a currency to buy other companies that have real assets and earnings while the going is still (just about) good. This is an ominous sign.

Buying back shares made sense for firms with interest rates at record lows. It makes debt capital cheap and results in higher earnings for remaining shareholders. But a recent wave high-profile mergers and acquisitions (M&As) – including LVMH buying Tiffany and the Manchester City football club deal – with some financed by share exchanges, has been seen by some analysts as signalling the end of the bull market. When companies begin to buy competitors rather than invest in new, greenfield activity, and when they use their stocks to buy that growth, it signals diminishing confidence. It could also be a sign of an impending economic slump.”

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BLOOMBERG/Billy House

Democrats to Impeach Trump for Abuse of Power, Obstruction

December 10, 2019

Trump Impeachment“Democrats announced two articles of impeachment against President Donald Trump on abuse of power and obstruction, moving them another step closer to a historic vote by the full House next week. Judiciary Chairman Jerrold Nadler said Trump stands accused of ‘high crimes and misdemeanors’ under the Constitution by seeking foreign help for his re-election and engaging ‘in unprecedented, categorical and indiscriminate defiance’ of Congress’s investigation.

Nadler and Intelligence Chairman Adam Schiff delivered a compressed outline of their case Tuesday, arguing that Trump used his office to pressure the newly elected Ukraine president to announce politically motivated investigations for Trump’s personal, political benefit. ‘The evidence of the president’s misconduct is overwhelming and uncontested,’ Schiff said at the Capitol. It ‘goes to the heart’ of whether the U.S. can conduct a free and fair election in 2020, he added. Nadler said the Judiciary panel will take up the articles of impeachment later this week. That likely sets up a full House vote next week. The impeachment trial will be held in the Senate, where the Republican majority is expected to acquit him … The House impeachment inquiry, which Trump has labeled a witch hunt and Republicans derided as a rushed drive toward a predetermined conclusion, is reaching an end-of-the-year climax at the same time Congress is attempting to wrap up budget negotiations and push a major trade pact to conclusion.”

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KITCO NEWS/Allen Sykora

Goldman Sachs: ‘Strategic Case Is Still Strong’ For Holding Gold

December 9, 2019

“Goldman Sachs says the ‘strategic case is still strong’ for investing in gold and reiterated its call for the precious metal to rise to $1,600 an ounce next year, even though analysts conceded there could be more of a pullback in the short term. Gold has risen by 19% over the last 12 months due to slower global economic growth and elevated geopolitical tensions prompting ‘fear-driven’ demand, Goldman said. However, since September, the metal has eased from its highs for the year due to a rotation into pro-risk assets and an increase in long-term real interest rates, the bank continued.

Further, the metal could ease some more due to elevated speculative positions, Goldman said. Traders exiting bullish trades are potential sellers. ‘Overall, while we acknowledge the risks related to still-high gold positions, we believe the strategic case is still strong, particularly for investors with long-term horizons,’ Goldman said. ‘This is based on a deteriorated attractiveness of long-term DM [developed-market] bonds as portfolio diversifiers and real return generation instruments, exposure to growing EM [emerging-market] wealth, limited mine supply growth, elevated political risks and a potential increase in debasement concerns sparked by rising airtime of Modern Monetary Theory.’”

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FORBES/Yuwa Hedrick-Wong

The Next Recession May Come by Stealth

December 8, 2019

The Next Recession“The global economy today is mired in uncertainty arising from the trade war, an enfeebled Europe, Brexit and rising geopolitical tensions. An even deeper source of uncertainty is that the liberal global economic order, in place since the 1950s, is dying. Two trends are converging to kill it. The first is the West’s declining economic dominance relative to the rest of the world, and China in particular. The second is the rise of populism in Western democracies, arguably the most serious challenge to the legitimacy of the liberal global order. And yet, even as the liberal global economic order fades away, it’s unclear what a post-liberal global economic order will look like. So, for now, the global economy is like a barfly at closing time: it has no clue where it’s going, but it can’t stay here.”

“Against this backdrop, any number of missteps could trigger chain reactions that push developed world economies into recession. But we should also be prepared for a potentially different kind of downturn. The accepted definition of a recession is two consecutive quarters of contraction in an economy. The next recession, however, may not technically qualify as one. For example, we could have one quarter of 0.3% growth, followed by a contraction of 1.2% the next, then anemic growth in the third and fourth quarter of, say, 0.1% each, and then another contraction of 0.5% and so on. While the technical definition of a recession may never be met, the economy would still be shrinking, left to wane inexorably by impotent monetary and fiscal policies. It would be a recession by stealth.”

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CNBC/Patti Domm

What Trump does before trade deadline is the ‘wild card’ that will drive markets in the week ahead

December 6, 2019

Trump Before Trade Deal“The Trump administration’s Dec. 15 deadline for new tariffs on China looms large, and while most strategists expect them to be delayed while talks continue, they don’t rule out the unexpected. ‘That’s the biggest thing in the room next week. I don’t think he’s going to raise them. I think they’ll find a reason,’ said James Paulsen, chief investment strategist at Leuthold Group. But Paulsen said President Trump’s unpredictable nature makes it really impossible to tell what will happen as the deadline nears. ‘He’s the one off you’re never sure about. It’s not just tariffs. It could be damn near anything,’ Paulsen said. ‘I think he goes out of his way to be a wild card.’

Just in the past week, Trump said he would put new tariffs on Brazil, Argentina and France. He rattled markets when he said he could wait until after the election for a deal with China. Once dubbing himself ‘tariff man,’ Trump reminded markets that he sees tariffs as a way of getting what he wants from an opponent, and tariffs may be around for a long time. Trade certainly could be the most important event for markets in the week ahead, which also includes a Fed interest rate decision Wednesday and the U.K.’s election that could set the course for Brexit. If there’s no China deal, that could beat up stocks, send Treasury yields lower and send investors into safe havens.”

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SOUTH CHINA MORNING POST/David Brown

Donald Trump’s trade wars could scupper the euro-zone’s fragile economic recovery. That’s the last thing both sides need

December 9, 2019

EU Fragile Economic Recovery“There has been much focus on the pitfalls of the US-China trade war, yet the threat of increasing trade tensions between the US and Europe could be a bigger potential worry for global markets. Forget US President Trump’s headline-grabbing threat to slap 100 per cent tariffs on champagne, cheese and French luxury handbags in retaliation for France’s digital services tax that is expected to affect US tech giants such as Google, Apple, Facebook and Amazon. If the US and Europe go head to head, there could be serious consequences for China if global growth takes another hit. It’s the last thing global investors need right now. They need hope and encouragement looking ahead to 2020, not more dismay.

The 17-month trade dispute is clearly taking its toll. China is feeling the pinch, judging by the latest trade data, showing exports down 1.1 per cent in November, for a fourth consecutive monthly decline. The positive takeaway is that more domestic stimulus steps will now be needed so Beijing can help steer the  growth rate into a more secure range above 6 per cent next year. For this to happen, China needs forward-looking, targeted and effective policies to keep global risks at bay and ensure domestic demand stays underpinned. It will require even looser monetary and fiscal policies, which will keep investors positive for the time being. As Germany is the world’s third-largest exporter of goods and services, which means its fortunes are closely governed by the ebbs and flows of global trade, it’s no surprise that the nation’s leading economic indicators have been so fragile.”

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FRANCE 24/News Wires

Day 5 of public transport chaos in France as strike over pensions continues

December 9, 2019

France Public Transit Strike“French commuters and tourists braced for a fifth day of public transport chaos Monday as the government prepared to respond to widespread anger over pension reform that has sparked open-ended walkouts.  President Emmanuel Macron, Prime Minister Edouard Philippe and senior cabinet ministers met late Sunday to discuss the contentious reform, which the country’s powerful labour unions claim will force many to work longer for a smaller retirement payout.

As both the government and unions vowed to stand firm, businesses started counting the costs of the strike which began last Thursday when some 800,000 people took to the streets across France in a mass rejection of plans to introduce a single, points-based pension scheme, unifying 42 existing plans. The stoppages stranded commuters, closed schools, and hit tourism and Christmas retail.

Many people opted to take days off or to work from home, but thousands had no choice but to squeeze into perilously overcrowded suburban trains and metros whose numbers were slashed to a minimum. The biggest labour unrest in years came as France’s economy is already dented by more than a year of weekly anti-government demonstrations by so-called ‘yellow vest’ activists protesting unemployment and waning spending power. Many are opposed to Macron’s plans for putting the country on a solid economic footing, of which the retirement overhaul forms a major part.”

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REUTERS/Karthika Suresh Namboothiri

Gold gains as trade tariff deadline looms

December 9, 2019

Gold on the Rise Monday“Gold rose on Monday as investors hedged against a possible escalation in the U.S.-China trade dispute ahead of a Dec. 15 deadline for fresh U.S. tariffs, while scarce palladium surged to a new high as it closed in on the $1,900 mark. Spot gold was up 0.3% to $1,463.92 per ounce by 1307 GMT. U.S. gold futures traded 0.2% higher at $1,468.40. China’s Assistant Commerce Minister Ren Hongbin said Beijing hoped it could reach a trade agreement that satisfied both sides as soon as possible, but investors seemed reluctant to let go of gold amid diminishing hopes of a deal before Dec. 15.

‘There will be enough uncertainty and support in the market ahead of that date to keep the market stuck in this range,’ Saxo Bank said. Prices shed 1.1% on Friday after strong U.S. non-farm payroll data. ‘Based on the (jobs) report, you could argue that gold should be trading lower; it hasn’t. It just goes to show that there is quite a bit of scepticism about the outlook for global growth,’ they added. Also providing support, China’s exports shrank for the fourth consecutive month in November.”

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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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BUSINESS INSIDER/Yusuf Khan

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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THE WALL STREET JOURNAL/Gunjan Banerji

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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FINANCIAL TIMES/Martin Arnold

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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SOUTH CHINA MORNING POST/Andy Xie

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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REUTERS/Karthika Suresh Namboothiri

Gold unchanged as U.S.-China trade uncertainty persists

December 5, 2019

“Gold was little changed on Thursday, hovering below a one-month peak as investors sought further clarity on the U.S.-China trade war in a week of mixed messages. Spot gold was flat at $1,474.60 per ounce by 1340 GMT, having hit its highest since Nov. 7 at $1,484 the previous day. U.S. gold futures were also unmoved at $1,479.70. ‘We have seen gold very volatile in the last couple of days with all the headlines around the trade war,’ said Carlo Alberto De Casa, chief analyst at ActivTrades. ‘Investors are generally cautious at times like today when there is no news.’

A Bloomberg report on Wednesday fanned hopes that the two sides were close to a phase one deal, prompting a rally in global equities while gold retreated from a one-month high. With a Dec. 15 deadline for imposition of further U.S. tariffs on Beijing looming large, President Donald Trump said on Tuesday that an agreement might have to wait until after the U.S. presidential election in 2020.”

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KITCO NEWS/Allen Sykora

Softening economy to mean stronger gold in 2020 – Metals Focus

December 5, 2019

Softening Economy Stronger Gold“A weaker global economy in 2020 is likely to mean stronger gold prices, said Philip Newman, director of consultancy Metals Focus. Further, he pointed out that there is still a large amount of negative-yielding bonds around the world, which also helps the metal. ‘We don’t have a [forecast for a] tremendous rally, but we do have it moving gradually higher,’ Newman said in an interview. Newman called for gold prices to average just above $1,500 an ounce in 2020 and perhaps get as high as the $1,650 neighborhood. He is anticipating an average of around $1,400 an ounce for 2019, up from around $1,270 in 2018.

‘The macro[economic] backdrop is deteriorating into 2020,’ Newman said. ‘That tells us you’re going to have loose monetary policy by key central banks…. We think this will be ultimately supportive of gold.’ The metal has struggled some recently, with spot prices falling back to roughly the $1,475 area after peaking around $1,556 in early September. Still, they remain well above the levels where they were during the first half of the year, suggesting ‘considerable investment’ demand flowing through the market, Newman said.  ‘We think that as the economy starts slowing in 2020, that will bring a pause to the record highs we’ve seen in the U.S. equities. Ultimately, we think this will bring renewed inflows into the precious , primarily gold,’ Newman said.”

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BLOOMBERG/Erik Wasson and Billy House

Pelosi Says House Will Draft Trump Impeachment Articles

December 5, 2019

Impeachment Articles“Speaker Nancy Pelosi said the House will draft articles of impeachment against President Donald Trump for abusing his office in a ‘profound violation’ of the public trust. ‘The facts are uncontested. The president abused his power for his own personal benefit,’ Pelosi said Thursday at the Capitol. ‘Today, I’m asking our chairmen to proceed with articles of impeachment.’ The announcement puts Trump on track to become the third president to be impeached in U.S. history. But the chances that the Republican majority in the Senate will convict him are scant.

Speaking in somber tones against a backdrop of American flags, the California Democrat said Trump undermined U.S. security and jeopardized the integrity of the country’s elections by pressuring a foreign government for help in next year’s presidential campaign. ‘His wrongdoing strikes at the very heart of our Constitution,’ Pelosi said. ‘The president leaves us no choice but to act because he is trying to corrupt once again, the election for his own benefit.’ She spoke a day after Judiciary Chairman Jerrold Nadler indicated the panel was moving toward at least three articles of impeachment: abuse of power, bribery and obstruction. Trump was defiant on Thursday morning, saying on Twitter that Democrats ‘have no impeachment case’ and challenging them to move fast so the nation can move on.”

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MARKET WATCH/Barbara Kollmeyer

This stock bear is waiting for one clear signal to jump back into markets

December 5, 2019

Bear in Head First“Stock market bears have had few breaks this year.  The S&P 500 has nabbed 26 record closes this year, while the Dow counts 15, and pullbacks have often been quickly met by investors ready to buy. The pendulum swinging back toward more optimistic U.S.-China trade talk means a few more records could be reached in 2019. Our call of the day comes from JonesTrading’s chief market strategist Michael O’Rourke, an unrepentant bear who sees little reason to dive in now, even if he has missed gains this year. ‘We have been in an environment of deteriorating stock fundamentals, a weak global economy and a decelerating U.S. economy, against a backdrop of a historically expensive market,’ he tells MarketWatch.

Despite strong gains, the S&P 500 is just under 10% above its 2018 high, while the Russell 2000 is below its 2018 high. As for his call: ‘I will turn positive on the equity market when valuations are more attractive and aligned with economic and earnings growth.’ What has happened in the past couple of years is that company earnings growth has been ‘artificial,’ driven by the administration’s tax cuts, he argues. That should mean that investors should assign a lower valuation, but they aren’t doing that, which is ‘dangerous.’ ‘I will become more constructive on the equity market as it begins to approach that historic 15x to 16x earnings multiple within a stable economic environment,’ says O’Rourke. And right now, the forward price/earnings ratio—a popular method of valuing a stock’s worth—for the S&P 500 is right around 20.”

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YAHOO FINANCE/Julia LaRoche

Jeffrey Gundlach gives Fed’s Powell a ‘C-‘, likens him to a losing NFL coach

December 5, 2019

Jeffrey Gundlach“If bond investor Jeffrey Gundlach were to grade Jerome Powell, he’d give the Federal Reserve Chairman a ‘C’ — arguably slightly better than the grade he’d receive from President Donald Trump, his fiercest critic. In a wide-ranging exclusive interview with Yahoo Finance, the CEO of $150 billion DoubleLine Capital explained that one of the main frustrations investors have had with the Fed lately is its inconsistent messaging. ‘Every press conference from basically December until about June was a completely different message from the one before,’ Gundlach told Yahoo. ‘And they were getting increasingly dovish. And then he kind of went all-in on dovishness, and started to follow the bond market and cut rates.’

The 60-year-old billionaire analogized Powell’s behavior to ‘an NFL coach after losing a game.’ He added that the heads of losing teams all say the same thing, ‘Got to watch the tape, got to play better, not good enough.’ Now Jay Powell does the same sort of boilerplate. He just says, ‘data-dependent, don’t know we’re going to do, we might.’ He basically wants to say as little as possible. He went on to describe the Fed as ‘rudderless’ and ‘shamelessly following the bond market [more] than ever before.’ He noted that the Fed has pretty much always followed the bond market, except during the Paul Volcker era, when the then-Fed chief was indifferent to the message of the market.

‘So, at this point, I’m afraid I would have to give Powell a pretty low grade. I’d give him a C- because of the fact that he’s really kind of lost his way as it appears.’”

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THE WALL STREET JOURNAL/Megumi Fujikawa

Japan’s Cabinet Approves $120 Billion Stimulus as Economic Clouds Gather

December 5, 2019

Japan Approves Stimulus“Prime Minister Shinzo Abe’s cabinet approved a $120 billion stimulus program, Japan’s largest in more than three years, citing the same global economic risks that have led central banks in the U.S. and Europe to cut interest rates. Mr. Abe’s plan is also aimed at healing a self-inflicted wound on the Japanese economy: the October increase in the national sales tax to 10% from 8%. Retail sales fell 7.1% in October and car sales were particularly hard-hit, suggesting the tax may have led consumers to refrain from big-ticket purchases. Japan’s exports have already been suffering this year, in part because of a slowdown in Chinese growth.

Tokyo’s new spending includes more than $50 billion to help recover from a typhoon in October that killed about 100 people. Levees in many areas collapsed and led to widespread flooding, pointing to the need for stronger infrastructure. Other spending will go to putting more digital devices in schools and funding reward points for shoppers who pay for purchases with credit cards, smartphone apps or other cashless methods. The government started the reward program in October to blunt the impact of the tax increase, and it has proved more popular than expected. Mr. Abe’s government estimated new spending by central and local governments would boost Japan’s real gross domestic product by a cumulative 1.4% through the fiscal year ending in March 2022. The spending plan of ¥13.2 trillion ($120 billion) is as much as the previous major stimulus package, which was released in August 2016 when a slowdown in developing economies caused turmoil in financial markets.”

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KITCO NEWS/Anna Golubova

Gold prices at daily lows despite disappointing U.S. service sector data

December 4, 2019

“Gold prices saw more losses Wednesday morning even though momentum in the service sector slowed in November, according to the latest data from the Institute of Supply Management (ISM). The Non-Manufacturing Purchasing Managers Index retreated to a reading of 53.9% in November, down from October’s 54.7%. The 0.8 percentage-point decline surprised the markets. Readings above 50 are seen as a sign of economic growth – the farther an indicator is above or below 50, the greater or smaller the rate of change.

The details of the ISM Non-Manufacturing report revealed that the new orders sub-index rose to 57.1% from October’s 55.6%. Looking at other components, business activity sub-index decreased to 51.6% from 57% registered in October. The employment index rose to 55.5% from October’s reading of 53.7%. Economists keep a close eye on the latter number as a gauge into the employment situation in the country. Inflation pressures rose for the 30th consecutive month, with the price index coming in at 58.5% in November.”

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REUTERS/Dan Burns

U.S. private sector job growth at six-month low in November: ADP

December 4, 2019

Private Sector Jobs“U.S. private-sector job growth unexpectedly slowed to its weakest pace in six months in November, and goods producers and construction firms cut jobs, a private survey said on Wednesday. U.S. companies’ payrolls rose by 67,000 last month, the ADP National Employment Report said. The median forecast among economists polled by Reuters called for a gain of 140,000 jobs, with estimates ranging from 120,000 to 188,000. It was the lowest monthly gain since May when just 46,000 jobs were created, the fewest since 2010, and continues a trend of decelerating job growth that has taken hold this year. By ADP’s measure, American firms have added an average of about 159,000 jobs a month in the last 12 months, the lowest since 2011 and down sharply from an average of more than 200,000 a month at the start of 2019.

Private payroll gains in the month earlier were revised down to 121,000 from an originally reported 125,000 increase.  The report is jointly developed with Moody’s Analytics. ‘The job market is losing its shine,’ Mark Zandi, chief economist of Moody’s Analytics, said in a statement. ‘Manufacturers, commodity producers, and retailers are shedding jobs. Job openings are declining and if job growth slows any further unemployment will increase.’”

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CNBC/Diana Olick

Next year will be hard on the housing market, especially in these big cities

December 4, 2019

Hard on Housing Market“Home sales will drop, the housing shortage could become the worst in U.S. history, and home values will shrink in some cities. That’s the 2020 forecast from realtor.com, which holds one of the largest databases of housing statistics available. Sales of existing homes will fall 1.8% from 2019, according to the forecast. Home prices will flatten nationally, increasing just 0.8% annually, but prices will fall in a quarter of the 100 largest metropolitan markets, including Chicago, Dallas, Las Vegas, Miami, St. Louis, Detroit and San Francisco.

It is a seemingly contrary assessment, given the current strength of the economy and of homebuyer demand, but the dynamics of this housing market are unlike any other — the result of a housing crash unlike any other. ‘Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting,’ said George Ratiu, senior economist at realtor.com. ‘Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can’t find.’ It’s all about supply. The inventory of homes for sale has been falling steadily for several years and is at its lowest on the lowest end of the market. That caused prices to overheat, weakening affordability. The 2020 forecast offers no relief, in fact just the opposite. As demand heats up in the spring, driven by the growing number of millennials entering the market, the supply of homes for sale could hit its lowest in history.”

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BLOOMBERG/Karl W. Smith

Shoppers Won’t Save the U.S. Economy

December 4, 2019

Shoppers Wont Save Economy“Reports of strong sales on Black Friday and Cyber Monday have strengthened the case that consumers will continue to be the engine of growth for the U.S. economy. The resilience of the American consumer, goes the theory, will stave off a recession. That confidence may be misplaced. There are two problems with putting too much faith in consumer-driven growth. First, as my colleague John Authers has observed, the underlying strength is slowing. Second, consumers are traditionally lagging indicators of economic weakness. Business cycles are driven by investment in housing and business. By the time consumer spending begins to weaken, it is too late.

And consumer spending, like overall GDP, peaked in mid-2018 and has been declining ever since. The decline has been shallower than that of business investment, so consumer spending has exerted a moderating force on overall growth. But the trajectory is still downward and nearing levels that prevailed in 2016 and 2017. Without any contribution from the rest of the economy, consumer spending at current levels could support GDP growth of only about 1.5% a year and average monthly job growth of about 60,000, which would be the weakest job growth since late 2010. By comparison, the economy has created an average of 147,000 jobs per month over the past 12 months.”

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BARRON’S/Alexandra Scaggs

The Fed Has Been Quietly Increasing the Size of Its Money-Market Interventions

December 4, 2019

Feds Increase Money Market“The Federal Reserve has been intervening more aggressively in money markets as it attempts to keep interest rates from rising around the end of the year. On Monday, the central bank again increased the amount of short-term cash loans it plans to offer banks to ensure U.S. interest rates remain stable later this month. It now plans to offer $25 billion in cash loans for the 28-day period ended Jan. 6, up from $15 billion previously. Last week, it increased the size of a 42-day facility for the period ended Jan. 13 by $10 billion as well. That extra $20 billion doesn’t substantially change the total amount of cash loans made by the New York Fed, which is tasked with keeping interest rates within the policy band targeted by the Fed. It does, however, illuminate the challenge the central bank faces in the corner of money markets where trading desks lend cash to one another, known as the repo market.

In repo transactions, traders sell government securities for cash on a short-term basis, agreeing to buy back the securities at a premium on a predetermined future date, usually one to 90 days later. (‘Repo’ is short for repurchase agreement.) The central bank has been active in that market since mid-September. Around Sept. 17, a series of events tied up cash on banks’ balance sheets in government securities, and drove short-term interest rates sharply higher. The Fed intervened with repo transactions, to ease the pressure. It isn’t unusual for the Fed to participate in repo markets. Before the financial crisis, the central bank implemented its monetary policy by lending out cash in repo markets, albeit in smaller amounts. But the end of the year could bring more upward pressure on interest rates, and once again challenge the Fed’s ability to maintain rates within its targeted band.”

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South China Morning Post/Anthony Rowley

Huge public, corporate and household debt looks like the ‘new normal’ for the global economy – until the next crisis

December 2, 2019

Household Debt New Normal“In the ‘new normal’ economic world, many beliefs have been turned on their head. Trade wars supposedly do not cause lasting harm, declining corporate output, earnings and investment are no cause for alarm, stock prices can  go on rising regardless, and record global debt is nothing to lose sleep over. Debt has now hit what the Institute of International Finance (IIF) calls ‘mind-boggling’ proportions and Unctad – the UN body dealing with trade, investment and development issues – has warned of a new debt crisis … It seems that ‘all is for the best in the best of possible worlds’, to quote Professor Pangloss in Voltaire’s Candide. The debt mountain has grown hugely, not only in Asia but also in the United States and Europe, and governments have become as heavily addicted to borrowing as have corporate and household sectors (in China especially).

Global debt surged by US$7.5 trillion in the first half of this year alone, reaching a record of US$251 trillion, according to the IIF. ‘With no sign of a slowdown, we expect the global debt load to exceed [US]$255 trillion in 2019 – largely driven by the US and China,’ it says. The world’s principal central banks are also increasingly arguing that monetary policy cannot go on indefinitely being the only game in town, and that fiscal policy needs to do more to assist growth (or stave off recession).”

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REUTERS/Aftab Ahmed and Rajendra Jadhav

India’s Nov gold imports jump to 5-month high as prices retreat

December 3, 2019

“India’s gold imports in November jumped 78% from a month earlier to the highest level in five months as jewellers in the world’s second-biggest market for the metal restocked after a fall in prices, a government source said on Tuesday.  Higher imports by the South Asian country could support global prices that have risen more than 12% so far in 2019, but could also widen India’s trade deficit and put pressure on the rupee. India fills nearly all of its gold demand through imports.

India imported 71 tonnes of gold in November, compared with 40 tonnes in October, the source said on condition of anonymity as he was not authorised to speak to media. Imports were down 16% from November 2018, however, he added.  Gold prices corrected after the Diwali festival, giving an opportunity for jewellers to replenish inventory, said Mukesh Kothari, director at Mumbai bullion dealer RiddiSiddhi Bullions. Indians celebrated the Dhanteras and Diwali festivals in October, when retail demand for gold peaks as it is considered auspicious and invokes lasting prosperity.”

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MARKET WATCH/Chris Matthews and William Watts

Dow tumbles 300 points after Trump says China deal may be best after election

December 3, 2019

Dow Tumbles“U.S. stocks fell sharply at the start of trade Tuesday, on track for a second day of heavy losses, after President Donald Trump said the idea of holding off on a U.S.-China trade deal until after the 2020 presidential election had appeal, undermining market confidence that a deal may be done before fresh import tariffs are imposed on December 15.  Investors were also monitoring moves by President Trump to raise or threaten tariffs on other partners, including Brazil, Argentina and France. The Dow Jones Industrial Average DJIA, -1.36% fell 326 points, or 1.2%, to trade at 27,450, while the S&P 500 index SPX, -1.02% gave up 33 points, or 1.1%, to trade at 3,080. The Nasdaq Composite index  COMP, -1.03% retreated 113 points, or 1.3%, at 8,456.

Stocks saw their biggest one-day decline in nearly eight weeks on Monday, with the Dow falling 268.37 points, or 1%, to end at 27,783.04. The S&P 500 dropped 27.11 points or 0.9%, to close at 3,113.87, while the Nasdaq Stock-index futures were trading higher in premarket action Tuesday, but turned lower after Trump, speaking at a London news conference where he is attending a NATO meeting, said he had “no deadline” when it comes to concluding the long-running U.S.-China trade talks. ‘In some ways, I think it’s better to wait until after the election if you want to know the truth. But I’m not going to say that, I just think that,’ Trump said.”

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CNBC/Maggie Fitzgerald

If we are in for another December market plunge, here are the places to hide out

December 3, 2019

December Market Plunge Hide Outs“It’s December, markets are dropping and it feels like we’ve been here before. Stocks dropped the first two trading days of December and investors are having deja vu. The Dow tumbled nearly 270 points on Monday and continued to fall more than 400 points on Tuesday after President Donald Trump suggested he may want to delay a trade deal with China until after the 2020 presidential election. Alongside the suffering markets, the CBOE Volatility Index, a gauge for investor fear, jumped more than six points above the 17 level, after being stable and range bound for most of November.

Investors are now having flashbacks to last year, when the market suffered its worst December since the Great Depression amid the intensified U.S.-China trade war and a rate increase from the Federal Reserve, with the major stock averages briefly dipping into bear market territory on an intraday basis. The VIX spiked above the 36 level in December 2018. In case fears that last December will repeat itself become a reality, CNBC screened for the best places to hide out when volatility spikes …The iShares Gold Trust ETF (IAU) and the SPDR Gold Shares ETF (GLD) are the best performing ETFs during months when volatility spikes, trading positive 65% of the time and returning an average of 2.6% if you buy when the VIX starts to move and sell one month later. Gold is seen as a safe haven and store of value during times of economic uncertainty and increased geopolitical tensions.”

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BLOOMBERG/Eric Lam and Gregor Stuart Hunter

Here’s What Happens to Markets If U.S. Tariffs on China Kick in Dec. 15

December 2, 2019

Tariffs on China“President Donald Trump’s latest missives on trade are a wake-up call to markets close to record highs that a major deadline is looming with China. The Dec. 15 flashpoint on tariffs was thrown into sharp relief Tuesday when Trump said he sees no urgency to complete a deal, right after he threatened an assortment of trading partners with levies. ‘If tariffs scheduled for Dec. 15 are implemented it would be a huge shock to the market consensus,’ said Sue Trinh, managing director for global macro strategy at Manulife Investment Management in Hong Kong. ‘Trump would be the Grinch that stole Christmas,’ she said.

Global equities came within a whisker of their all-time high last month, propelled in part by swelling optimism that at least an interim U.S.-China trade deal was in the offing. Meantime, the clock kept ticking towards Dec. 15, when Trump has threatened to impose 15% levies on $160 billion of Chinese imports. With about two weeks to go on the China front, the Trump administration hit Brazil and Argentina with steel tariffs and proposed levies on France as punishment over a tax that’s hit U.S. tech companies. Moves by self-styled Tariff Man Monday were enough to trigger the biggest Wall Street sell-off in eight weeks — with a little help from a weak U.S. manufacturing report. ‘I have no deadline,’ Trump told reporters when asked if he wanted an agreement by year end. Stocks fell. The U.S. president suggested that in some ways, it might be better to wait until after the November election. The following are the views of a number of market participants on what happens if the tariffs on China kick in Dec. 15. It will be ‘definitely risk-off across the screen,’ Tongli Han, chief investment officer at Deepblue Global Investment, said. ‘What happened recently makes this trade deal more costly for Chinese leaders — so I’m seeing a gloomy future for the short term, one-to-two months.’”

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THE WALL STREET JOURNAL/Ian Talley

Iran, Cut Off from Vital Cash Reserves, Is Approaching Economic Peril, U.S. Says

December 3, 2019

Iran Approaching Economic Peril“While Iran’s sanction-battered economy has sparked protests across the nation, U.S. officials cite new intelligence suggesting Tehran’s finances are more dire than previously thought and are bringing it closer to a financial crisis. Tehran’s sophisticated sanction-evasion efforts have offset some of the losses from plummeting oil exports due to global U.S. sanctions pressure. But according to new U.S. financial intelligence, the government is scraping the barrel on foreign-exchange reserves, a critical indicator of the country’s ability to control economic forces and to import equipment and supplies.

That shortfall, combined with the oil drop-off and a widening trade deficit, puts Iran in even greater economic duress than in 2013, when the government of President Hassan Rouhani was pressured into starting official nuclear negotiations with global powers, U.S. officials say. The state of Iran’s economy is clouded by unknowns, as the country’s economic statistics aren’t always considered reliable or transparent, and intelligence from U.S. allies indicate Iran’s government may have sufficient amounts of off-book income to ease its shortfall.”

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KITCO NEWS/Jim Wyckoff

Gold, silver prices pop as stocks wobble on Trump trade rhetoric

December 3, 2019

Gold and Silver Prices PopGold and silver prices are posting good gains in early U.S. trading Tuesday, on some safe-haven buying interest following downbeat remarks from President Trump regarding the U.S.-China trade negotiations. February gold futures were last up $11.40 an ounce at 1,480.20. March Comex silver prices were last up $0.249 at $17.205 an ounce.

Trader and investor risk appetite has again been dented Tuesday following Trump’s comments in London, regarding a partial U.S.-China trade deal. Trump said there is no timetable on even a partial deal and implied any deal could come after next year’s U.S. presidential election. ‘In some ways, it may be better to wait until after the election,’ said Trump. Trump on Monday threatened Brazil and Argentina with trade tariffs and on Tuesday did the same to France. Asian equities were mixed and European stock markets were mostly lower overnight. The U.S. stock indexes are pointed toward lower openings when the New York day session begins. In other overnight news, the Euro zone producer price index in October rose 0.1% from September and was down 1.9%, year-on-year. That’s yet another worrisomely low inflation report coming from the world’s third-largest economy.”

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It’s December, and we suddenly find ourselves in the last month of 2019 with the holiday season well underway. Ready or not, the year will come to an end in a matter of weeks. For some it has been a good year, for others it has been a year of hard work and hard lessons.  In terms of money and finance, 2019 offers critical clues as to what to expect next.

During the past year, the U.S.-China trade war exposed cracks in the global economy. Suddenly, everyone seemed vulnerable from U.S. farmers, to Chinese manufacturers, to German automakers. The yield curve inverted, business investment began to sag, and wage growth all but stalled. Wall Street turned downright fitful as intraday market volatility reached levels not seen in eight years. And a decade of easy money and cheap credit came home to roost as the world’s debt pile grew to almost three times the size of global output.

We have now come face-to-face with the limitations of monetary policy as interest rates around the world remain fixed at historic lows leaving central banks painfully short on ammo.

Let’s not forget the forces of wealth inequality, waning corporate profits, economic contractions (in the EU, Asia, and Latin America), the looming Brexit fallout, and the repercussions of America’s deep, political divide. The potential impeachment of a U.S. president casts tax policy, corporate regulations, and capex spending into a sea of doubt.

Despite a record-setting stock run and a chart-busting U.S. expansion, uncertainty is undercutting confidence in every nook and cranny of the financial world.

The U.S. manufacturing sector remains in a contraction, national debt has ballooned to unsustainable levels, CEO confidence is slipping, and private sector job growth has slowed. Financial leaders and policymakers around the world are recession-proofing their companies, shoring up their reserves, and safe-guarding their capital in the event the downturn gains steam.

The story of 2019 is one of a ‘world disrupted’ — and the resulting commotion and chaos will carry into 2020.

Like all ‘Auld Lang Synes,’ the prospect of a new year brings familiar regrets, improbable resolutions, and a year of fresh risk. So, we remain on recession watch and brace for more volatility, increasing uncertainty, and steeper market losses.

Billionaires, hedge fund gurus and speculators from across the financial spectrum have expressed growing concerns about everything from negative interest rates and negative bond yields, falling inflation and evaporating liquidity, geopolitical risk and the collapse of the free market system. Others believe that we could talk ourselves into a recession. They’re unanimous, however, in their collective anxiety about how we’ll cope with the next downturn.

So, before you tune into Dick Clark’s New Year’s Rockin’ Eve, watch the Times Square ball wobble and drop, sip some extra dry champagne, and mouth the words to that song that no one really knows — it’s a good time to make a plan to protect your savings.

Along with the new year comes the reality of the unforeseen, the unexpected and any number of pressing issues that could crush consumer confidence and send us headlong into a full-blown financial crisis.

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Gold slips on strong Chinese data, palladium soars to new record

December 2, 2019

“Gold prices fell on Monday after better-than-expected manufacturing data from China assuaged fears of a slowdown in global growth while deficit-ridden. Auto-catalyst metal palladium soared to an all-time high. Spot gold slipped 0.4% to $1,457.96 per ounce by 1310 GMT. U.S. gold futures fell 0.6% to $1,463.80 per ounce. Data showing growth in factory activity during November in China, the world’s second-largest economy and biggest gold consumer, pushed up equity markets.

‘At least in the short-term, this kind of data will keep gold prices in check,’ said Julius Baer analyst Carsten Menke. Gold is considered a safe store of value at times of political or economic uncertainty. Demand for the metal was further pressured by the rising dollar, making dollar-denominated bullion more expensive for buyers using other currencies. On the U.S.-China trade front, reports said a preliminary agreement has now stalled because of U.S. legislation supporting protesters in Hong Kong and Chinese demands that Washington roll back its tariffs. Gold has risen more than 13% this year mainly due to the trade dispute driving demand for safe assets.”

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KITCO NEWS/Anna Golubova

Gold prices to peak at $1,500 in 2020, Fed to play key role – ING

November 29, 2019

Gold Prices Peak“Gold prices will remain supported throughout next year because of uncertainty surrounding trade and global growth, said ING in its 2020 Commodities Outlook. The Dutch bank’s price forecast has gold trading well above its new floor of $1,450 an ounce throughout 2020 but does not see it rise much above $1,500 an ounce. ‘Looking to 2020 … uncertainty around trade talks and global growth are likely to remain key drivers,’ ING head of commodities strategy Warren Patterson and senior commodities strategist Wenyu Yao said. In Q1, the bank has gold averaging at $1,500 an ounce, then dropping to $1,470 in Q2 and Q3, and finally rising to $1,480 in Q4.

‘We currently forecast that gold prices will average around US$1,475/oz over the course of 2020,’ ING stated. Gold’s further upside potential will depend on how dovish the Federal Reserve chooses to be next year, the strategists added. ‘As a result of trade uncertainty and concerns over global growth, we do see upside to gold prices from current levels. While if the U.S. Fed turns increasingly more dovish, this only provides further upside,’ they said. The 2020 outlook is based on the yellow metal’s solid performance this year, which saw prices rise as much as 21%, the report said.”

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BLOOMBERG/Enda Curran

The Way Out for a World Economy Hooked on Debt? More Debt

December 1, 2019

Global Debt“Zombie companies in China. Crippling student bills in America. Sky-high mortgages in Australia. Another default scare in Argentina. A decade of easy money has left the world with a record $250 trillion of government, corporate and household debt. That’s almost three times global economic output and equates to about $32,500 for every man, woman and child on earth.

Much of that legacy stems from policy makers’ deliberate efforts to use borrowing to keep the global economy afloat in the wake of the financial crisis. Rock bottom interest rates in the years since has kept the burden manageable for most, allowing the debt mountain to keep growing. Now, as policy makers grapple with the slowest growth since that era, a suite of options on how to revive their economies share a common denominator: yet more debt. From Green New Deals to Modern Monetary Theory, proponents of deficit spending argue central banks are exhausted and that massive fiscal spending is needed to yank companies and households out of their funk. Fiscal hawks argue such proposals will merely sow the seeds for more trouble. But the needle seems to be shifting on how much debt an economy can safely carry. Central bankers and policy makers from European Central Bank President Christine Lagarde to the International Monetary Fund have been urging governments to do more, arguing it’s a good time to borrow for projects that will reap economic dividends.”

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CNBC/Jeff Cox

A key manufacturing index shows the U.S. remains in contraction territory

December 2, 2019

Key Manufacturing Index“Manufacturing activity continued to lag in November amid a lag in inventories and new orders, according to the latest ISM Manufacturing reading released Monday. The reading came in at 48.1 vs. an expectation of 49.4 and the previous month’s reading of 48.3. Though the ISM reading is usually reported as a simple number, it actually denotes the percentage of manufacturers planning to expand operations. A reading below 50 represents contraction; November was the fourth straight month below the expansion level.

 

New orders slumped to 47.2, down 1.9 percentage points from October’s 49.1. Inventories, which are a key input for gross domestic product, came in at 45.5, down 3.4 points from the previous month.

The numbers come amid speculation about the pace of U.S. growth.  Recession worries have ebbed from earlier in the year, when the Treasury yield curve was inverted and flashing what has been a reliable 12-month recession indicator for the past 50 years. GDP growth has averaged around 2.4% in 2019, with the third quarter coming in at 2.1%. However, most forecasters expect the fourth quarter to come in under 2%. Manufacturing is considered a reliable bellwether for how the rest of the economy is doing, though it comprises only about one-fifth of GDP. Nearly all of the key ISM indicators were at contraction levels in November.  Employment was at 46.6, down 1.1 point for the month, while export orders fell 2.5 points to 47.9 as the U.S. and China continue to look for a resolution to a trade dispute that began more than a year and a half ago.”

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FINANCIAL TIMES/George Parker

Is Boris Johnson heading for another Brexit crisis?

December 2, 2019

Boris Johnson Brexit“Boris Johnson’s promise to ‘Get Brexit Done’ has proved a powerful election slogan, but the prime minister’s critics claim it masks the fact that if he wins the election Britain faces a tough and potentially humiliating trade negotiation with the EU. Michael Heseltine, former deputy prime minister, called it ‘the great delusion’, while Ivan Rogers, Britain’s former ambassador to the EU, warned last week of ‘the crisis that is likely to confront us at the Christmas yet to come — Christmas 2020’.

Mr. Johnson and fellow ministers have so far brushed aside any idea that a post-Brexit trade deal with the EU would be anything other than simple. ‘Most of the work has already been done,’ chancellor Sajid Javid claimed. But by insisting that a deal must be done by December 2020, Mr. Johnson has set a highly ambitious — some say impossible — timetable for talks. His critics claim Britain is heading for another economic and political Brexit crisis if he is returned to Downing Street …
Unless Britain agrees to extend the transition period — possibly precipitating a political crisis for Mr. Johnson — it could instead face an economic crisis if it left the EU without a trade deal and defaulted to basic World Trade Organization rules. Mr. Johnson has refused during the election campaign to countenance a ‘no deal’ exit from the transition in December 2020 … a WTO exit would see the erection overnight of new trade barriers, quotas and tariffs. Mr. Johnson has instead simply insisted the deal will be done. ‘Not perhaps the most compelling argument,’ said Lord Heseltine drily.”

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THE WALL STREET JOURNAL/Paul Kiernan

U.S. Dominance in Global Services Economy Weakens

December 2, 2019

Dominance in Global Economy“Over the past half-century, the U.S. has evolved from an industrial superpower into the undisputed champion of the global services economy. From 2003 to 2015, the U.S. trade surplus in services such as medical care, higher education, royalties and payments processing nearly sextupled to $263.3 billion. Growth has since stalled, however. Exports of services barely rose in the first nine months of 2019, while imports increased 5.5%. The services surplus, at $178.5 billion through September, was down 10% from a year earlier, on pace for its steepest annual decline since 2003.

 

Some of the softness in service exports likely reflects cyclical factors, such as a strong dollar or slowing foreign economies. But economists say the decline in the surplus is difficult to pin exclusively on such issues. They point to other forces—some political, others more tectonic—that are weighing on exports while prompting American consumers and companies to buy more foreign services. Much rides on whether this trend continues or reverses. While trade surpluses or deficits aren’t intrinsically good or bad, they reflect a country’s comparative advantages in the global economy. The U.S.’s prowess in academia, tech, finance and consulting creates millions of jobs, often high-skilled, and effectively helps pay for imports of merchandise such as smartphones, cars and wine. ‘It goes to the heart of what the U.S. is really good at,’ said Michael Pearce, an economist at Capital Economics. ‘These are all areas in which the U.S. is a world leader, and it’s also what drives more fundamental, supply-side growth in the economy.’”

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Gold softens as trade deal signs boost equities, dollar

November 27, 2019

“Gold prices dipped back towards the previous session’s two-week low on Wednesday as increasing signs that an interim trade deal could soon be reached buoyed riskier assets and the U.S. dollar. Spot gold was down 0.4% at $1,456.01 per ounce as of 1327 GMT, while U.S. gold futures were 0.3% lower at $1,455.80. Having dropped to a two-week low of $1,450.30 early on Tuesday, gold prices bounced back to settle higher, ending a four-session losing streak.

‘The decline of today is relatively small and can be seen as a consolidation after yesterday’s recovery,’ said Carlo Alberto De Casa, chief analyst at ActivTrades. Rising share prices and a recovering dollar were relatively bearish for gold, he said.  ‘What’s important is that prices are holding above $1,450… If prices fall below $1,445, then there will be a clear signal that we are entering a danger zone,’ De Casa said, adding the markets are waiting for further details on the trade talks.

U.S. President Donald Trump on Tuesday said Washington was in the ‘final throes’ of a deal that would defuse the 16-month tariff dispute with Beijing.”

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MARKET WATCH/Barbara Kollmeyer

December selloff warning from strategist who predicted last year’s rout

November 27, 2019

December Selloff Warning“Around this time a year ago, Seema Shah, chief strategist at Principal Global Investors, warned that stocks were facing an imminent selloff. Her call proved spot on as 2018 closed with the worst December Dow and performances since 1931. Fast forward and the S&P is set for its best annual return since 2013, provided next month isn’t a disaster. Shah provides our call of the day, cautioning that equities are at risk of another selloff if a partial trade deal can’t be reached before the next tariff deadline on December 15.

‘If that trade deal doesn’t happen and if everything falls apart and it feels like tensions are getting worse, then I think we are facing a potential repeat of last year, and it will be worse,’ Shah told MarketWatch. She explains a ‘bigger shock move’ would be probable because liquidity falls so much in December. (Read more about why another December meltdown is easily repeatable.) But Shah thinks markets will get that trade deal because President Donald Trump is facing an election year and China can’t afford more economic pressure. Further support for stocks will come from a stabilizing global economy in 2020 and continued low-interest rate central bank policies. But she’s keeping her S&P 500 outlook for next year moderate—3000 to 3250.”

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CNBC/Olivia Raimonde

Global car sales to slide by 3.1 million in steepest drop since Great Recession

November 25, 2019

Global Car Sales“Car sales around the world are expected to see their steepest year-over-year decline in 2019 since the financial crisis as consumer demand from the U.S. to China softens. Global car sales are expected to fall by about 3.1 million in 2019, a bigger drop than in 2008, Fitch Ratings economics team said Monday, citing data collected by the International Organisation of Motor Vehicle Manufacturers. The slowdown in auto sales is contributing to a drag on global manufacturing, Fitch said. ‘The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing and the car sales picture is turning out a lot worse than we expected back in May,’ Brian Coulton, chief economist at Fitch Ratings, said in a statement.

 

Global passenger car sales fell to 80.6 million in 2018 from 81.8 million new units sold in 2017, which was the first annual decline since 2009, Fitch said. Worldwide sales in 2019 look likely to fall by another 4% to around 77.5 million new vehicle sales. Falling demand in China, the world’s largest auto market, is a major factor in the worldwide decline this year. Sales there fell 11% during the first 10 months of this year compared with the same time last year. Coulton said weak credit growth, a rise in used car sales and new emissions standards depressed new car sales in China.”

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BLOOMBERG/Craig Stirling and John Ainger

Global Risk-Taking Binge Is Worrying Central Banks

November 26, 2019

Global Risks Worrying Central Banks“Global central banks are approaching the end of the year with a collective shudder at the risky behavior that their low interest-rate policies are encouraging. Policy makers from European Central Bank and the Federal Reserve are among those raising cautionary flags at potentially unsafe investing stoked by their efforts to flood economies with ultra-cheap money. Stock indexes from the U.S. to India are at records, and low sovereign bond yields have pushed funds into property seeking better returns.

The warnings are couched in measured language that doesn’t signal panic, but the combined message is one of growing anxiety, laced with the discomfort that central bankers can’t easily tighten policy either. The danger is that such risk-taking recreates a backdrop similar to that preceding the global financial crisis a decade ago. ‘Markets have been complacent, but this is probably the outcome of low rates or negative rates,’ Sergio Ermotti, chief executive officer of UBS Group AG, told Bloomberg TV last week at the New Economy Forum in Beijing. ‘The chances that one day or the other things are going to be out of sync is increasing.’ Historically-low interest rates are warping markets. In August, some $17 trillion of global investment-grade debt, around a third of the total, had negative yields. That means investors holding a bond to maturity may receive less at the end than they paid out at the beginning — upturning financial wisdom that you should get compensated for lending money.”

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CNBC/Jeff Cox

Fed analysis warns of ‘economic ruin’ when governments print money to pay debt

November 25, 2019

Feds Warn Economic Ruin“Federal Reserve economists warn that printing money to pay for deficit spending has been a disaster for other nations that have tried it. In a paper that discusses the burgeoning U.S. fiscal debt, Fed experts note that high levels are not necessarily unsustainable so long as income is rising at a faster pace. They note that countries that have gotten into trouble and looked to central banks to bail them out haven’t fared well. ‘A solution some countries with high levels of unsustainable debt have tried is printing money. In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money,’ wrote Scott A. Wolla and Kaitlyn Frerking. ‘History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.’

They cite Weimar-era Germany, Zimbabwe in the 2007-09 period and Venezuela currently. All three faced massive deficits that led to hyperinflation due to money printing. ‘An important protection against this type of policy is to create an independent central bank that is insulated from the political process and has clear objectives (such as a specific target for the inflation rate) so that it can make policy decisions to sustain economic health over the long run rather than respond to political pressures,’ the economists added.”

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THE GUARDIAN/Martin Farrer and Kalyeena Makortoff

As Hong Kong suffers, China risks losing its financial window on the world

November 26, 2019

Hong Kong Updates“The most recent violence in the autonomous Chinese region have been the worst disturbances of the six-month long pro-democracy protests. US lawmakers have passed legislation threatening Hong Kong’s special trading status and the territory has slumped into its worst recession for 10 years. With next year shaping up to be even tougher, the protesters appear to have achieved the ambition expressed in a recent poster on social media this week. ‘Squeeze the economy to increase pressure,’ it urged. Trade and commerce are the lifeblood of Hong Kong but it is bleeding badly. The economy is expected to shrink by 1.4% in 2019 and economists think growth could wither by as much as 3% in 2020 without a big fiscal stimulus.”

“The decision by the US Congress to pass the Hong Kong Human Rights and Democracy Act could represent a more significant long-term threat to the territory’s economic fortunes. The bill has infuriated Beijing as an ‘intervention’ in its affairs but despite the delicate stage of US China trade talks, Donald Trump is expected to sign the legislation … A second bill, which the Senate also approved unanimously, would ban the export of certain crowd-control munitions to Hong Kong authorities. George Magnus, the former chief economist of UBS and now an associate of the London School of Economics’s IDEAS thinktank, said the legislation was potentially damaging for China. ‘Hong Kong is China’s financial window on the world, and vice versa. The territory lends China capital, clout and kudos. All of this is now at risk.’”

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Gold steadies near two-week low as focus remains on U.S.-China talks

November 26, 2019

“Gold was steady on Tuesday as traders awaited further developments in the trade negotiations between the United States and China while a firm equities market kept bullion near a two-week low hit earlier in the day. Spot gold was steady at $1,454.67 an ounce at 1340 GMT. U.S. gold futures edged down 0.2% to $1,454.50. ‘Markets are on standby,’ said FXTM analyst Lukman Otunuga, adding that everyone is waiting for further developments after news of a phone call between the two sides in an effort to secure a so-called Phase 1 deal.

China’s Vice Premier Liu He, U.S. Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin held a phone call on issues related to Phase 1 agreement on

Tuesday. Global equities edged off their highest in almost two years but kept record levels in sight after the latest signs of a potential end to the U.S.-China trade war.  More trade optimism should be enough to send gold towards $1,430, but if there’s more time wasting or investors are left empty handed, that should elevate gold prices towards $1,465-$1,475, Otunuga added.”

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KITCO NEWS/Neils Christensen

Goldman Sachs sees gold at $1,600, silver at $18 in 2020

November 25, 2019

Goldman Sachs“Goldman Sachs is maintaining its bullish outlook on gold, looking for prices to push to $1,600 an ounce next year, but its big trade for 2020 is oil.  In a report published Sunday, the investment bank said that it continues to like the precious metal as investors look for alternative investment assets. ‘Investment deficit creates excess savings, supporting gold. In theory, savings should equal investment, but due to this decline in capex and a rise in precautionary cash balances, a savings surplus is beginning to develop that is supporting gold prices,’ the analysts noted.

‘When combined with 750 tonnes of central bank gold purchases related to de-dollarization and defensive portfolio rotations, the savings glut means we maintain our bullish gold stance in 2020 with a target of $1600/toz.,’ they added. Goldman Sach’s gold forecast would represent a nearly 10% gain from current prices … Heightened global uncertainty coupled with modest global economic growth should continue to support gold prices through next year, the analysts said. Although investor sentiment on the global economy has improved recently, Goldman Sachs noted that recession concerns remain elevated.”

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MARKET WATCH/Jeffry Bartash

Consumer confidence falls for the fourth month in a row on labor-market worries

November 26, 2019

Consumer Confidence“Consumer confidence fell in November for the fourth month in a row as Americans expressed more worries about the U.S. labor market, but remained generally upbeat about the economy heading into the holiday season.  The consumer confidence index slipped to 125.5 this month from a revised 126.1 in October, the Conference Board said Tuesday. That’s the lowest level since the early spring. Economists polled by MarketWatch had forecast a reading of 128.2. The index of consumer confidence touched an 18-year peak just over a year ago, but it’s fallen in the wake of persistent trade tensions with China.

American were a bit less optimistic about the state of the economy right now, but they expect it to improve a bit in the months ahead.  The so-called present situation index dipped to 166.9 from 173. Yet a gauge that looks at expectations six months from now rose to 97.9 from 94.5 ‘Overall, confidence levels are still high and should support solid spending during this holiday season,’ said Lynn Franco, director of economic indicators at the Conference Board. The consumer confidence survey measures how Americans view their own financial well-being, job prospects and overall business conditions. A healthy economy requires confident consumers and Americans are still fairly confident in the economy. Although hiring has tapered off and jobs aren’t quite as easy to find, unemployment is near a 50-year low, layoffs are scarce and wages are rising steadily. Businesses are less confident, largely because of a trade war with China that’s dented exports, raised costs and cut into profits. The U.S. and China are striving to strike a ‘phase-one’ agreement, but companies are unlikely to boost spending and investment until trade tensions ease.”

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CNBC/Jeff Cox

Dallas Fed President Robert Kaplan says the fourth-quarter economy is ‘weak’

November 26, 2019

Fourth Quarter Weak“Dallas Federal Reserve President Robert Kaplan expects U.S. economic growth to slow substantially in the fourth quarter because businesses worried about the trade war are cutting their inventories. ‘We think the fourth quarter is going to be weak,’ Kaplan told CNBC during a live interview. The central bank official attributed the anemic growth level to ‘deglobalization’ in the form of tariffs the U.S. and China have levied against each other. While Kaplan did not put a specific level where he thinks GDP gains will fall, gauges from the New York and Atlanta Fed are estimating rises of 0.7% and 0.4% respectively. CNBC’s Rapid Update measure of economist expectations puts the number closer to 1.5%. Kaplan said inventory reduction is probably cutting half a point off GDP.

Uncertainty over future conditions is at the center of the low expectations. ‘This means people have been destocking and probably the reason they were destocking is there was a lot of pessimism over the last number of months over future growth prospects,’ Kaplan said. ‘We think things will stabilize. We’ve got a good chance to grow at 2% next year.’ Over the long run, he sees the U.S. growing at a 1.75%-2% range, though he said even that slowed pace could come under pressure.”

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THE MOTLEY FOOL/ Nearly 40% of Older Workers Are Putting Their Retirement Savings at Risk, New Research Reveals

November 26,2019

Retirement Savings at Risk“You’ve likely heard that you shouldn’t put all your eggs in one basket, and the same concept is true when it comes to retirement planning. When you’re stashing money in your retirement account, you’ll want to spread your money across various investments to limit your risk while still reaping the rewards. This is the main principle of asset allocation. There’s no one right way to invest your money, but it’s a good idea to build a balanced portfolio filled with higher-risk, higher-reward investments (like stocks) as well as lower-risk, lower-reward investments (like bonds). If you play it safe and only invest in funds that carry less risk, you likely won’t see the types of returns you need in order to build a robust retirement fund. But on the other hand, if you’re too aggressive with your investments, you run the risk of watching your savings crumble if the stock market takes a hit.

New research reveals that many older Americans might inadvertently be putting themselves in that situation. Approximately 38% of baby boomers are investing too heavily in stocks, a recent report from Fidelity Investments found. When you’re younger, you can invest more heavily in stocks and other higher-risk investments, because if your savings take a nosedive during a recession, you still have plenty of time left for your retirement fund to recover. But if you’re just a few short years from retirement and your savings take a hit, you might be in trouble.”

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FOX BUSINESS/Jonathan Garber

Stock market action after 2020 election sweep might surprise you

November 26, 2019

Election 2020“The outcome of the 2020 election will have major implications for the stock market, but not in the way you may think. If either Republicans or Democrats win total control of White House, Senate and House of Representatives, for instance, that can limit gridlock in Washington and allow the government to accomplish more — but it’s not necessarily good for traders. The stock market generally performs better under a divided government, according to the investment bank Goldman Sachs. Stock-market returns during periods of a divided federal government have ‘typically exceeded returns achieved when one political party controls the White House, Senate, and House of Representatives,’ David Kostin, chief U.S. equity strategist at Goldman Sachs, wrote in his 2020 outlook.

Since 1928, the S&P 500 has averaged a 12-month return of 11 percent when the election resulted in a divided government and 8 percent when a unified government was voted in. The returns of both were up one percentage point excluding recessions.  At the time of Goldman’s report, PredictIt, which forecasts market and political events, assigned a 74 percent probability to Democrats retaining control of the House in 2020, a 54 percent chance to the party winning the White House and just a 35 percent to its capturing the Senate.  Kostin expects the S&P 500 will climb more than 8 percent from current levels to 3,400 by the end of next year, but says that a unified government could lead the benchmark index to fall almost 17 percent to 2,600. While Goldman cites several risks to its forecast, including rising corporate leverage, reduced company buybacks, and low CEO confidence, the firm said political uncertainty and trade tension with China ‘remains the most salient risk to the path of U.S. equities in 2020.’”

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Charles Dickens once said, “Reflect upon your present blessings — of which every man has many — not on your past misfortunes, of which all men have some.”

Ten years ago this week, we were trapped in the lingering fallout of the Great Recession. Unemployment had reached 10% for the fist time in a quarter of a century. GM, the ‘heartbeat of America,’ filed for bankruptcy. Housing foreclosures were at record levels. ‘Cash for Clunkers’ was in full force and to add to the gloom, the H1N1 flu strain had reached epidemic levels.

In the U.S., housing declines had started to ease ever so slightly and Wall Street was stabilizing but the ‘damage was done’ so to speak — as home foreclosures reached almost 3 million in 2009 alone, and the economy was still hemorrhaging jobs. The federal government was forced to nationalize the auto industry with an $81 billion cash infusion and Fed stress tests showed that major U.S. banks were gravely under-capitalized including Wells Fargo, Bank of America, Citigroup, and a host of regional banks.

Around the world, governments were pumping trillions into their own economies in an effort to avoid a deeper downturn or a new setback that could trigger more financial pain. Few nations, regions, or states were spared the marked slowdown in economic activity as GDP growth turned negative in: Austria, Belgium, Canada, Brazil, Denmark, The Czech Republic, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Mexico, Netherlands, Norway, Russia, Saudi Arabia, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. As a whole, the world economy contracted (-)1.7%.

As we sat down at the Thanksgiving table in 2009 — we had lost, on average, two decades of accumulated wealth, more than 30% of our home value, and a large portion of our retirement funds as stocks reached a painful bottom. And yet, we found reasons to give thanks. The Spider-Man float was making a comeback at the 83rd Macy’s Thanksgiving Day Parade and the Pillsbury Doughboy was making its debut. 2009 was also the year of the “Miracle on the Hudson,” when captain ‘Sully’ Sullenberger piloted a crippled U.S. Airways jet to safety on the frigid Hudson River — saving all on board. Avatar, Slum Dog Millionaire, and The Hangover were the top escapist flicks and sports dynasty teams reigned supreme as the New York Yankees won the World Series, the Pittsburgh Steelers won the Super Bowl, and the L.A. Lakers won the NBA championships.

Along with the turkey and gravy, we found comfort in a familial gathering without talk of foreclosures, short-sales, bailouts, or crashes. And as one the worst economic downturns in modern history continued to pack a punch, we found the bright side — in cranberry sauce and stuffing, pumpkin pie and football. Ten years later, we’re left with the memories as well as the lessons — that a house is not a nest egg, stocks are not a safe haven, panic is not a crisis hedge, risk is not a tangible asset, and the Fed’s power is only eclipsed by its limitations.

A look back at Thanksgiving during the dark days of the downturn, is a timely reminder to celebrate the good times, prepare for the bad times, and hold tight to those things what never waiver, weaken or fall away — like family, the blessing of good food, the joy of good company, and the strength of the American spirit.

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REUTERS/Eileen Soreng

Gold dips as trade optimism benefits riskier assets trade deal doubts persist

November 25, 2019

“Gold edged down to a one-week low on Monday after the United States and China expressed willingness to sign an initial trade deal by year-end, boosting market sentiment and driving investors to higher-risk assets. Having fallen for the previous three sessions, spot gold was down 0.3% at $1,457.03 per ounce at 1201 GMT, after earlier touching its lowest since Nov. 18 at $1,455.90. U.S. gold futures were down 0.5% at $1,456.90. ‘The ultimate threat of a full escalation into a trade war, with bans and boycotts, is off the radar screen at least for the moment,’ Julius Baer analyst Carsten Menke said.

‘The markets are being comforted by recent (trade) developments. That’s why equities are high,’ he said, adding firmer stock markets are keeping gold prices range-bound between $1,450-$1,480. European shares rose for the second straight session following reports that Washington and Beijing were very close to an initial trade deal. Adding to the positive mood around the trade negotiations was the weekend announcement that China would seek to improve protections for intellectual property rights, a move seen to address a sticking point between the parties.”

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MARKET WATCH/Emily Bary

Earnings recession to swallow all of 2019 after holiday forecasts disappoint

November 25, 2019

Earnings Recession 2019“The holiday season is no longer expected to pull corporate earnings out of a recession that has lasted the entire year. Earnings in the S&P 500 index are now projected to decline 1.51% in the fourth quarter from the year before, according to a FactSet computation of analysts’ average forecasts for individual companies. An earnings recession is defined as two quarters or more of consecutive year-over-year declines, and earnings for S&P 500 components dipped in the first two quarters of 2019 and are all but certain to do so again in the third quarter — with nearly 95% of calendar third-quarter reports posted, earnings have dropped 2.34%, the biggest decline this year.

The last time profits decreased for four quarters in a row was in the period beginning with the third quarter of 2015, FactSet’s senior earnings analyst John Butters told MarketWatch in an email.

Three-fourths of earnings recessions since World War II have morphed into economic recessions, said CFRA Chief Investment Strategist Sam Stovall, who told MarketWatch that he has been ‘scratching his head’ trying to reconcile analyst pessimism around earnings with continued stock-market rallies.”

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BLOOMBERG/Eric Martin

Mexico’s Economy Suffered Slight Recession in First Half

November 25, 2019

Mexico Economy Suffered“Mexico suffered a slight recession in the first half of the year, revised data showed, painting an even bleaker picture of a stagnant economy. The nation’s $1.2 trillion economy shrank 0.1% on a seasonally adjusted basis every quarter from the end of last year through the first half of 2019, according to data released by the national statistics institute on Monday. Previous figures had showed a flat economy in the second quarter of this year and a 0.1% expansion at the end of 2018. A technical recession is defined by two consecutive quarterly contractions.

Analysts forecast Mexico’s gross domestic product to grow just 0.2% this year, the least since 2009, amid low oil output, slumping construction and stalled services activity. President Andres Manuel Lopez Obrador had repeatedly denied that the nation was in recession and said that defining the economy’s success by GDP growth is an outdated neoliberal concept that doesn’t take into account happiness and well-being. Monday’s data also showed that the economy was flat in the third quarter in seasonally-adjusted terms, compared with a previous reading of 0.1% growth. Lopez Obrador has pledged to lift growth to 4%, but his decision to scrap a $13 billion airport project and a slump in construction have pummeled the country’s building industry. ‘Activity is just not growing, and we continue to get more evidence that consumption and household demand keep losing momentum,’ said Felipe Hernandez, a Latin America economist at Bloomberg.”

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CNBC/Grace Shao

China’s slowdown is not the key problem for global growth — the trade war is

November 25, 2019

China SlowdownChina’s slowing growth rate should not be a worry but an unresolved trade war between the world’s two largest economies should be, Paul Gruenwald, chief economist at S&P Global Ratings, told CNBC. ‘We’ve been arguing for some time that China slowing from a 7-8% back then to a 5.5% is a broadly healthy development,’ Gruenwald said adding that China’s labor force is currently ‘either flat or shrinking,’ therefore the GDP per capita growth is still strong. In fact, the strained trade relationship is putting a greater dent on global growth than the direct impacts of tariffs. ‘All the uncertainty around U.S.-China (trade relationship) is putting a damper on investments. You don’t know where the world’s two largest economies are going and what the investment environment is going to be,’ he said.

As the trade war intensifies, many American companies are moving supply chain logistics out of China and into Southeast Asian nations, namely Vietnam and the United States’ southern neighbor, Mexico. But that supply chain reconfiguration between U.S. companies and Chinese manufacturers is not significant enough to move ‘the macro data,’ Gruenwald argued. What is affecting investment sentiment and long-term plans for companies is that they are uncertain about how to execute their five-year strategy plans, he said, and that is why companies are dialing back on spending.”

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SOUTH CHINA MORNING POST/William Zheng  and Echo Xie  

China tries to brush off pro-democracy victory in Hong Kong election and blames ‘foreign forces’ for interfering

November 25, 2019

Hong Kong Election“Mainland China on Monday tried to brush aside the landslide defeat for the pro-establishment camp in Hong Kong’s district council elections with news of the results being heavily censored. State media preferred to focus on calls for law and order to be preserved and the accusation that Western countries had been instigating unrest. Official media outlets only ran brief reports on the vote, with state news agency Xinhua declining to report the results, in which the pro-democracy camp took control of 17 out of 18 councils.

‘According to the announcement by the Electoral Affairs Commission, all 452 district councillors of 18 districts have been elected,’ it said. The report continued: “In the past five months, violent rioters who wanted to turn Hong Kong upside down have colluded with foreign forces … non-stop social unrest has seriously disrupted the election process, and some troublemakers have harassed individual patriotic candidates on the election day. ‘At present, putting an end to the violence and restoring order remain the paramount tasks of Hong Kong.’ People’s Daily, the Communist Party’s mouthpiece, said in a commentary published on its Weibo account that Sunday’s elections had been held under the ‘shadow of black terror’ and praised the Hong Kong police for doing their best to ensure a ‘peaceful, safe and orderly’ poll.”

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BUSINESS INSIDER-AOL/Akin Oyedele

‘We see a springtime recession’: Wall Street firm counting down to next crisis

November 24, 2019

Springtime Recession“Mark your calendars: Spring 2020 is when the next recession will arrive, according to Société Générale. Many other firms, including Goldman Sachs, are taking the stock market’s return to all-time highs as a cue that the economy will rebound in the months ahead. But SocGen is unfazed, singling itself out as a contrarian on Wall Street with this call. It forecasts gross domestic product growth of 0.7% next year, which is well below the consensus expectation for 2.3%. If SocGen’s forecast is correct, a recession would unexpectedly end the record-long expansion, injure the bull market in equities and throw a wrench into the reelection campaign that President Trump has tightly hinged on his economic wins.”

“The general inability of economists to forecast recessions with precision is not lost on SocGen. After all, they originally expected a recession to arrive in 2018, only for tax cuts to keep the economy afloat.

However, their conviction has increased over time, and they now doubt that the stimuli needed to support the economy will be adequate going forward. They see limited scope for more fiscal support after the massive and politically divisive tax cuts. And the Federal Reserve has already offered a series of insurance rate cuts this year that returned its benchmark interest rate towards zero. Also this year, recession signals like the yield curve and probabilities measured by the New York Fed hit post-crisis milestones, indicating that all was not well. SocGen additionally sees ‘clear signs of weakness’ coming from business sentiment.”

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Gold rises as ‘phase one’ trade deal doubts persist

November 22, 2019

“Gold prices were on track for a second straight weekly gain on Friday, as uncertainties about the fate of a ‘phase one’ trade deal between the United States and China lingered. Spot gold was up 0.4% at $1,469.51 per ounce at 1348 GMT, and was 0.1% higher for the week. U.S. gold futures also climbed 0.4% to $1,469.70 per ounce. ‘Gold is on the bullish side given the ongoing uncertainty regarding trade talks, which increased following the approval of the Hong Kong bill in the U.S. Congress,’ a Commerzbank analyst said.

‘In all likelihood, Trump will sign it (the bill) which could be a stumbling block for a solution in trade talks, and hurt prospects of continued negative interest rates. This has continued to support investment demand in gold.’ The United States on Wednesday passed two bills intended to

support protesters in Hong Kong and send a warning to China about human rights, to China’s displeasure. Chinese President Xi Jinping said earlier in the day that China wants to work out an initial trade pact with the U.S. and has been trying to avoid a trade war, but is not afraid to retaliate.”

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CNN BUSINESS/Matt Egan

Janet Yellen on the economy: ‘There is good reason to worry’

November 21, 2019

Janet Yellen“Janet Yellen is concerned the US-China trade war may end the longest economic expansion in American history. Yellen, the first woman to ever lead the Federal Reserve, doesn’t think a recession will strike in the coming year. But she doesn’t sound confident in that prediction. ‘I have to say, the odds of a recession are higher than normal and at a level I’m really frankly not comfortable with,’ Yellen said Thursday. The former Fed chief said there are ‘definitely downside risks’ facing the US economy, including a ‘marked slowdown in global growth’ and vast uncertainty sparked by trade tensions.

‘There is good reason to worry,’ said Yellen, who served as chairwoman of the Fed between 2014 and 2018. President Trump replaced Yellen with Jerome Powell. Recession fears have recently receded on Wall Street. The Dow rocketed past 28,000 last week as investors cheered progress in US-China trade negotiations, signs of stabilization in the economy and more easy money from the Fed. However, US stocks retreated a bit in recent days on concerns that a preliminary trade agreement may not happen until 2020 … the manufacturing industry has been slammed by the trade war and weak global growth. China’s economy grew during the third quarter at the slowest pace in 27 years. And Germany only narrowly avoided a recession. Yellen warned that those troubles could still infect the rest of the economy.”

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THE WALL STREET JOURNAL/Paul Hannon

Slowing Business Activity Sounds Alarm for Global Economy

November 22, 2019

Slowing Business Activity“Business activity in some of the world’s largest economies remains sluggish as 2019 draws to a close, amid signs that a long slowdown in manufacturing is spreading to the services sector. Across the globe, factories have been hit by rising tariffs and slowing investment spending as businesses opt to wait out a lengthening period of unusually high uncertainty about future trade relations between the world’s leading economies. Meanwhile, leading sectors such as automobiles and electronic components confront specific challenges, such as tighter emissions standards.  In her first speech as head of the European Central Bank, Christine Lagarde Friday warned that a ‘fracturing’ of the global economic system means that robust rates of economic growth ‘are no longer an absolute certainty.’

‘Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year,’ she said. ‘This has in turn depressed global growth to its lowest level since the great financial crisis.’ Surveys of purchasing managers published Friday show that declines in factory activity in Japan and Europe are becoming less severe, although service providers reported less buoyant growth than in earlier months.”

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CNBC/Thomas Franck

World’s largest hedge fund bets over $1 billion on a big stock market sell-off

November 22, 2019

Hedge Fund“The largest hedge fund in the world has reportedly staked more than $1 billion that global equity markets will fall during the next three months. The wager placed by Ray Dalio’s Bridgewater Associates would pay off for the firm if either the S&P 500 or the Euro Stoxx 50 or both decline, people familiar with the matter told The Wall Street Journal. The Journal said the bet uses put options — assembled over months by Goldman Sachs and Morgan Stanley — that give investors the option of selling stocks at a predetermined price by a given date. The firm paid about $1.5 billion for the contracts, about 1% of Bridgewater’s $150 billion in total assets under management, the report said.

‘Though we won’t comment on our specific positions we do want to make two things clear,’ Bridgewater said in a statement. ‘First, the way we manage money is to have many interrelated positions, often to hedge other positions, and these change often, so that it would be a mistake to look at any one position at any one time to try to deduce the motivation behind that position.’ ‘Second, we have no positions that are intended to either hedge or bet on any potential political developments in the U.S.,’ the firm added. Though Bridgewater wouldn’t confirm the motivation behind the bearish bet, many investment strategists and investors alike have grown wary in recent weeks as all three U.S. equity indexes clinched new all-time highs.”

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BLOOMBERG/ Piotr Skolimowski, Jana Randow and Yuko Takeo

Lagarde Calls for Government Help in First Major ECB Speech

November 22, 2019

Lagarde Calls for Govt Help“European Central Bank President Christine Lagarde called for a new policy mix, saying public investment should be stepped up to ease the burden on monetary stimulus and ensure the region can thrive in an uncertain world. In her first major speech, three weeks into the job, the new ECB chief said her institution will continue to support the euro-zone economy. But she also said fiscal policy is a key element for overcoming the challenges of changing global trade and declining domestic growth. Minutes after she finished, fresh data showed the current slowdown worsening.

‘Twin external and domestic challenges call on us to consider — as Europeans — how we should respond to the new environment,’ Lagarde said at a banking conference in Frankfurt. ‘The answer lies in converting the world’s second-largest economy into one that is open to the world but confident in itself — an economy that makes full use of Europe’s potential to unleash higher rates of domestic demand and long-term growth.’ The size of the challenge was highlighted by purchasing managers indexes published Friday, which showed the economy unexpectedly weakened this month, with a downturn in services activity. That suggests a slump in manufacturing, especially in Germany, is starting to spread to other sectors. That kind of data, which drove the euro lower, is something Lagarde will need to address at her first policy meeting on Dec. 12.”

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BUSINESS INSIDER/Tanza Loudenback

More than half of Americans think they’re behind on retirement savings, and another 20% have no idea where they stand

November 22, 2019

Retirement Savings“Americans are largely behind on retirement savings, and they know it. According to a new Bankrate survey of nearly 2,700 adults, over half of the respondents (52%) said they’re not where they should be with their retirement savings, while 16% said they’re right on track, and 11% said they’re ahead. What’s more, 20% of respondents said they have no idea where they fall when it comes to retirement savings progress. The survey found that income plays a big role. People who earn less than $80,000 a year were most likely to say they were falling behind on retirement savings, while people who earn more were most likely to say they’re ahead. The high-earners were the least likely group to say they didn’t know where they stood.

Recent data shows Gen X is struggling most with retirement prep. A previous survey from Insider and Morning Consult found that exactly half of Gen Xers don’t have a retirement savings account. That’s only slightly less than the share of millennials who don’t have one, even though there’s a multi-decade age difference. While the Silent Generation and early Baby Boomers have relied on a combination of pension benefits and Social Security to make up their retirement income, Gen X is the first generation that has largely had to assume the responsibility of building up their own nest egg. All told, the Insider and Morning Consult survey found only 36% of Gen Xers are actively saving in a retirement account, while 13% have a dormant retirement account.”

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REUTERS/ Karthika Suresh Namboothiri

Gold eases as China invites U.S. officials for talks

November 21, 2019

“Gold prices on Thursday eased from the last session’s two-week high after a report that China has invited top U.S. negotiators for a new round of face-to-face talks, and is seeking to reach an initial trade agreement with the United States. Spot gold dipped 0.1% to $1,470.45 per ounce as of 1227 GMT. Prices had notched a two-week high of $1,478.80 in the previous session, before turning negative, after the U.S. passed a bill supporting Hong Kong anti-government protesters.

U.S. gold futures dipped 0.3% to $1,470.40 per ounce. ‘Even though there is more tension between the U.S. and China, the gold market takes a wait-and-see stance. It looks like the market is in general a bit tired of news on the trade front,’ said ABN Amro analyst Georgette Boele. ‘There have been some buyers on dips and the holders of gold still hope prices will go higher. But if this does not materialise in the near-term, they will likely take profit on longs, pushing prices lower.’ China will strive to reach an initial trade agreement with the United States as both sides keep communication channels open, the Chinese commerce ministry said on Thursday.”

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YAHOO FINANCE/Joao Peixe

4 Trends to Watch as Gold Prices Soar

November 20, 2019

“There’s a common saying ‘hope for the best, but prepare for the worst’ …  And that’s never been more true than in today’s markets.  Just spend 5 minutes watching the news … The UK is looking down the barrel of an economically crippling no-deal Brexit… One of the world’s top financial hubs, Hong Kong, is teetering on the edge… Germany’s manufacturing sector is collapsing… And the U.S.-China trade war is taking domestic victims left and right.  It’s safe to say that the global economy has seen better days. And according to economists and veteran market analysts alike… It’s about to get a whole lot worse. Of course, we should hope for the best. No one is actually hoping for a global recession, after all… But it is time to start preparing for the worst.

And what’s the best way to hedge against a potential global recession? Gold. African Gold Group CEO Stan Bharti notes, ‘Gold has always been and will always be investors’ favorite safe haven…and that’s good news for miners.’ Investors are piling into gold in a big way. The market has never been hotter. Some are even saying that $2,000/oz gold may be on the horizon. And smart money knows that when gold goes up…so do the companies pulling it out of the ground. Back in 2016, gold prices jumped 26% in 6 months… and gold miners exploded.”

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CNN BUSINESS/Jill Disis

Ray Dalio says the global economy is heading for a ‘great sag’

November 21, 2019

Economy Great Sag“Ray Dalio doesn’t want to use the word recession’ when talking about the global economy. But he does believe it is headed for what he dubbed the ‘Great Sag.’  The billionaire hedge fund founder told CNN Business on Thursday that the world is dealing with financial challenges on a scale not seen since the 1930s, when economies were deep in the throes of the Great Depression.  Pension and health care debts are piling up faster than they can be funded, he said. And with interest rates as low as they are around the world, Dalio said he doubts that further action from central banks will do much to help.

‘The impetuses for growth that began in 2008 and 2009 are largely behind us,’ Dalio said on the sidelines of the Bloomberg New Economy Forum in Beijing. That lack of policy effectiveness creates other problems, Dalio added. By buying up government debt and encouraging more lending, central banks are just putting more money in the hands of investors — exacerbating the divide between the rich and poor. ‘The world is awash in liquidity,’ Dalio said. ‘But it doesn’t resolve the wealth gap.’  That kind of inequality has fueled unrest in places like Hong Kong and Chile, Dalio said, adding that tension in those areas ‘is a reflection of that increased populism.’ Dalio is famous for predicting the 2008 financial crisis. And he worries now that capitalism is broken for most people. In a recent LinkedIn post, he wrote that the world is ‘approaching a big paradigm shift.’”

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MARKET WATCH/Mark DeCambre

Wall Street fears repeat of May’s stock-market rout as talk of impasse on U.S.-China phase-one deal heats up

November 21, 2019

Wall Street Fears“Reports of a potential delay in a partial trade pact between China and the U.S. is bringing back shades of the ugly stock-market downturn in May for some investors.  However, market participants interviewed on Wednesday were still holding out hope that President Trump will strike a partial trade deal that will help to resolve longstanding tensions between the world’s biggest economies. ‘Until today, the market has been nonplused by the comings and goings of the comments and reports but I think this [situation] resembles May more than in it resembles December,’ Art Hogan, chief strategist at National Securities told MarketWatch, referring to the worst trading day on the trading day before Christmas in history back in 2018 and a tweet-driven tanking that occurred six months later.

Markets took a firm leg lower after Reuters reported that a phase-one pact, hoped for within weeks, could drift into 2019, as Beijing presses for more extensive tariff rollbacks, and the Trump administration counters with its own demands. Disagreement exists between the U.S. and China on specific tariffs that would be phased out as they attempt to move toward agreement. Even before the news, Sino-American trade relations have been aggravated, highlighted by The Wall Street Journal  that talks had hit a wall. Meanwhile, the Senate approved a bill to support human rights in Hong Kong following months of unrest in the semiautonomous Chinese city. China responded by threatening to take ‘strong countermeasures’ if Congress proceeds with passage of the bill.”

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BLOOMBERG/William Horobin

The World May Have a Bigger Problem Than a Potential Recession

November 21, 2019

Bigger Problem than Recession“The global economy is stuck in a rut that it won’t exit unless governments revolutionize policies and how they invest, rather than just hoping for a cyclical upswing, the OECD said. The latest outlook and policy prescriptions from the Paris-based group mark a step beyond its repeated warnings about threats to growth from U.S.-China tensions, weak investment and trade flows. Those remain, but it also flags more systemic challenges from climate change, technology and the fact that the trade war is just part of a bigger shift in the global order. For OECD Chief Economist Laurence Boone, the worry is that the world could continue to suffer in the decades to come if authorities offer short-term fiscal and monetary fixes as the only response.

‘The biggest concern… is that the deterioration of the outlook continues unabated, reflecting unaddressed structural changes more than any cyclical shock,’ Boone said. ‘It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary and fiscal policy: they are structural.’ The pessimism about the deep seated problems in the global economy contrasts with more upbeat signals coming from financial markets, where investors are increasingly betting on an upswing next year depending on the latest twists in trade talks.”

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MARKET WATCH/Keith Jurow

This home mortgage disaster is ready to punish housing markets

November 20, 2019

Home Mortgage Disaster“Last March, I discussed the serious threat that cash-out refinances (cash-out refis) pose for major U.S. housing markets. Eight months later, the problem continues. In a cash-out refinance mortgage the borrower pulls out some of the equity in the house by taking out a new mortgage larger than the previous one. The homeowner pockets the difference. During the 2004-07 housing bubble era, homeowners in major metros used their growing equity as a piggy bank to tap at will. According to Freddie Mac’s quarterly refinance report, borrowers pulled out just under $1 trillion from their homes between 2004 and 2007 … The peak of the cash-out refi madness came in 2005 and 2006, as the desire to turn equity into real cash spread to millions of U.S. homeowners.

Cash-out refis are gaining popularity again — and are still dangerous. According to Freddie Mac’s refinance report, the percentage of refinance originations in dollars that were cash-outs soared to 23% by the end of 2018 from 3% at the close of 2012. The report notes that 82% of all refinances in the final quarter of 2018 were cash-outs refis. This chart based on Freddie Mac data shows the surge in cash-out refis over the past five years.”

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REUTERS/ Asha Sistla

Gold gains as souring U.S.-China relations dent risk appetite

November 20, 2019

“Gold prices rose to their highest in nearly two weeks on Wednesday as U.S. Senate measures on Hong Kong posed a potential roadblock for a trade deal between the United States and China, denting appeal for riskier assets. Spot gold was up 0.3% at $1,476.50 an ounce by 1015 GMT and U.S. gold futures rose 0.2% to $1,477. ‘The U.S. senate passing the Hong Kong democracy bill is raising further risk of a trade deal running into problems and it’s causing some renewed risk-off in the markets,’ said Saxo Bank.

‘We see stocks trading weaker, bond yields moving lower and gold is ticking higher.” The U.S. Senate passed two bills backing human rights in Hong Kong and banning export of certain munitions to the region’s police forces. China condemned the move and called for Washington to stop meddling in its internal affairs. European stocks steered away from a recent peak and U.S. 10-year bond yields slipped to their lowest in nearly three weeks, also pressured by U.S. President Donald Trump’s threat to raise tariffs on Chinese imports if a trade deal cannot be reached with Beijing.”

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KITCO NEWS/Jim Wyckoff

Gold, silver bulls showing resilience

November 19, 2019

Gold and SilverGold and silver prices are modestly up in midday U.S. trading Tuesday. The gold and silver market bulls can correctly argue their metals have been fairly resilient amid the record-setting run in the U.S. stock market that saw new record highs again today. While the metals have eroded from their late-summer highs, they have not seen dramatic declines that one might expect when a competing asset class is setting record highs. December gold futures were last up $3.10 an ounce at 1,475.00. December Comex silver prices were last up $0.12 at $17.12 an ounce.

Focus of traders and investors is turning more to the civil unrest in Hong Kong, which is becoming more widespread and violent, and is bearish for Asian stock markets. Also, it appears mainland China government officials and Hong Kong officials are becoming more at odds on dealing with the protesting. Hong Kong has been a major business hub for years, but the protests in the streets are making the world’s businesses leery of dealing in Hong Kong. If this situation deteriorates much further, it would likely boost the safe-haven metals. In other news, China’s central bank lowered its short-term repo rate Tuesday, and the People’s Bank of China governor said he will continue to work to lower real lending rates, as the government works to stem the negative economic effects of its trade war with the U.S. Easier monetary policy in China should foster more demand for commodities.”

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MARKET WATCH/Mark DeCambre and Andrea Riquier

Stocks open lower as Trump threatens to raise tariffs if trade talks languish

November 20, 2019

Stocks Open Lower“U.S. stocks opened in the red Wednesday morning as doubts persisted about progress on a U.S.-China trade deal and weak corporate earnings offered few reasons for investors to bid stocks higher after touching records.  Wall Street also awaited minutes from the Federal Reserve’s October meeting to glean further insights about its monetary policy, though Chairman Jerome Powell last week outlined his thoughts about the economy in congressional testimony.”

“Trade talks between the U.S. and China are in danger of hitting an impasse, threatening to derail the Trump administration’s plan for a limited phase-one pact this year, according to the Wall Street Journal, citing former administration officials and others. Both sides remain divided over core issues—including Beijing’s demand for removing tariffs and the U.S.’s insistence on China buying farm products—nearly six weeks after an ‘agreement in principle’ was announced by the White House on Oct. 11. On Tuesday President Donald Trump said at a cabinet meeting that China needs to make a deal he likes to avoid import tariffs going even higher, with fresh levies including smartphones and toys set to go into effect Dec. 15, directly hitting American consumers. ‘The announcement from the US president has hit stock markets this morning as traders are gearing up for some sort of tough response from the Chinese government,’ wrote David Madden, market analyst at CMC Markets UK, in a daily research note.”

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CNBC/Stephanie Landsman

This trend could hurt Wall Street’s bullishness and revive recession fears

November 19, 2019

Hurt Wall Street“Economic forecaster Lakshman Achuthan is detecting a stark disconnect between Wall Street and the economy. As stocks continue to hit new highs, he’s worried investors are wrongly assuming an economic revival is underway. ‘The actual data itself is just decelerating pretty hard actually,’ the Economic Cycle Research Institute co-founder told CNBC. ‘I don’t think we can remove recession risk from the table. It’s still out there as long as you’re slowing.’ Achuthan sees the downtrend particularly affecting two key parts of the economy: retail sales and industrial production. He highlights the issue in a chart.

‘On the manufacturing side, you have IP [industrial production] at a 3½-year low. It’s deeply negative,” he said. “On the retail sales front, you’re having deceleration.’ Achuthan, a former self-proclaimed super bull, began noticing slowdown signs in early 2018. ‘All the hopes are the consumer is somehow going to rev up, and that’s coinciding with the holiday season here,’ said Achuthan. ‘But when we look at all of our leading indexes that anticipate turning points in the U.S. economy, it’s not there yet. So, we have more slowdown to go.’ Yet, stocks are firing on all cylinders. But don’t let that fool you, he says. ‘A couple of months before the Great Recession, markets hit an all-time high. In 1990, right when that recession was starting, markets hit an all-time high,’ he noted. ‘In ’01, they actually hit a high after the recession started. So, the market could be a little off on recession timing.’”

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BLOOMBERG/Benjamin Stupples

World’s Rich Are Rattled and Seeking Old-Fashioned Security

November 19, 2019

Old Fashioned Security“A few blocks from Grosvenor Square in Mayfair, 46 Park Lane resembles a private club with wood-paneled walls and an ornate fireplace dating back to Britain’s Victorian era. But down a flight of stairs is one of the most secure rooms in London. Built by IBV International Vaults, the steel-walled stronghold is scheduled to open next month and will cater to billionaires looking for a place to stash their most prized possessions.

‘We’re getting calls every week about a room available for 2.5 million pounds ($3.2 million) a year,’ said Sean Hoey, managing director of IBV London, referring to an apartment-size space. The firm, which also has 550 safe-deposit boxes on site and room for about 450 more, is betting on London’s reputation as a “safe haven,” even with Brexit. This will be IBV’s sixth location, and it’s hardly the only such firm fielding queries from the wealthy. From London to Switzerland to parts of the U.S., the rich are looking to store precious metals, cash and cryptocurrency. For some, it’s the threat of a global recession. Others are avoiding bank deposits as negative interest rates force lenders to charge for holding cash. Many are concerned about natural disasters. Hedge fund titan Ray Dalio captured the anxiety last month when he warned the global economy is under threat from an explosive mix of ineffective monetary policy, a widening wealth gap and climate change. A majority of wealthy investors are stockpiling cash in anticipation of a sharp market drop before the end of next year, according to a survey of clients from UBS Global Wealth Management.”

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MARKET WATCH/Shawn Langlois

These are the risks that could trigger a ‘vicious cycle,’ economist warns

November 19, 2019

Recession Risks“From the trade war to a debt crisis and everything in between, there’s clearly a lot to be worried about in terms of the health of the global economy, according to Mark Zandi, chief economist at Moody’s Analytics. ‘Recession risks for next year remain uncomfortably high,’ he told MarketWatch on Tuesday. ‘The economy is barely growing at its potential, which means unless growth picks up soon, unemployment will begin to rise.’ Once that happens, he said, consumers tighten spending, businesses slash hiring and the economy gets caught in a ‘self-reinforcing vicious cycle.’

Here’s a slide — the chart of the day in our daily ‘Need to Know’ column — that Zandi used in a recent presentation to show both the possible catalysts for a recession, as well as the extent of the impact they could have. As you can see from the chart, Zandi’s most pressing concern remains the trade war and how it’s ‘undermining the global economy.’ The uncertainty of the tariffs, he said, is ‘a pall over business investment and hiring.’  What happens on that front, Zandi predicted, will determine what’s next. ‘If the president follows through on his threat to raise tariffs again on China in December, a recession next year is likely,’ he said.”

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REUTERS/ Asha Sistla

Gold slips as fresh hopes for U.S.-China deal boost stocks

November 19, 2019

“Gold fell on Tuesday, erasing gains from earlier in the session, as a temporary reprieve from Washington for China’s Huawei rekindled optimism for a trade deal and boosted risk sentiment. Spot gold was down 0.2% to $1,467.78 per ounce at 1228 GMT, reversing course from Asian trading hours, when prices rose to their highest since Nov. 7 at $1,475.40. U.S. gold futures fell 0.3% to $1,468.10 per ounce. ‘Stock markets are up, investors are less risk averse and prefer more risky assets against safe havens and that is also a factor,’ Quantitative Commodity Research analyst Peter Fertig said. ‘Gold is following closely the statements from the U.S. administration concerning negotiations with China.’

European share markets reached a four-year high as a new extension granted by Washington to let U.S. companies keep doing business with Chinese telecoms giant Huawei boosted bets that the world’s largest economies could reach a trade truce. However, some uncertainty prevailed, after a report on Monday suggested that the mood in Beijing was pessimistic about the prospects of sealing an agreement. Gold is also being pressured by a drop in oil prices, QCR’s Fertig said. Oil prices extended declines, pressured by an expected rise in U.S. crude inventories.”

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KITCO NEWS/Neils Christensen

There is still a case to hold gold as a strategic asset – Aberdeen Standard

November 19, 2019

Strategic Asset“Speculative interest in gold may have run its course, but investors shouldn’t completely disregard the precious metal even as record equity markets hog all the limelight, according to one market expert. Steve Dunn, head of exchange-traded products at Aberdeen Standard Investments, said in an interview with Kitco News that although investors are taking some profits in gold after the summer’s unprecedented rally, there is still a case for gold as part of a strategic allocation within a portfolio.

Dunn added that he sees a solid floor in gold with prices hovering between $1,450 and $1,500 an ounce for the rest of the year. ‘Money is flowing back into equity markets, but it’s a really good market that nobody likes,’ he said. ‘Investors are still concerned and desperate to protect their capital.’ The comments come as Aberdeen reported its strongest month of inflows into its suite of exchange-traded products, totaling 149 million. The firm’s gold ETF saw inflows of $95 million, representing nearly 64% of inflows last month. ‘Although gold continues to shine, we saw broad-based interest in all precious metals,’ he said.”

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MARKET WATCH/Greg Robb

Fed’s Williams says economy clearly facing several challenges

November 19, 2019

Economy Facing Challenges“The economy is clearly facing several challenges, primarily from overseas, but the three rate cuts since July should help sustain growth, said New York Fed President John Williams on Tuesday.

‘From the domestic point of view, things are strong and continue to be strong, but we’re dealing with various global factors we’re trying to navigate,’ Williams said, in a talk at a Sifma conference in Washington.  The U.S. economy is facing headwinds from slower global growth, uncertainty from trade and muted inflation pressures, Williams said.

As a result of these global factors, ‘growth is starting to slow in the U.S.,’ Williams said. The Fed’s three rate cuts since July were designed with these risks in mind and mean that policy is “well-positioned for a future that is uncertain,” Williams said. Fed Chairman Jerome Powell has signaled that Fed policy is on hold at least through the end of this year.  Williams said policy was ‘not locked in’ and would respond to the data going forward.”

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CNBC/Weizhen Tan

China is building up its ‘shadow reserves’ to counter its reliance on the US dollar

November 17, 2019

China Shadow Reserves “China is heavily exposed to the U.S. dollar, but now, with the risk of ‘decoupling,’ Beijing is silently diversifying its reserves to reduce its dependence on the world’s largest reserve currency, analysts say. Ongoing trade tensions with the U.S. has ‘increased the risk of a financial decoupling’ between the two largest economies, ANZ Research said in a recent report. The White House reportedly considered some curbs on U.S. investments in China such as delisting Chinese stocks in the U.S. Beijing will therefore manage its risk by diversifying its foreign exchange reserves into other currencies, ANZ predicted, as well as build up its ‘shadow reserves.’

‘Although China still allocates a high share of its FX exchange reserves to the USD … the pace of diversification into other currencies will likely quicken going forward,’ ANZ says in the report, adding that the share of the dollar in the country’s foreign exchange reserves was estimated to be around 59% as of June. Although the exact allocation of China’s foreign exchange reserves in different currencies isn’t known, ANZ told CNBC it believes those would include the British pound, Japanese yen and euro. Meanwhile, Beijing is gradually reducing its holdings of U.S. Treasurys, which it is heavily invested in — China was the largest foreign holder until June, when it was surpassed by Japan. Since peaking in 2018, China has reduced its holdings by $88 billion in the last 14 months, DBS said in a note. According to data from the U.S. Treasury department, China held $1.11 trillion of U.S. debt in June. At the same time, Beijing has been going on a gold buying spree, with its official gold reserves holding at record levels of 1,957.5 tons in October.

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BUSINESS INSIDER/Yusuf Khan

Goldman Sachs charts show how hard trade war is hitting the US and China

November 19, 2019

Goldman Sachs 1The trade war is taking a massive toll – earlier this week, the World Trade Organization warned that global trade was stalling because of it. Goldman Sachs economists said the trade war was hitting China the hardest – mainly because of the drop in net trade. The bank does expect an ‘extended truce’ and sees the drag on growth waning next year, ‘assuming that tariffs stay at current levels through 2020.’ Still, the impact has been clear. Here are four charts showing the extent of the damage.

Goldman Sachs 2Through Goldman’s index on financial conditions, the data shows that conditions worsened through the trade war, with the divergence starting to widen around March 2018. Right now, it looks as if it’s only getting larger. Baidu, the Chinese internet and artificial-intelligence company, which also functions as a search engine, is a good measure for uncertainty, according to Goldman. As shown, there have been major spikes at crucial points in the trade war. While the US benefitted in terms of net trade, both sides suffered in terms of real income, financial conditions, and trade-policy uncertainty. Ultimately, it’s knocked off roughly 0.5% of US gross domestic product and 0.7% of China’s – China’s GDP growth earlier this year slowed to its lowest level since the ’90s. For both sides, the trade war is expected to be a substantial drag on GDP into 2020. China isn’t projected to recover until the second half of next year, and the US nearer to 2021.

Goldman Sachs 4

 

 

 

Goldman Sachs 5

 

 

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From Hong Kong to Catalonia, Paris to Santiago, Islamabad to Quito — the world is engulfed in protests. The themes range from social justice, political independence, economic equality, separatist movements and climate change. The demonstrations run the gamut from peaceful marches and civil disobedience —- to riots and extreme acts of violence.

In South America, Europe, the Middle East and Asia — the images are the same. Swarms of nonviolent demonstrators carry signs and banners in some cities while masked activists throw rocks and Molotov cocktails in others. There have been police in riot gear, troop deployments, tear gas, water cannons, rubber bullets and even live rounds of ammunition.

In Chile’s capital, protests erupted in response to a hike in subway fares but the rallies exposed deeper issues of falling wages, soaring costs, substandard public services, and a paltry pension system. In an attempt to quell the demonstrations, there have been claims of police abuse and excessive force that has resulted in over twenty deaths and thousands of injuries.

In the wealthy Catalan region of Northeastern Spain, the drive for independence has thrust the Spanish government into one of the most serious political crises since the death of dictator Francisco Franco back in 1975. In 2017, some 90% of Catalans voted for independence but the referendum was declared unconstitutional and Madrid imposed direct rule. After leaders of the resistance were arrested and imprisoned, Spain has been hit by some of the worst street violence in decades.

In Paris, the gilets jaunes (yellow vests) protests started last year over the rising costs of petrol but quickly morphed into an anti-government, anti-elite, and anti-taxation movement.

The image of the yellow vest, which citizens are required to carry in their vehicle, has come to signify the plight of the working class. Protests have coalesced into mass demonstrations that have included roadblocks, petrol-bombs and attacks on banks, shops and fuel depots.

In Lebanon uprisings were initially triggered by a tax on the popular messaging application ‘WhatsApp’ but like other demonstrations, it revealed deeper issues of government corruption, human rights abuses, and rampant unemployment. Tens of thousands have marched for social and economic reform as well as clean water and electricity. Lebanese protestors have blocked roads and highways in mass sit-in’s seeking a revamp of the entire existing political system.

In Hong Kong, what started as opposition to an extradition bill authorizing the detention and removal of criminal suspects to mainland China, has morphed into a broader demand for democratic reform. As many as a million people have marched in protest of the bill as well as China’s growing influence. One demonstrator has been shot and over 4,500 have been arrested since June. Tensions have taken a more violent turn in recent days as demonstrators have taken over Hong Kong’s Polytechnic University which has turned into veritable a combat zone of rocks and firebombs —- tear gas and rubber bullets.

Clearly, global unrest is mounting, death tolls are rising, and people everywhere are calling for change. All across South America, the Middle East, Asia and the Caribbean there is havoc in the streets and disruption to business, trade, commerce, and daily life. The Chilean peso has slid to record lows during the unrest. Spain has been combatting the second highest unemployment rate in the EU. France is facing meager fourth quarter GDP growth. Lebanon is on the brink of an economic crisis, Hong Kong has already slipped into recession, and the drag on the global economy has yet to be tallied.

Jacquelien van Stekelenburg, a professor of Social Change and Conflict at Vrije University in Amsterdam says, “the data shows that the amount of protests is increasing and is as high as the roaring 60s.” The 1960’s saw one of the longest economic expansions in history but what followed should give us pause. The 1970’s was an era of skyrocketing unemployment, slumping economic growth, and a convergence of recessionary forces. It was a punishing decade of collapsing markets, sagging business sentiment, and unrelenting stagflation.

So, is there a correlation between widespread demonstrations and the world economy? A research study entitled, ‘The Economic Impact of Political Instability and Mass Civil Protest,’ conducted by the Centre for Research in Economic Development and International Trade at the University of Nottingham concluded that in the wake of crises like these there is, “an immediate fall in output which is never recovered in the subsequent five years.”

Worldwide discontent does indeed carry an economic cost. Regardless of the validity of the cause — systemic protests, riots, and rebellions put downward pressure on the global economy. And, as we start a new decade on the heels of another unprecedented expansion and in the throes of similar mass unrest, we would be wise to insulate our money from the threat of another lost era.

Gold surged well over 1000% during the 1970’s, and if history does indeed repeat itself — we’ll want to be on the right side of it.[/vc_column_text][/vc_column][vc_column width=”1/3″ el_class=”sidebar-content”][porto_block label=”” name=”right-side-bar-form”][/vc_column][/vc_row][vc_row][vc_column][porto_block label=”” name=”review-new”][/vc_column][/vc_row]

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Gold pares losses as U.S.-China trade hopes ebb

November 18, 2019

“Gold firmed on Monday, erasing losses from earlier in the session as fresh doubts over a U.S.-China trade deal pushed Wall Street into the red. Spot gold was up 0.2% at $1,470.12 per ounce as of 10:41 a.m. ET, reversing course from earlier when prices fell to as low as $1,455.82 on optimism that constructive trade talks had taken place between the world’s two largest economies over the weekend. U.S. gold futures were up 0.2% to $1,470.60 per ounce.

However, a report that Beijing was not as optimistic, owing to President Trump’s reluctance to roll back tariffs, threw cold water over market cheer and on world shares that were near record levels. ‘I am surprised how robustly the market reacts (to news on the trade talks). This isn’t the first time we have had this news, but the market keeps responding,’ said Bart Melek, head of commodity strategies at TD Securities, adding that the report on pessimism from Beijing has triggered a rebound in gold prices. ‘It looks like gold is seeking a move towards $1,480, which is the 100-day moving average.’ The 16-month long Sino-U.S. tariff war has fanned recessionary fears, but recent optimism over a phase one deal has driven a rally in equity markets.”

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CNBC/Yun Li

Mood in Beijing about trade deal is pessimistic, government source says

November 18, 2019

Trade Deal in Beijing“The mood in Beijing about a trade deal is pessimistic due to President Trump’s reluctance to roll back tariffs, which China believed the U.S. had agreed to, a government source told CNBC Stock futures pared gains rapidly following the trade headlines. The U.S. and China agreed to work on a limited ‘phase one’ trade deal in early October. China has pushed for a removal of the additional duties imposed on each other’s products in different phases, as part of the deal. Chinese Commerce Ministry spokesperson Gao Feng said earlier the two sides have reached an agreement on the tariff rollback.

However, Trump said a week ago he has not agreed to scrap tariffs on Chinese goods, conflicting the signal from China and dampening hopes about a coming resolution to a jarring trade conflict.

The Chinese are looking carefully at the political situation in the U.S. including the impeachment hearings and the presidential election, the source said, adding the officials are wondering if it is more rational to wait things out since it is unclear what Trump’s standing will be even in a few months.

There is disagreement over issues such as agricultural purchases, the source said. The Chinese are resisting because, in part, they could risk alienating other trading partners, the source told CNBC.”

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MARKET WATCH/Shawn Langlois

Why Dow 28,000 could mark that ‘blowoff top’ bears have been predicting

November 18, 2019

Dow Blowoff Top“Last month, the Fed began snatching up short-term Treasury debt to the tune of $60 billion per month in response to the repo mess that sent a chill through Wall Street back.  While it might sound like another round of quantitative easing, Fed Chair Jerome Powell wanted to make it clear: It’s not. ‘In no sense is this QE,’ he said. Charles Hugh Smith, the author behind the ‘Of Two Minds’ blog, isn’t buying it. In a recent post, he recounted a riddle Abraham Lincoln apparently once told: ‘If I should call a sheep’s tail a leg, how many legs would it have?’ — Five! — ‘No, only four; for my calling the tail a leg would not make it so.’

‘Calling QE not-QE doesn’t make it different than QE,’ Smith wrote. ‘The Fed’s level of panic is noteworthy, as is the absurd transparency of its laughable attempt to conceal its panic.’ And with that panic, Smith believes the pop to new highs in the market could finally mark that elusive blowoff top. ‘The financial media is loudly declaring the current blowoff top in stocks is not a blowoff top,’ he said. ‘The delicious irony here is these denials are reliable markers of blowoff tops: the louder the denials, the greater the odds that this is in fact the blowoff top that many pundits have been expecting.’”

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THE STREET/James Deporre

4 Most-Dangerous Words on Wall Street: A Correction Is Due

November 18, 2019

Dangerous Words on Wall Street“The S&P 500 has been up for six straight weeks and is sitting at an all-time high. This bull market has been running for over 10 years and the various arguments for why it can’t continue have been growing louder and more intense. The easy thing to do at this point is to embrace some of the skepticism, raise cash levels and wait for the corrective action that so many folks think is inevitable at this point. The only problem is that the price action refuses to cooperate with this negative view. Early indications on Monday morning are for a positive open. However, the strategists that study market data tell us that contrary indicators are reaching extreme levels. Esoteric indicators like the Hindenburg Omen are flashing warning signs and economic growth has been slowing worldwide.

Setting forth a bearish thesis is not only easy but sounds logical and compelling. The problem is that there are only two things that really matter to the market right now. The first is the potential for some sort of Phase One trade deal with China and the second is that the Fed is very supportive of the market, even though it is not cutting interest rates. These two positives are creating a psychological dynamic that feeds on itself. A big part of it is fear of missing out (FOMO). Many bulls are not only underinvested but they are struggling to keep pace with very big gains in the indices. The indices have outperformed the average stock and that makes it extremely difficult for money managers to produce relative strength.”

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THE WALL STREET JOURNAL/Mike Bird

India’s Economic Malaise May Be Far Worse Than It Looks

November 18, 2019

India's Economy“India’s economy is growing at the slowest pace in six years, according to official figures. That data is likely to be disguising an even sharper slowdown. The country has been gripped by a credit crisis this year as lenders outside traditional banking have defaulted and retrenched under government pressure. Investors are used to hearing about suspicious economic data from India’s larger neighbor to the northeast. But last month, economists at the Center for Global Development, a Washington-based think tank, drew attention to the growing inconsistency between several already-recessionary Indian economic indicators and its headline growth rate.

Updates for several economic indicators have only worsened since its publication. Non-oil imports were 12.3% lower in September than a year earlier. Industrial production and sales tax revenue fell 4.3% and 2.7% respectively over the same period. According to an article by India’s Business Standard newspaper last week, an unreleased government report showed that the country’s per capita consumption levels fell between the 2011-12 and 2017-18 fiscal years, the first such decline in four decades, driven by a decline in rural demand.”

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BLOOMBERG/Daniel Cancel

Unequal and Irate, Latin America Is Coming Apart at the Seams

November 18, 2019

Latin America“In Chile, it was sparked by a minor increase in the capital’s subway fare. In Ecuador, it was the end of fuel subsidies, and in Bolivia, a stolen election. Latin America, which a decade ago harnessed a commodities boom to pull millions out of poverty and offer what many saw as a model of modernization, is in revolt. It’s not another pink tide, nor is it a lurch to the right; the movement is more a non-specific, down-with-the-system rage. Furious commuters are looting cities, governments are on the run, and investors are unloading assets as fast as they can.”

“In that sense, there are parallels with the Arab Spring, which began in 2010, and the collapse of the Soviet Union two decades earlier. Both were unforeseen and moved in surprising directions, yet they offer lessons in retrospect. ‘There were a lot of cracks, but no one saw it coming,’ says Javier Corrales, a professor of political science at Amherst College, of events in Bolivia and across the region … The region is caught between competing models of government: leftist populism and market-oriented liberalism. Governments of each type have been plagued by incompetence, corruption, and a failure to meet social demands. The result has been a growing fury toward the ruling classes, leading people to the streets. In Chile, almost a month of violent protests over the suspended fare rise have caused deaths and extensive property damage, challenging its image as South America’s stablest and richest nation.”

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Gold slips as U.S.-China deal hopes cheer stock markets

November 15, 2019

“Gold prices fell on Friday as a White House official’s comments rekindled hopes of a U.S.-China trade deal and boosted appetite for riskier assets, but bullion was still on course for a weekly gain. Spot gold was down 0.5% at $1,464.40 per ounce at 1240 GMT, though up about 0.4% on the week.

U.S. gold futures were down 0.6% at $1,464.70 per ounce. White House economic adviser Larry Kudlow said late on Thursday that the United States and China were getting close to a deal and the ‘mood music is pretty good.’

‘Comments from the White House economic adviser are injecting renewed optimism surrounding the prospects of a trade deal,” said FXTM market analyst Han Tan, adding, if there are significant bouts of risk-on sentiment, gold could break below the $1,450 support level. Hopes of a trade deal between Washington and Beijing sent world stock markets and other risk assets higher. Gold’s trajectory is still very much hinged on the outcome of the ongoing trade talks and any decline in gold will be contained until there is official confirmation that a deal is signed, Tan said. Gold prices have gained more than 14% this year as the trade spat between the world’s biggest economies roiled financial markets, stoking fears of a global economic slowdown.”

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BLOOMBERG/Gordana Filipovic

Serbia Buys Nine Tons of Gold to Heed President’s Crisis Advice

November 14, 2019

Serbia Buys Gold“Serbia’s central bank bought nine tons of gold in October, raising its reserves of the precious metal on the advice of President Aleksandar Vucic. The biggest former Yugoslav republic is following Hungary and Poland, where officials boosted gold reserves in 2018 to create a bulwark against crisis. Central Bank Governor Jorgovanka Tabakovic, a member of Vucic’s Progressive Party, said the October 9-11 purchases raised the bank’s gold holdings to 10% of total reserves and made good on a suggestion from the president in May.

‘We have completed gold purchase transactions and Serbia is safer today with 30.4 tons of gold worth around 1.3 billion euros ($1.4 billion),’ Tabakovic told reporters in Belgrade Thursday. ‘For now, we have no plans to buy more.’ The acquisition is the latest in a series of moves by Serbia to shore up its financial stability by changing the structure of its foreign debt and increasing the share of dinars and euros, Tabakovic said. The central bank paid 395 million euros ($434.3 million) for the gold, $1,503 an ounce, the governor said.”

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BARRON’S/Reshma Kapadia

Investors Should Worry Less About the Trade War and More About China’s Economy

November 15, 2019

Trade War Chinese Economy“Optimism for an initial trade deal between the U.S. and China took a hit on reports that China is wary of committing to a certain number of agricultural purchases and still requires some relief from tariffs, even for a limited agreement.  Investors, though, might want to turn their attention to more troubling signs that have emerged in the latest China economic data, which came in weaker than expected. Growth in fixed asset investments outside of rural areas slipped to 5.2% so far this year from the year-ago period, and industrial production growth tumbled to 4.7% in October, down from 5.8% in September.

More weakness is ahead in industrial production, and Beijing is likely to drip-feed more stimulus into the economy, including modest rate cuts by the People’s Bank of China, Pantheon Macroeconomics Chief Asia economist Freya Beamish wrote in a note.  Then there’s increasing competition U.S. companies are facing from Chinese upstarts. DataTrek co-founder Nicholas Colas wrote in a note to clients this week that China ride-sharing company Didi Chuxing’s push into Latin America will challenge Uber Technologies (UBER). The popularity of Chinese internet technology company, ByteDance, and its TikTok video app has turned up the heat on Facebook (FB). Domestic upstart Luckin Coffee (LK) has just as many locations as Starbucks (SBUX) in China, according to Colas, who cited data from Thinknum. As for a U.S. and China trade deal—coming close to a deal doesn’t mean much until it is signed and delivered, a message that investors have heard frequently.”

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MARKET WATCH/Victor Reklatiis

Pelosi says Trump ‘makes what Nixon did look almost small’

November 15, 2019

Trump Pelosi Nixon“House Speaker Nancy Pelosi blasted President Donald Trump after the chamber’s first public impeachment hearings, comparing him unfavorably to former President Richard Nixon, who resigned in 1974 before the House could vote to impeach him. Pelosi delivered this zinger Thursday at her weekly news conference: ‘What President Trump has done on the record in terms of acting to advantage a foreign power to help him in his own election and the obstruction of information about that, the cover up, makes what Nixon did look almost small — almost small.’

Pelosi also said Wednesday’s ‘devastating testimony corroborated evidence of bribery uncovered in the inquiry.’  When a reporter asked her to clarify what counted as bribery in the impeachment inquiry focused on the Trump team’s dealings with Ukraine officials, the California Democrat said: ‘The bribe is to grant or withhold military assistance in return for a public statement of a fake investigation into the elections. That’s bribery.’ In addition, Pelosi said “all roads lead to Putin” with Trump. Russian President Vladimir Putin benefited from the delayed American assistance to Ukraine, as well as from Trump’s decision to pull back U.S. troops from northern Syria and from the president expressing doubts about NATO, she said. ‘The list goes on. I won’t even go into the elections.’”

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CNBC/Thomas Franck

Ray Dalio says ‘capital wars’ will be the next front in the US-China economic conflict

November 15, 2019

US China Conflict“The economic fight between the U.S. and China that has roiled financial markets over the last two years could next blossom into a full-blown war for investing capital and ultimately, for the prestige of the globe’s reserve currency, hedge fund magnate Ray Dalio said Thursday. The power struggle between the world’s two largest economies — in the form of a tit-for-tat trade war at present — may soon mushroom into a melee over the dollar’s longheld place as world’s preferred form of exchange, the Bridgewater Associates founder said.

‘There is a trade war, there is a technology war, there is a geopolitical war, and there could be capital wars. And how that’s approached is going to determine what our futures are like,’ Dalio said at the annual gala of the National Committee on U.S.-China Relations in New York. The founder of the world’s largest hedge fund said that countries or empires that once enjoyed reserve-currency status tended to prioritize education and civility, infrastructure and new technologies, which facilitated global influence over time. ‘I honestly don’t know how it will be approached. We want to be optimistic,’ he added. Dalio’s warnings come as federal lawmakers, alarmed some U.S. retirement money pouring into China, work to stem the tide of funds to Beijing. Senators’ fears peaked earlier this week, when the main pension plan for U.S. government workers reaffirmed its decision to allow one of its funds to invest in an international index that includes Chinese companies.”

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THE WALL STREET JOURNAL/Richard Rubin

Elizabeth Warren’s Tax Plan Would Bring Rates Over 100% for Some

November 15, 2019

Elizabeth Warren“Democratic presidential candidate Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%. That prospect raises questions for taxpayers and the broader economy that experts are starting to ponder: Under which circumstances would taxpayers have to pay those rates? How might that change their behavior? And would investment and economic growth suffer? Potential tax rates over 100% could result from the combination of tax increases the Massachusetts senator proposes for the very top tier of investors. She wants to return the top income-tax rate to 39.6% from 37%, impose a new 14.8% tax for Social Security, add an annual tax of up to 6% on accumulated wealth and require rich investors to pay capital-gains taxes at the same rates as other income.

Consider a billionaire with a $1,000 investment who earns a 6% return, or $60, received as a capital gain, dividend or interest. If all Warren’s taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%. The rate would vary according to the investor’s circumstances, any state taxes, the profitability of his investments and as-yet-unspecified policy details, but tax rates of over 100% on investment income would be typical.”

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REUTERS/Eileen Soreng

Gold gains as risk appetite falters, trade optimism sours

November 14, 2019

“Gold rose on Thursday, extending gains to a third session, as weak Chinese data and doubts about whether Beijing and Washington will reach a trade deal anytime soon dented demand for riskier assets. Spot gold was up 0.4% at $1,468.23 per ounce, as of 1224 GMT, having climbed to a high of $1,470.33. U.S. gold futures also rose 0.4% to $1,468.90 per ounce. China and the United States are holding ‘in-depth’ discussions on a first-phase trade agreement, and cancelling tariffs is an important condition to reaching a deal.

‘We are seeing some risk aversion in the markets,’ said Craig Erlam, OANDA senior market analyst, adding: ‘The commentary from both sides has kind of taken away some optimism around this phase one deal.’ On Tuesday, President Trump said a trade deal with China was ‘close’ but offered no details and warned he would raise tariffs ‘substantially’ on Chinese goods without

such an accord. ‘Gold should be in greater demand at least in the short term because the negotiations of a partial agreement in the trade dispute between the U.S and China appear to have stalled,’ Commerzbank analyst Daniel Briesemann said in a note.”

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KITCO NEWS/Anna Golubova

Gold in 2020: Prices to climb to $1,600 in 12 months after correction

November 13, 2919

Gold Prices Climb“Gold is heading higher next year, but investors should wait until the current correction is over before jumping in, according to one Dutch bank. ABN Amro’s 2020 gold forecast sees gold starting next year at $1,450, then heading to $1,500 in Q2, followed by a rise to $1,550 by the end of Q3, and then $1,600 by the end of Q4.

‘For 2020 we are more optimistic for gold prices if a considerable amount of long positions has been closed. Our year-end 2020 gold price forecast remains at USD 1,600 per ounce,’ wrote precious metals strategist Georgette Boele … ‘The long position is still a crowded trade. In the absence of a renewed rally, investors will likely take profit on part of their positions. This will result in more near-term price weakness,’ she said. But gold will be back at its September’s multi-year high of $1,557 in less than a year, according to the bank’s forecast.”

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THE WALL STREET JOURNAL/Paul Hannon, Tom Fairless and Megumi Fujikawa

Growth in Economic Powerhouses Starts to Diverge

November 14, 2019

Economic Growth“A split in the fortunes of the global economy is emerging as Europe’s stuttering powerhouses start to steady but their Asian counterparts remain caught in a downward trajectory, a division that demonstrates growth’s vulnerability both to trade tensions and the reluctance of business to invest. Growth in China, the world’s second-largest economy, slowed further in October, according to government data released Thursday, as a trade war with the U.S. drags on. Industrial output, household consumption and fixed-asset investment all produced disappointing figures for the month.

In Japan, the next-biggest economy, growth in the three months through September hit its weakest point since the same time last year as the U.S.-China trade dispute and Tokyo’s frictions with South Korea weighed on exports. In Australia, an economy with close ties to China, the number of people in employment fell by 19,000 during September—the largest such drop in three years. But there are some signs that the slowdown has come to a halt in Europe. Germany, the continent’s largest economy, has been hard hit over the past year by slowing exports to the U.K. and Asia, alongside problems in its key automobile industry. However, figures released Thursday showed it narrowly avoided recession—defined as two consecutive quarters of economic contraction— in the third quarter. Taken as a whole, recent signals from the global economy don’t offer much hope of a significant world-wide rebound soon.”

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MARKET WATCH/Jeffry Bartash

U.S. jobless claims jump to nearly 5-month high of 225,000

November 14, 2019

Jobless Claims Jump“The number of people who applied for jobless benefits last week shot up to a nearly five-month high, but the surprising spike likely stemmed from season quirks just ahead of the holiday season instead of a pronounced increase in layoffs.  Initial jobless claims rose 14,000 to a seasonally adjusted 225,000 in the seven days ended Nov. 9, the government said Thursday. That’s the highest level since late June. Economists polled by MarketWatch estimated new claims would total 215,000. The monthly average of new claims nationwide, meanwhile, rose a much smaller 1,750 to 217,000.

… Actual or unadjusted jobless claims posted inordinately large increases in a handful of states, including California, New Jersey, New York, Minnesota and Texas. It’s possible the wildfires in California contributed to the increase in that state. The level of unadjusted claims, however, was virtually unchanged compared to the same week in 2018 … That might be a sign the big increase in seasonally adjusted claims is an anomaly. The government adjusts jobless claims to account for periodic swings in seasonal employment patterns. In most weeks the adjustments don’t matter, but can result in gyrations that are pronounced around big holidays such as Thanksgiving and Christmas. Wall Street is sure to watch jobless claims closely in the coming weeks to see if they continue to rise.”

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YAHOO FINANCE/Clare Jim and Sumeet Chatterjee

As recession takes hold, Hong Kong banks worry about risk of easier mortgage rules

November 13, 2019

Hong Kong Banks Worry“Even as Hong Kong has reduced down-payment requirements to help young professionals and families to buy homes, banks are beefing up mortgage application standards to ensure that a recession does not saddle them with bad loans, bankers and mortgage brokers said. Last month, Hong Kong Chief Executive Carrie Lam, struggling to restore confidence in her administration after five months of civil unrest, approved rules allowing first-time homebuyers to borrow as much as 90% of a HK$8 million ($1 million) home’s cost. Earlier, such a high ratio was only permitted on properties worth half as much. The move increased sales of used homes.

But as the protests take a heavy toll on the special administrative region’s economy, banks fear a deepening recession, unemployment and bankruptcies, which could make it hard for borrowers to pay them back, two bankers said. Historically, mortgage delinquency is rare in Hong Kong, with a rate of about 0.02%. One of the top mortgage lenders in Hong Kong, recently issued a guideline that buyers cannot have a mortgage payment that exceeds 65% of their monthly income, must hold a full-time job and own no other property, said two industry sources. Lenders including HSBC, Standard Chartered and Bank of China Hong Kong also plan to increase interest rates for mortgages and reduce cash rebates to borrowers in the months ahead, two bankers said. The cash rebate – essentially a discount – has come down to as low as 0.5% now, compared with an average of 2% earlier this year. Some banks are planning to phase it out completely, they said. ‘We have to use all the tools… to protect our profitability and asset quality in this environment. You will see more measures in the next few months,’ said a Hong Kong-based banker with a European bank.”

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BLOOMBERG/Karl W. Smith

Powell’s Warning to Congress About the Next Recession

November 13, 2019

Warning About Recession“Federal Reserve Chair Jerome Powell had a message for Congress in his testimony Wednesday before the Joint Economic Committee: The Fed won’t be able to fight the next recession all by itself — it’s going to need help from Congress. Powell is undoubtedly correct that fiscal policy will have to play a major role in any response to the next economic crisis. But he should also be realistic about what it can achieve. The Fed will also need a better monetary framework.

There is no escaping the fact that unless the U.S.’s economic conditions change substantially; the Fed will not be able to cut interest rates enough to significantly mitigate (let alone turn around) a major recession. As Powell noted, during a downturn the Fed has historically cut interest rates by about five percentage points. Currently interest rates are at 1.75%. While it’s technically possible for them to go below zero, doing so causes significant problems in the financial sector and the Fed has all but ruled out the possibility. That implies that the Fed has only roughly a third as much room as usual to cut rates in response to a recession.”

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REUTERS/Karthika Suresh Namboothiri

Gold rises as trade uncertainty hurts risk appetite

November 13, 2019

“Gold prices gained on Wednesday on lack of clarity on the U.S.-China trade negotiations, keeping markets wary about the tariff war’s toll on the health of the global economy.  Spot gold had risen 0.6% to $1,465.18 per ounce by 1251 GMT. U.S. gold futures were 0.9% higher at $1,466.10.  U.S. President Donald Trump said a trade deal was “close” but gave no new details on when or where an agreement would be signed, disappointing investors in what was billed as a major speech on his administration’s economic policies.

He also rattled some investors by threatening China with even more tariffs if they do not sign a deal.

‘Anything around trade talks are going to impact global sentiment… Protests in Hong Kong present major geopolitical risks, something that is going to continue fuelling risk aversion,’ said FXTM analyst Lukman Otunuga. ‘The key concern is whether the U.S. would take a diplomatic stance with regards to Hong Kong. If the U.S. does make a move, it is going to link back to U.S.-China trade talks.’ In recent weeks, both Beijing and Washington have hinted they were making progress toward an agreement that could scale back some tariffs, but a lack of information is starting to perturb markets.”

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CNN INTERNATIONAL/Stephen Collinson

Trump impeachment hearings today will echo through the ages

November 13, 2019

Impeachment Hearings“The gravity and drama of the first televised impeachment hearings into Donald Trump’s presidency will imprint themselves on history and reverberate far from Washington. The most crucial stage of the Ukraine investigation so far has profound implications beyond the political and personal reputation of Trump and the question of whether he abused his power by seeking political favors from a foreign power.

His fate will have sweeping consequences for the future understanding of powers vested within the presidency itself. The hearings will test whether the ancient machinery of US governance can effectively investigate a President who ignores the charges against him and fogs fact in defining a new post-truth political era. And notwithstanding Trump’s current Republican firewall, the hearings will begin to decide whether a presidency that has rocked America and the world will reach its full natural term. The fact that there is an impeachment process at all — and a debate over whether the President is so corrupt he should be ousted between elections — is in itself something of a national tragedy. There’s a reason why Gerald Ford called the Watergate scandal that led to the resignation of President Richard Nixon in 1974 before he was formally impeached, a ‘long national nightmare.’”

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THE WALL STREET JOURNAL/Nick Timiraos

Fed’s Powell Signals Comfort with Current Interest-Rate Stance

November 13, 2019

Interest Rate Stance“Federal Reserve Chairman Jerome Powell told lawmakers Wednesday that the central bank saw little need to cut interest rates further after making three reductions between July and October. ‘We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market’ and stable inflation, said Mr. Powell in written testimony to the Joint Economic Committee posted online Wednesday morning. ‘Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly,’ he added.

The Fed cut its benchmark interest rate to a range between 1.5% and 1.75% at its policy meeting two weeks ago to cushion the economy against risks of a sharp slowdown from weakening business investment and global growth. Investors don’t expect the Fed to cut rates at its final meeting of the year, on Dec. 10-11, and futures markets see a roughly 50% probability of one more rate cut by the middle of next year, according to CME Group. After an especially active few months for monetary policy, Mr. Powell indicated at a press conference on Oct. 30 that the central bank was comfortable entering a wait-and-see phase. His testimony Wednesday largely repeated that message … With both short-term interest rates and long-term bond yields much lower than in past economic expansions, Fed officials have highlighted the risk that monetary policy will have less ability to counteract a future downturn and are in the middle of a review of their policy-setting framework with an eye toward making their tools more potent.”

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BLOOMBERG/Felice Maranz

Citi Warns of a ‘War on Wall Street and Wealth’ in the 2020 Election

November 12, 2019

War on Wall Street“The road to the White House in 2020 may entail a war against Wall Street and wealth itself, as polling results encourage more candidates to cast a jaundiced eye toward the financial world, Citi warned in a note to clients. Some candidates are prioritizing greater accountability for big corporations, while others are concerned that ‘loosening the reins might foment another financial crisis,’ a Citi team led by economist Dana Peterson wrote. Still others believe ‘banks and their executives were not sufficiently penalized for the 2008-2009 crisis’ and that big companies are anti-competitive and “antagonistic towards consumer protection.”

Banks and wealthy individuals are viewed by others as a revenue source for ‘re-distributional policies, including further tax relief for low- and middle-income persons, and funding priorities from paid leave to jobs programs,’ Citi said. What should investors do? Understand ‘what policies can be achieved via legislation versus regulation,’ Peterson said. As any president may find law-making — including altering taxes — difficult, markets should instead focus on ‘proposals that can be implemented via regulatory channels, including through executive orders and presidential proclamations.’”

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BARRON’S/Ben Levisohn

Trump Impeachment Hearings Start Today. What It Means for the Stock Market.

November 13, 2019

Impeachment and Stock Market“It’s official: Months after Speaker of the House Nancy Pelosi announced that the House of Representatives will open a formal impeachment inquiry into President Donald Trump, public hearings are set to begin at 10 a.m. on Wednesday. Being market reporters, we’ll leave the punditry to Fox News, CNN, and the rest. What we care about is the impact on the stock market, and from what little information we have to go by, impeachment doesn’t seem to be high on the list of concerns. We don’t have a lot of examples to go by. Andrew Johnson was impeached—but not convicted—in 1868, and while I’m sure there is market data from back then, I don’t have any. We then have to wait until 1974, when impeachment proceedings began against Richard Nixon, but ended after he resigned. Bill Clinton was impeached in 1998, but acquitted in 1999. So that leaves us with a sample size of two.

And even the examples we have don’t tell us anything significant. From Feb. 6, 1974, when the impeachment process against Nixon formally began, through Aug. 9, 1974, when he resigned, the S&P 500 dropped 13%. So clearly, impeachment is bad for the stock market. Except that from the start of Clinton’s impeachment in January 1998 through his acquittal in February 1999, the S&P 500 gained 28%, according to Bespoke Investment Group data. There was a 20% drop in there, but that was caused by the implosion of Long-Term Capital Management, not anything related to the impeachment itself. So clearly impeachment is good for the stock market.”

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MARKET WATCH/Jeffry Bartash

Consumer prices rise at fastest pace in 7 mos on higher cost of gas, CPI shows

November 13, 2019

Consumer prices rise“Americans paid higher prices for gasoline, used cars, medical treatment and recreation in October, but inflation remained low and fairly stable.  The consumer price index jumped 0.4% in October, with energy accounting for more than half the increase, the government said Wednesday. Economists had forecast a 0.3% advance. The increase in the cost of living over the past 12 months edged up to 1.8% from 1.7%, but it’s still below last year’s peak of nearly 3%. Another closely watched measure of inflation that strips out food and energy advanced 0.2% last month.

Gas prices surged 3.7% in October, but Americans are still paying less to fill up now than they did a year ago. The cost of gas is about 7% lower. Prices for medical care rose 1% in October, marking the biggest increase in more than three years.  The cost of health care has been on the rise again after a prolong period of stable prices. Some analysts worry it could feed into higher inflation. The cost of recreation — ticket prices, cable TV and the like — also posted an unusually large increase last month. The 0.7% acceleration was the biggest gain since 1996. Food prices rose in October, but the cost of dining out is rising much faster than eating in.  The cost of ‘food at home’ — groceries — has climbed just 1% in the past year. Prices for ‘food away from home’ have shot up 3.3%, perhaps reflecting the higher cost of labor. Many states have increased minimum wages.”

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REUTERS/Karthika Suresh Namboothiri

Gold eases as hopes of U.S.-China trade progress lift risk appetite

November 12, 2019

“Gold prices eased on Tuesday as expectations of positive trade talks between the United States and China bolstered risk appetite, while investors booked profits.  Spot gold slipped 0.2% to $1,453.46 per ounce as of 1211 GMT, extending declines into a fourth straight session. U.S. gold futures also dropped 0.2%, to $1,454.20 per ounce. World markets edged higher on Tuesday as investors awaited a speech by U.S. President Donald Trump on trade policy, following news he will probably delay a decision on whether to slap tariffs on European autos.

EU officials said Trump was expected to announce this week he was delaying the tariff decision on cars and auto parts imported from the European Union likely for another six months, also boosting expectations about the president’s speech later in the day about the long-drawn trade war with China.

‘(The trade talks are) probably going to end in a truce, but that could change with a tweet. So, we will continue to have that nervousness in the background,’ said ABN Amro analyst Georgette Boele, adding that gold’s dip was largely due to profit-taking. ‘We are close to quite an important level. From a technical point of view, $1,450 was a breakout level.’ Last week, officials from China and the United States said they had a deal to roll back tariffs, only for Trump to deny any pact had been agreed.”

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KITCO NEWS/Interview – News Desk

Gold prices to skyrocket on overdue volatility in 2020

November 12, 2019

Gold 2020“From a macroeconomic perspective, several of the longer-term problems that would be bullish for gold will likely manifest in 2020, including a recession and an escalation of the trade wars tensions with China, this according to Peter Hug, global trading director of Kitco Metals.  ‘From a physical perspective, if you’re an investor from a medium to longer term perspective, you just stay with this market and if your holdings are under your percentage allocation that you were looking to apply to your portfolio from the perspective of gold, then you just add to the position at these levels because I think 2020 is going to be a very, very volatile year and I think it’s going to be very positive for the metals,’ Hug told Kitco News.

Hug noted that the recent pressure on precious metals can be attributed to selling action from institutional investors following this summer’s rally up to the $1,500 an ounce level. ‘Most of the large funds and the ETFs were positioned long…it would be logical that they would sell and take their profits and that’s why you’re seeing this weakness in the market,’ he said.”

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SOUTH CHINA MORNING POST/David Dodwell

World economy headed for a recession. China won’t be there to save it this time

November 12, 2019

World Economy“A decade after the global financial crisis, with the world’s leading economies still addicted to the near-zero interest rates of the emergency response of quantitative easing, it seems the global economy remains on life support, with our experts still flummoxed about how to restore economic health. Trade across the world is stalling. Most leading economies are reporting near-zero economic growth. Investment is in decline. Most expert organisations, including the International Monetary Fund, the UN Department of Economic and Social Affairs, the Organisation for Economic Cooperation and Development and the World Trade Organisation, are predicting worse to come.

And this takes no account of the ‘stupid stuff’ that is gratuitously making matters worse – like Trump’s tariff war, Johnson’s Brexit and economic conflict between Japan and South Korea. After fending off the threat of a massive recession a decade ago, our leaders have retained an unsated urge to inflict self-harm as we teeter on the brink of a fresh recession. And after using so much of our monetary ammunition to fight off a recession in 2009, there are worrying questions about where the resources can be found to fight off a new recession. Government and corporate debt sit at record levels, with most central banks warning political leaders the monetary armoury is empty. They are calling for fiscal stimulus – like building infrastructure and cutting taxes – when most governments are staring at deep budget deficits and under pressure to cut, rather than increase, spending.”

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CNBC/Yun Li

More than half of the world’s richest investors see a big market drop in 2020

November 12, 2019

World Investors“A majority of the most wealthy investors around the world are bracing for a big sell-off next year, according to a UBS survey. Fifty-five percent of more than 3,400 high net worth investors surveyed by UBS expect a significant drop in the markets at some point in 2020. Amid intensifying geopolitical risks, the super-rich have increased their cash holding to 25% of their average assets, the survey showed. ‘Investors see reasons to be cautious in the new year,’ said UBS Global Wealth Management’s client strategy office in a note on Tuesday. ‘Two in three global investors believe markets now are driven more by geopolitical events than business fundamentals such as profitability, revenue and growth potential.’

The ultra-wealthy’s top geopolitical concerns include the U.S.-China trade war and 2020 U.S. presidential election, UBS said. Stocks hit record highs last week, lifted by rising optimism on a trade resolution between the U.S. and China. The Dow and S&P 500 are both up more than 3% in the past month. However, the two sides are still finalizing the so-called ‘phase one’ deal and they seem to disagree on if the existing tariffs would be lifted. As the presidential election gets closer, Wall Street started to watch closely at the ascent of Elizabeth Warren. Notable investors including Paul Tudor Jones and Leon Cooperman have warned of a market correction on a Warren presidency.

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THE NEW YORK TIMES/Alexandra Stevenson and Cao Li

How Bad Is China’s Debt? A City Hospital Is Asking Nurses for Loans

November 10, 2019

China debt“When the call came for local doctors and nurses to step up for their troubled community, the emergency wasn’t medical. It was financial. Ruzhou, a city of one million people in central China, urgently needed a new hospital, their bosses said. To pay for it, the administrators were asking health care workers for loans. If employees didn’t have the money, they were pointed to banks where they could borrow it and then turn it over to the hospital. China’s doctors and nurses are paid a small fraction of what medical professionals make in the United States. On message boards online and in the local media, many complained that they felt pressured to pony up thousands of dollars they could not afford to give.

‘It’s like adding insult to injury,’ a message posted to an online government forum said. Others, speaking to state and local media, asked why money from lowly employees was needed to build big-ticket government projects. Ruzhou is a city with a borrowing problem — and an emblem of the trillions of dollars in debt threatening the Chinese economy. Local governments borrowed for years to create jobs and keep factories humming. Now China’s economy is slowing to its weakest pace in nearly three decades, but Beijing has kept the lending spigots tight to quell its debt problems. In response, a growing number of Chinese cities are raising money using hospitals, schools and other institutions. Often, they use complicated financial arrangements, like lease agreements or trusts, that stay a step ahead of regulators in Beijing.”?

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FORTUNE/Erik Sherman

The Pain from WeWork’s Failed IPO Deepens as Bondholders Stuck Underwater

November 12, 2019

We Work“How badly did WeWork crash after it bombed out of the IPO process?  Big backer SoftBank took a $9.2 billion write-down. That’s after putting $10.3 billion into the company through both common and preferred stock. But shareholders aren’t the only ones licking their wounds after a skeptical market tanked WeWork’s plans for an IPO. Anyone still holding the company’s bonds are likely facing an extended period of being underwater. Just three months ago in August 2019, the bonds hit a high of 103.21 (100 being par, or the face value of the bond) on secondary markets. They now sit at a flat 85. Yields, which move in the opposite direction of a bond’s price and are a measure of the risk level of a security, were 7.875% at issuance and are now at 11.66%.

In the bond world, this is called a disaster. And a lot of big-name financial services firms have millions tied up in these bonds, with the top holder at almost $199.7 million. When WeWork had a presumed valuation of $47 billion, the skeptic might have wondered on what foundation it was built. After all, International Workplace Group, the largest name in subleasing office space, currently has a market value of about $4.4 billion. IWG has notched an annual revenue of about $3.2 billion on 3,334 locations. It is profitable. WeWork, in comparison, has lost billions of dollars on 600 locations with a valuation that—at least in the not-too-distant past—was almost 15 times higher. The $47 billion WeWork valuation the company reached in early 2019 now of course seems downright crazy.”

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Wealth inequality is at historic levels throughout the world and some consider it the greatest threat to the global economy.

The disparity between the very rich and the very poor seems as old as society itself, but it’s a bit more complicated than Marie Antoinette’s reported, “Let them eat cake” pronouncement upon hearing that her starving peasants had no bread. Or, Oliver Twist’s bold request for more than the issued “three meals of thin gruel a day, with an onion twice a week,” at the parish workhouse.

Wealth or income inequality, according to Investopedia is “an extreme disparity of income distributions with a high concentration of income usually in the hands of a small percentage of a population.” The National Bureau of Economic Research reported earlier this year that the wealth gap has indeed widened since the 1980’s when the top 1% held some 25%-30% of the world’s wealth compared to today’s far heftier 40%. And the prevailing notion that the rich are now getting richer and the poor are getting poorer — could have extreme economic, social and political consequences.

The struggle of those on the bottom echelon of society has been apparent for thousands of years, but there is growing evidence that income inequality now hurts everyone. Researchers at the International Monetary Fund maintain that there’s a distinct correlation between the rising incomes of the top percentage of wage earners and falling GDP. Productivity, spending, and economic mobility all suffer when low-income workers fail to thrive. It’s also an environment ripe for high debt and staggering inflation.

Societies where income inequality is most pronounced also tend to struggle with elevated levels of poverty, public health issues, human rights violations, crime and lawlessness. They are more likely to under-invest in technology, education, and innovation and turn a blind eye to economic fear, anxiety and frustration. Rising unhappiness, lower life expectancy, and a frayed social fabric are the common outgrowths of unequal income distribution. And then there’s the nagging question of social cohesion. Wealth inequality has led to a dramatic rise in political tension and uncomfortable conversations about income transfers, re-distribution, and weighty new taxes on the rich.

The disparity of wealth in America in particular, has caused many to question the notion of capitalism itself and spawned discussions about whether the free enterprise system has failed the poor, no longer works, or does not support the ‘greater good.’ Indeed, billionaire investor, Ray Dalio, recently compared the current wealth gap to the decadent, pre-depression 1930’s. Similarly, J.P Morgan CEO Jamie Dimon, asserted that the widening chasm between the ‘haves and have-nots’ has left too many behind. These are common criticisms of the market economy, and they’ve given rise to 2020 political platforms that embrace socialism, collectivism and communalism by advancing incalculable notions like free college tuition, Medicare-for-all, and the Green New Deal.

We’ve certainly come a long way from the 1982 “poverty sucks” poster with the capped man in riding boots, hoisting a martini in front of his Rolls Royce. But there’s danger in believing that America does not endorse competitive markets, private ownership, and the creation of wealth. And there’s great economic peril in tossing out the free market baby with the free enterprise bath water. If our social and political fabric does indeed unravel in 2020, gold will be the safe haven asset of last resort.

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