Gold will go up by multiples if Fed policy error stokes major new crisis
Recessionary winds continue to blow briskly through the U.S., and although the mainstream media consistently downplay the downbeat data, the top Republican presidential contenders have seized on the average Americans discontent.
Ted Cruz warned Friday that the rising stock market is an illusion created by the Federal Reserves easy-money policies. The Fed has, for those with assets, driven up stock prices, he said. But thats not built on anything real. Its not built on an increase in the intrinsic value of those assets. Thats just playing games with money, which means a crash will be coming.
Meanwhile, Donald Trump blasted the self-serving elites in the political class, writing in The Wall Street Journal: Let me ask America a question: How has the system been working out for you and your family?
Industrial output falls for 7th month: But the economic numbers tell the tale much more accurately than political campaign rhetoric. Aside from a positive initial-jobless-claims number, a Fed Beige Book that found just modest to moderate growth, and a strong Empire Fed manufacturing report, the data this week has been grim.
U.S. retail sales tanked once again in March, while Fridays report on U.S. manufacturing output for last month declined by the most since February 2015. The U.S. economy has never ever seen industrial production drop year-over-year for seven months in a row without being in a recession, Zero Hedge noted.
Moreover, total business sales have fallen again, and the inventory to sales ratio has hit the highest level since the last financial crisis, Michael Snyder of The Economic Collapse blog noted.When you add these three classic recession signals to the 19 troubling numbers about the U.S. economy that I wrote about last week, it paints a very disturbing picture.
59% polled say economy worsening: And some new key sentiment reports confirm that the U.S. public is not feeling optimistic about the state of the economy. The University of Michigans consumer confidence index fell for the fourth straight month to hit its lowest level since September 2015.
Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation, it noted.
Meanwhile, a new Gallup U.S. Economic Confidence Index found similar pessimism. Fully 59% say the economy is getting worse against just 37% who say it is getting better, CNBC said of the polls findings. That gap of 22 percentage points is the worst since August. Apparently the fear that the days of sub-$2 gasoline prices are coming to an end has stoked the publics unease.
Despite the sluggish growth picture and the inability of the economy to create substantial numbers of middle-class jobs, some on the Fed continue to talk up at least two interest-rate increases this year. That hawkish tone flies in the face of sinking GDP expectations from major independent firms as well as even some of the Feds own number crunchers.
GDP estimates nose-diving: For example, the Atlanta Feds GDP Now tracker currently estimates second-quarter growth at 0.3% as of April 13. And the New York Feds NowCast model just cut first-quarter GDP from 1.5% to just 0.8%, while slashing its second-quarter target from 1.9% to 1.2%. Its first-half 2016 GDP estimate now stands at only 1.0%. With the U.S. economy so close to recessionary GDP numbers, can the Fed afford to raise rates without crashing the system?
Although the top Fed policymakers are denying the U.S. is in danger of a recession, its important to remember that the Fed missed the financial crisis of 2009, with then-chief Ben Bernanke telling the public that all was contained.
Put 10% in gold for insurance: Investors should consider taking advantage of golds current price levels to prepare for the possibility that the Fed could get it awfully wrong all over again. Economists herd and are wrong most of the time, West Shore Funds strategist Jim Rickards told Fox Business this month. The Fed has never predicted a recession; weve had many, so dont listen to economists, listen to executives. Trump may or may not be right, but Id rather listen to an executive than an economist.
On gold allocation levels, Rickards added, I recommend 10% of your investable assets; people say, Sell everything, buy gold. I dont recommend that. Ten percent of your investable assets. If Im wrong and gold does nothing, you wont get hurt with 10%. But if Im right, if everything else crashes or if Trumps right, gold will go up by multiples, so thats your insurance for the rest of your portfolio.