Commentary for Wednesday, April 8, 2015 ( www.golddealer.com) – Gold closed down $7.50 at $1203.10 and the minutes of the latest Federal Open Market Committee are released to the public. The FOMC continues to mule over our current economic recovery. But you might think that any indecision on the Fed’s part to raise interest rates would be good for gold.
Actually it should have been but I think traders in their heart of hearts think the Federal Reserve is going to raise interest rates even though they talk a good game about failed jobs and an economy which is still struggling. Gold was steady overnight in Hong Kong around $1210.00 and began to sell off in the London market – a weakening that was carried over into the domestic trade way before the minutes were released.
With continued problems in China, the Middle East and to a minor degree Europe you would think traders would not be so focused on the FOMC – but none of these other factors were even looked at in today’s domestic gold trading. For now it’s all about the FOMC and when it will raise interest rates.
So gold remains defensive and the dollar remains strong. Look at the Dollar Index range today – it was 97.25 through 98.20 – as of this writing we are at 98.02. This market opened weaker but did an about face in early trading and headed higher and the dollar has been generally stronger since Monday. And the daily trading range of crude oil is weaker – moving from around $53.00 a barrel to around $50.91 as of this writing – and weaker oil may suggest better economic numbers and continued virtually non-existent inflation – all of which caps any gold excitement.
Gold’s close ($1203.10) has now moved under all three important moving averages – 50 DMA ($1205.00) – the 100 DMA ($1212.00) and the 200 DMA ($1232.00). This continues to suggest a loss in momentum and a deteriorating technical curve on the shorter term.
This from Myles Udland (Business Insider) – The Fed is split on when to raise rates – The Minutes from the latest FOMC meeting show that the Fed is split on when to raise interest rates. Here’s the key passage from the minutes:
Participants expressed a range of views about how they would assess the outlook for inflation and when they might deem it appropriate to begin removing policy accommodation. It was noted that there were no simple criteria for such a judgment, and, in particular, that, in a context of progress toward maximum employment and reasonable confidence that inflation will move back to 2 percent over the medium term, the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation.
And here’s more color on the fundamental split in the FOMC: Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar’s appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.
The Fed’s policy statement that followed that meeting showed that the FOMC decided to remove the word “patient” in describing how it would approach its first interest rate hike since July 2006.
Along with its latest policy statement, the Fed also released an updated Summary of Economic Projections, which saw the Fed downgrade its growth outlook for the US and lower its view on the central tendency for long-term unemployment.
The Minutes showed: “in their discussion of the economic situation and the outlook, meeting participants regarded the information received over the intermeeting period as indicating that the pace of economic activity had moderated somewhat.”
Silver closed down $0.38 at $16.44. The physical across the counter silver bullion business is steady but not intense. The public seems to love this market when silver drops into the mid to high $15.00 range so current levels are interesting but no cigar. This is interesting – it would suggest today’s silver bullion player is buying the dips but it now takes bigger dips to move the needle. The big players remain Monster Boxes and new one ounce rounds. By the way we will soon offer “vintage or historical silver rounds” at a discount to brand new stock. Usually we just melt this material but a trial in store worked well – they are cheaper than new stock and the rounds are our choice only and subject to stock available. Still if you want to save some money these older rounds are accepted worldwide. For now call Ken Edwards for pricing.
Platinum closed down $7.00 at $1167.00 and palladium closed down $13.00 at $755.00. The platinum bullion market is heating up – this figures as platinum is selling at a $36.00 discount to gold. And availability of platinum bullion products is improving – we are now seeing the Platypus 1 oz – some Koalas 1 oz and platinum bullion bars 1 oz. We are also now able to take orders on the Canadian Platinum Maple Leaf which should be in stock by Monday, April 13 th.
This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 4-1-15 was 52,060,294. That number this week (4-8-15) was 51,929,558 ounces so over the last week we dropped 130,736 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2015 is 54,094,507 and the record low for 2015 is 51,057,082.
All Silver Exchange Traded Funds: Total as of 4-1-15 was 616,601,590. That number this week (4-8-15) was 615,373,062 ounces so over the last week we dropped 1,228,528 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 4-1-15 was 2,575,414 ounces. That number this week (4-8-15) was 2,569,946 ounces so over the last week we dropped 5,468 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 4-1-15 was 2,895,179 ounces. That number this week (4-8-15) was 2,889,867 ounces so over the last week we dropped 5,312 ounces of palladium.
I always read Chuck Butler ( www.DailyPfennig.com) – “But yesterday, I was reading friend, and really smart guy, Dr. Steve Sjuggerud’s Daily Wealth newsletter and in it he illustrates a chart that he says signals to us that the message from the chart is that an interest rate hike is always “just around the corner”. He says that in 2009 a rate hike was expected in 6 months, in 2010, it was expected in 10 months, in 2011, it got pushed out to 15 months, 2012, it got pushed out even further to 28 months, 2013, the expectations came back down to 19 months, and 2014 to 12 months, and as we started 2015, it was 8 months. This data was based on real-money trading in Fed Funds Futures contracts. And to take the point further, now according to Bloomberg, “traders are now expecting the Fed to raise rates later than ever before.”
But what happened to those expectations going back to 2010? They were forgotten about, except by smart guys like Steve that know how to illustrate what they talk about. But I believe that this time, we could very well see the expectation not be forgotten about, and instead come back to haunt the Fed’s credibility, for this time they led the markets to believe that June was the bogey for a rate hike.
And don’t forget the U.S. Debt Clock. Remember this? I used to put the link in the Pfennig every Friday, but then it seemed to be too repetitious so I stopped. But here it is here for those of you keeping score at home (www.usdebtclock.org/index.html).
When going there, you’ll see that the current U.S. National Debt is over $18 Trillion. And even more scary is the Unfunded Liabilities are $95.7 Trillion. And if you want to really go to the dark side, Professor Lawrence Kotlikoff says that the Unfunded Liabilities are really more than $200 Trillion! And all the while, everyone in Washington D.C., and the Fed, and the Treasury, and anywhere Gov’t officials hang out, just go about doing what the old 60’s song said: Tradin’ my time for the pay I get, Livin’ on money that I ain’t made yet. And yet, there are still those that believe the dollar can go on a multi-year rally.”
This from David Stockman (Contra Corner) – 15 Years of Stimulus – Nothing To Show – At this point 15 years ought to count for something. After all, we have now used up one-seventh of this century. So you can’t say it’s too early to tell what’s going on or to identify the underlying trends.
Indeed, during that span we have encompassed several business cycles, two financial crises/meltdowns and nearly a non-stop blitz of “extraordinary” policy interventions. To wit, a $700 billion TARP, an $800 billion fiscal stimulus, upwards of $4.0 trillion of money printing and 165 months out of 180 months in which interests rates were being cut or held at rock bottom levels. You’d think with all that help from Washington that American capitalism would be booming with prosperity. No it’s not. On the measures which count when it comes to sustainable growth and real wealth creation, the trends are slipping backwards – not leaping higher.
So here’s the tally after another “Jobs Friday”. The number of breadwinner jobs in the US economy is still 2 million below where it was when Bill Clinton still had his hands on matters in the Oval Office. Since then we have had two Presidents boasting about how many millions of jobs the have created and three Fed chairman taking bows for deftly guiding the US economy toward the nirvana of “full employment”.
Say what? When you look under the hood it’s actually worse. These “breadwinner jobs” are important because it’s the only sector of the payroll employment report where jobs generate enough annual wage income – about $50k – to actually support a family without public assistance.
Moreover, within the 70 million breadwinner jobs category, the highest paying jobs which add the most to national productivity and growth – goods production – have slipped backwards even more dramatically. As shown below, there were actually 21% fewer payroll jobs in manufacturing, construction and mining/energy production reported last Friday than existed in early 2000.
Then take the matter of productivity growth. If you don’t have it, then incomes and living standard gains become a matter of brute labor hours thrown against the economy. In theory, of course, all the business cycle boosting and fine-tuning from fiscal and monetary policy, especially since the September 2008 crisis, should be lifting the actual GDP closer to its “potential” path, and thereby generating a robust rate of measured productivity growth.
Not so. Despite massive policy stimulus since the late 2007 peak, nonfinancial business productivity has grown at just 1.1% per annum. That is just half the 2.2% annual gain from 1953 until 2000. So Washington engineered demand stimulus is self-evidently not pulling up productivity by its bootstraps.
Indeed, if you go back to the 1953-1973 peak-to-peak period, which also encompassed several business cycles, the annual productivity growth rate averaged 2.7% or two and one-half times the last 15 year outcome. But here’s the thing. That sterling result occurred during those allegedly benighted times under Eisenhower, who believed in balance budgets, not Keynesian stimulus, and delivered several of them. It also encompassed the “new economics” era of the Kennedy-Johnson Keynesians, who dismissed a calendar-bound balanced budget approach, but to their credit did believe in balanced budgets over the business cycle. And they made good on that theory by getting LBJ to raise taxes and cut spending when the guns and butter economy got over-heated in 1968.
And most importantly, it was also the time of the “light touch” monetary policies of William McChesney Martin who presided at the Fed during most of this period. Unlike the Bernanke/Yellen Fed that still can’t get its hand off the stimulus button 70 months after the Great Recession ended, Martin once took the “punch bowl” away only 4 months after a business recovery commenced because he believed his job was done. Growth was up to capitalism, not the FOMC. The same picture occurs on real median household income. During the same 1953-1973 interval, real median family income grew at 3.0% annually, rising from $26k to $46k during the period.
By contrast, over the course of the next 27 years, and after Washington ended both the Bretton Woods gold standard anchor on money and the practice of balanced budgets, real median incomes grew by only 0.8% annually, rising to $57k by the year 2000.
Needless to say, it’s been all downhill since then. Real median income was $53k in 2014. That means median living standards of US households have been falling at a 0.5% annual rate since the turn of the century. There is no prior 15 year period that bad, including the years after the 1929 crash. The argument of the Keynesians is that capitalism is a chronic underperformer. Left to its own devices it is always leaving idle labor and capital resources on the table, and is even prone to bouts of depressionary collapse absent the counter-cyclical ministrations of the state and its central banking branch. Well, then, given the monumental size and chronic intensity of policy stimulus during the last 15 years, that particular disability should have been eliminated long ago. The US economy should be surfing near its full potential.
In that regard, one measure of high resource utilization most surely would be the labor force participation rate. As shown below, however, after the one-time boost of increased female participation after 1980, the trend has been in a nose-dive. And it’s not due to the baby-boom getting old and repairing to the shuffleboard courts. The data in the graph are for the prime labor force age 16-54. Since the year 2000——a time when the Fed’s balance sheet soared by 9X from $500 billion to $4.5 trillion – the prime age labor force participation rate has plummeted by 10 percentage points.
The exact same underutilization trend can be seen in the measures of aggregate labor hours. Even if productivity has turned punk, it might be thought that all this policy stimulus would flush labor hours into the economy. But despite an increase from 212 million to 250 million of the working age population since the year 2000, there has been virtually no gains in labor hours utilized by the private business economy.
Stated differently, the Jobs Friday revilers are operating on the duplicitous assumption that all headline jobs are created equal – even though it is well known that the BLS counts a four hour window-washing gig and a 40-hour week in a steel mill the same. So the underlying truth is that actual apples-to-apples labor utilization has been going nowhere. In Q4 2014 the index of non-farm labor hours utilized by the business sector posted at 109.8——virtually the identical level recorded in early 2000.
That’s right. After growing at a 1.6% annual rate for a half-century running (1953 to 2000), labor resources deployed have flat-lined for the past 15 years. Rather than contributing to higher utilization of resources, the massive, chronic stimulus policies of recent years have been associated with just the opposite.
The 15-year trend in the other important input to true growth and wealth creation—-real net business investment—displays the same dismal pattern. Real net investment in business fixed assets is still lower than it was in 1998. So when it comes to the building blocks of prosperity, policy stimulus has not been stimulating much of anything – except a slide downhill. And the reason is not hard to find.
The monetary politburo in the Eccles Building ignores all these fundamentals in order to focus on the short-run “incoming data”. It actually believes it is steering the business cycle as in times of yesteryear when the credit channel of monetary transmission still functioned effectively – even if destructively in the long-run.
But that was a one-time parlor trick. As we have consistently documented, households are at “peak debt” and on a net basis can no longer raise their leverage ratios to supplement wage and salary based income with more borrowings. Likewise, business borrows hand-over-fist in response the Fed’s dirt cheap cost of debt, but the proceeds go into financial engineering, not productive investment. So the Fed blunders forward, oblivious to the fact that it is now 2015, not 1965, maintaining the lunacy of zero or soon near-zero interest rates. That maneuver creates floods of new credits, but in the form of gambling stakes which never leave the canyons of Wall Street. So doing, they inflate financial assets values until they reach such absurd heights that they collapse of their own weight.
The Fed has thus become little more than a serial bubble machine. Tracking the incoming data during the intervals between financial boom and bust, it mistakes unsustainable short-run gains for real economic growth. But overwhelmingly, the in-coming data has been recording temporary GDP and born again jobs.
That too was on display in Friday jobs report. For the second time this century we have had a boom in the part-time economy of jobs in bars, restaurants, retail, leisure and personal services. These jobs on average represent 26 hours of work per week and average wage rates of around $14/hour, thereby generating less than $20k on an annual basis.
Since the top 10% of households account for upwards of 40% of consumer spending it is not hard to see what will happen next. When this third and greatest financial bubble of this century finally collapses, the bread and circuses jobs will vanish in a heartbeat.
Then perhaps the truth will sink in. Fifteen years of policy stimulus and absolutely noting to show for it. On a net basis, the only jobs created during this entire century are in the HES Complex (health, education and social services). The thing is these jobs have nothing to do with cheap interest rates and easy credit. They are a function of the entitlement state and the massive $200 billion per year of tax subsidies which support employer-funded health benefits.
Needless to say, if you spend enough public money in the HES Complex you will get some job growth. You will eventually get a fiscal calamity, too.
The walk-in cash trade was average today and the national phones were active. The recent run of larger sellers has stopped and order size is smallish to mid-size ($50,000.00).
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 3) (Monday – 4) (Tuesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”.
Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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