The Illusion of an Economic Recovery

The Fed and many economists seem to think the economy is strong, but is it?

My Thoughts on the Economy Based on the Data I Read

The Fed ignores U-6 unemployment data which still has the rate over 11%.

The Producers Price Index (PPI) today came in lower than expected.

The Dollar is down $1 and fell since the PPI announcement.

 

The dollar is still in an overall upward trend putting pressure on gold and silver prices.

DOW fell over 300 points with PPI announcement. I am still market bullish but NOT because of a strong economy. The stock market can go higher without the economy being strong. Please know the difference.

If you think real estate is strong, the Homebuilder ETFs disagree.

Oil continued to fall today. Not sure about a bounce coming yet, but nothing goes straight down.

Gold fell a little. Not a lot. It fell again with the dollar down. I do think at some point we will see the dollar and gold rise together for a bit. I will at some point be dollar and gold bullish which goes against mainstream (or gold bug) thinking. Just not yet.

The latest GDP numbers were led by increased government spending. That’s not real growth but growth of future debt for taxpayers to be concerned about.

Other news since the 1st of December which point to a weaker economy;

America’s Manufacturing Trade Deficit Just Set Another Record ​

U.S. manufacturing cools, but underlying momentum remains 

China’s Growth in Manufacturing Hits Eight-month Low 

This Is Deflation Not an Economic Recovery

The consumer sentiment report today being the best in 8 years shows how we are on the same path we were pre-2008 crisis. In fact, we are right where we were before the last run up beginning in Aug. 2006. 

Retail sales from consumer spending may paint a short term rosy picture, but again, the consumer is the last to know. They spend thinking they have more wealth in their 401k’s and other financial accounts but don’t consider that this wealth is not realized. It’s an illusion masked by the fact that next month, or next year it can be cut down in size considerably.

But alas, Congress (House) with our best interest at heart passed a $1.1 trillion spending bill last night that “would roll back the Dodd-Frank law due to go into effect next year by killing planned restrictions on derivatives trading by large banks, allowing them to continue trading swaps and futures in units that benefit from federal deposit insurance and Federal Reserve loans.”

You’ve got to be kidding me right? 

The Fed will react when necessary to stimulate. It will be adding more fuel to the fire rather than allowing deflation to take its course. Deflation is not bad but the Fed can’t have it as it exposes their game. Japan has done all they can to fight deflation and it has taken 20 years but they have now implemented Abenomics to weaken the Yen. Draghi has much more to do with the European mess especially with the capitalization requirements for banks set to take place Jan. 1st. That’s not gonna happen.

Thoughts on Gold

Gold still has some headwinds ahead of it, but the bottom will come soon enough and investors should be dollar cost averaging now into a long term position. When my indicators tell me we are close to a bottom, I’ll write about it. I do write 5 days a week about the markets. Please bookmark this page to read as I don’t like spamming emails every day.