Ignoring the signs

closed sign - economy

We recently got the quarterly numbers for growth in the U.S.

And it came in lower by half than what economists had expected.

That either says something about the economists, the economy or both.

While we keep hearing that the U.S. economy is reviving, the numbers outside of Wall Street and Pennsylvania Avenue contradict this positive PR. The day the news was announced the markets were actually up!

What is the logic? There is no logic.

Here are some pesky facts that have been around for quite a while that no one seems to want to broadcast on the news.

  • More small and medium-sized businesses are closing than are starting in the U.S., a trend in place for some time.
  • U.S. manufacturing continues to limp along in a self-proclaimed multi-year recession.
  • The only earnings growth in the S&P 500 done more by accounting magic than it is real growth. Stock buybacks are continuing to keep the stock market at unnatural levels, given the fact that the fundamentals don’t support the valuations.

But the banks and the politicians keep the game going. Some of this is because it’s a major election year. Everyone wants the voters to feel good when they go to polls. And once the election is decided they will drop whatever bad news they choose on the electorate.

Need more reality? The oil markets are forward looking. That means they anticipate economic growth. ConocoPhillips just posted a $1.1 billion loss for the quarter and cut 1,000 jobs in North America; Shell earnings are down 70 percent and it’s cutting 25 percent of its Gulf of Mexico workers; Norwegian Statoil’s income plummeted 95 percent; Schlumberger posted a $2.2 billion loss for the quarter.

Some are saying this is the bottom of the cycle, but any investor knows that it’s always dangerous to call tops and bottoms. Again it’s simply more weak PR. They’ve been saying things like this for a while.

And you can see energy prices falling. U.S. inventories are rising instead of falling and that is hurting refiners.

None of this paints a pretty picture of the U.S. economy. And the kicker is, the U.S. economy is far better than any other economy on the planet.

We are in a nether world of central bank driven markets and there are a lot of unnatural things happening because of it. It’s effecting every aspect of the economy, yet no one knows how to stop it or change it.

The most recent bizarro-world addition was negative interest rates by major nations’ central banks.

As I have said for the past seven months, gold and silver, whether through exchange-traded funds or coins or bullion, are your best investments now. Sooner or later we will regress to the mean and all the abstract valuations will crumble, leaving real assets as the only source of value.

Even the U.S. dollar holds less promise than it has in the past. That’s because any regression to the mean will whipsaw the dollar and U.S. Treasuries and could very well mean hyperinflation before its done.

Right now, stay on the sidelines or stick with precious metals.

— GS Early


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