Go West: Economic Review of the States

Go West: Economic Review of the States

Dear Reader,

Recently, we've been looking East to China and South to Europe. So it feels time to look West to the United States. I tripped over a disquieting article this week, which honed a focus back onto our friends across the pond. Like an, at times, unwanted chaperon, it is hard to escape their economic influence even if, historically, we have sporadically been grateful for their global oversight.

"Just like during the last economic crisis, homeless encampments are popping up all over the nation as poverty grows at a very alarming rate.  According to the Department of Housing and Urban Development, more than half a million people are homeless in America right now, but that figure is increasing by the day.  And it isn’t just adults that we are talking about.  It has been reported that that the number of homeless children in this country has risen by 60 percent since the last recession, and Poverty USA says that a total of 1.6 million children slept either in a homeless shelter or in some other form of emergency housing at some point last year.  Yes, the stock market may have been experiencing a temporary boom for the last couple of years, but for those on the low end of the economic scale things have just continued to deteriorate." (Zerohedge, 13th September 2016)

Tonight, countless numbers of homeless people will try to make it through another chilly night in large tent cities that have been established in the heart of major cities such as Seattle, Washington, D.C. and St. Louis.  Homelessness has gotten so bad in California that the L.A. City Council has formally asked Governor Jerry Brown to officially declare a state of emergency.   As this new economic downturn continues to accelerate, the homelessness boom is going to spiral out of control.  Pretty soon, there will be tent cities in virtually every community in America. In fact, there are people that are living comfortable middle class lifestyles right at this moment that will end up in tents."  That serves as an unnerving twist.

We saw this during the last economic crisis, and it will be even worse as this next one unfolds. Just like last time around, the signs that the middle class is really struggling can be subtle at first, but when you learn to take note of them you will notice that they are all around you."  

After some brief research, I found that The New York Post ran a disarming little article a fortnight ago, with the title: "These are the Signs of an Economic Collapse." Its flavour reminded me of trying to wake a snoozing man from his nihilistic slumber, as politely but as quickly as possible. Here are a few of the questions they asked. It would be economically prudent to assume these questions are not rhetorical:

"Did that same house where the Joneses once lived now become a rental property, where new people come to live every few months? Do you know one or two people who are looking for work? Maybe professionals, who you thought were safe in their jobs? Did your school buddy take a job at the local convenience store because he could not find work in sales? Is the pothole on your street getting larger instead of getting repaired? Is there more than one street light out in your town? Have you seen a situation - any situation - and said, “Jeez, it wouldn’t take much money to fix that” — but it hasn’t been fixed?"

For those of our readers who have been receiving Bleyer's newsletters for a while, you may recall my trip to Greece last October, where I reported on park fountains and public swimming pools dry, blackened and deserted, like a scene from an apocalyptic movie. 

Now, the same crumbling spotlight is on America, as the New York Post piece continues: "You may have witnessed many of these situations, but you tell yourself it can’t be an economic collapse because the stock market is at an all-time high. Does that mean all is well? No, this is what a 21st-century economic collapse looks like in the beginning. The divide between the haves and the have-nots is growing exponentially. If the 99 percent can’t contribute to the economy because of the dire financial situations they find themselves in, then you see gross domestic product growth reports of 1 percent, such as we have seen lately. Don’t be fooled into thinking that the stock market is any indication of the health of an economy."

How perfectly true.

"It’s a rigged market to placate the masses - most of whom do not have much skin in the game - and convince them that all is well, when in fact the opposite is true. We are entering the problem months for the markets. September and October are historically times of greater market volatility to the downside. So what does an economic collapse look like in the 21st century? What is listed above is just the tip of the iceberg of what I’ve witnessed recently, which is a typical middle-class suburban neighborhood."

It is often argued that the time to invest for prudent wealth protection - outside of the stock market and property - is precisely when those items appear to be "doing well." Mike Maloney has often pointed out, for example, that while housing and stocks are "high", physical Gold and Silver are "low", the perfect reflexive cycle of precious metals.

But is the stock market really doing well, as appears on the surface? And how does this relate to the U.K.? During the last three days, the following has occurred: £50bn wiped off the FTSE 100 and pound posts sharpest fall since Bank of England rate cut as market volatility returns. Volatility returned to financial markets with “a bang” as Britain’s biggest companies surrendered £50bn in value in just three trading sessions and the pound suffered its sharpest fall since the Bank of England [cut interest rates and announced more quantitative easing.]  After Monday’s savage sell-off, the FTSE 100 rebounded in early trade after dovish comments from Fed official Lael Brainard relived the markets." Notice how simple words from a member of the Federal Reserce collide with our British markets to shunt them off course. This should not be so but it is. A wise investor therefore listens to what is coming out of the States, in order to invest and evade the adverse affects of words! "Ms Brainard said the U.S. central bank should avoid removing support for the U.S. economy too quickly, solidifying the view the Fed will keep interest rates on hold next month. However, the bounce back was short lived as the blue chip index tumbled 35.27 points, or 0.53pc, to close at 6,665.63 after oil prices tumbled when the International Energy Agency revised it cut its demand forecasts for the year ahead." (The Telegraph, Live Business Section, 14th September 2016)

To put into everyday language, propping up the U.S. economy isn't working, because no amount of low interest rates and fake money printing can get the U.S. (and Europe, the U.K.. and the rest of the world for that matter) out of debt. Only hard work, lower borrowing and increased G.D.P. gets rid of debt. Countries are no different to individuals when it comes to the rules of economics. As Charles Dickens once wrote in David Copperfield, "Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

In fact, it can easily be argued that all efforts to white-wash the health of the economy actually make the underlying collapse worse. So, will America go into a Negative Interest Rate Policy - or NIRP for short - like Japan and the E.U.? "Negative interest rates are spreading like a virus. Central banks in the Eurozone and Japan all have below-zero policy rates. “NIRP” is a desperation move but the only move those central banks have. The Federal Reserve hasn’t followed - yet. When the next recession strikes, I believe Janet Yellen will choose to break the zero lower bound. Look behind the headlines and you’ll see the Fed already preparing for NIRP. In theory, negative rates should encourage consumers and businesses to spend more freely and stimulate growth. It hasn’t worked out that way. NIRP just punishes savers and makes everyone miserable." (Yahoo Finance, September 2016)

And how does all this affect the "price" of Gold and Silver, remembering, of course, that the "price" is currently set according to paper trading, not to the actual ounces of the physical metal currently being snapped up by investors and countries?

"The Fed has made the booms and busts much more exaggerated than they otherwise would be. Their ability to unilaterally dictate interest rates rather than allow the free markets to determine equilibrium, has generated an incredible amount of volatility for investors. Gold and silver have enjoyed a powerful rally in 2016, which started right after the Fed last raised interest rates. Yet, the fear of the Fed raising rates by another 25 basis points has paralyzed gold investors. Equity investors are also hanging on every word that comes from our overlord central planners. Yesterday, when Federal Reserve bank president Eric Rosengren said that he thought it might be appropriate for the U.S. central bank to start raising rates, the stock market crashed hard yesterday, having the second worst day of the year behind the Brexit panic. 

Then, Fed Governor Lael Brainard delivered a dovish speech in Chicago. Of particular note is the fact that she deviated from the Fed's message of needing near-term rate hikes and instead mentioned several reasons that the Fed should not raise rates yet. These included low inflation, labor market slack, and volatile foreign markets. Her opinion is not new, but she reiterated her stance and the market took notice. Stocks climbed from a morning decline to close the day up 1.5%. Gold and silver also reversed earlier losses to close the day in the green.

The Federal Open Market Committee (FOMC) meets next week to decide on any changes in U.S. monetary policy. So, the drama continues. It might be a comedy, except for the fact that the volatility crushes the investments of the average Joe at the expense of those with inside knowledge or access to the information milliseconds before the rest of us receive it." (Seeking Alpha, Gold And Silver Prices Volatile On Opposing Views From Fed Members, 14th September 2016)

In a very techincal article published last month, Tyler Durden of Zerohedge highlights that "the Fed is already factoring in a scenario in which a shock to the economy leads to additional QE of either $2 trillion, or in a worst case scenario, $4 trillion, effectively doubling the current size of the Fed's balance sheet."

Although bad news generally, any further devaluing of the dollar through more "paper money" printing historically raises the corresponding real value of Gold and Silver here in the U.K. and around the globe.

In conclusion, it's always wise to prepare for what reality shows us is ahead.  It's hard to feel, with the U.K. temperatures being so balmy right now but in a few short weeks we will begin to feel the pinch of Autumn. Personally, I love the freshness of the air this time of year, when the chill of an evening mixes with the faint smell of wood-smoke and the Autumnal mornings regularly spoil us with sun and mist through the trees on the drive to work and school.  Around the same time, there will be the obligatory "make sure you've prepared your car for winter" news articles. 

But at Bleyer, we also encourage our readers to be prepared for something else this season; are our investments and/or money ready to shield us from the economic chill I believe the markets will be facing soon?  I'm not alone and I'm putting it actually quite mildly. A few news outlets - mostly abroad, such as CNBC and RT Business - expressed the economic predicament like this a month ago! "Banks are preparing for an ‘economic nuclear winter". That's a little more rambunctious than saying there's an Autumn chill coming!

"Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year." (CNBC)

Therefore, just as we check the oil, water and anti-freeze in our cars, we hope you will also browse our website and call one of the team to discuss how owning your own physical Gold and Silver can insulate your money from the coming economic chill.   

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