The Dow and S&P 500 once again closed at record highs last Friday, and investors continue to be bullish on the American economy. Nobel Prize-winning economist Robert Shiller sees things differently and has been warning of market bubbles.
A bubble is a social epidemic of enthusiasm and excitement spread by word of mouth, attracting more and more investors into a market.”
In the new edition of his book Irrational Exuberance, Shiller argues that many traditional investment assets are now driven by investor psychology rather than fundamental realties. From housing to stocks to bonds, Shiller sees the American economy entering a new era in which traditional investment approaches need to be reconsidered.
374 metric tons of gold were withdrawn from the Shanghai Gold Exchange (SGE) in the first 6 weeks of 2015. During the same period, about 300 tons of gold were newly mined in the entire world. Using these figures, China is currently consuming more gold than the world is producing.
The surge in Chinese gold consumption comes from preparations for the Chinese New Year celebrations, which began last week. Gold is one of the most traditional gifts to give during this holiday, but it’s not the only product the Chinese buy. They spend astounding amounts of money during this celebration: $100 billion in 2014, which was twice what Americans spent during the Thanksgiving and Black Friday holiday weekend.
ADS Securities Chief Market Strategist Nour Eldeen Al-Hammoury explained to Bloomberg why he’s betting on the United States sliding back into recession in 2015. Just like Peter Schiff, he finds the GDP, factory orders, trade deficit, and other economic data points to be much more indicative of the true health of the economy than the bogus jobs numbers.
Since the end of QE, until today, most of the numbers – more than 70% of the numbers – came in far away from the expectations. If you go back to the history, every single QE, when the QE stops, the economy slides back into a recession…”
Renowned hedge fund manager John Paulson is committed to gold. A new government filing from Paulson & Co. shows that as of December 31st, it remains the largest holder in the SPDR Gold Trust (GLD). It owns 10.33 million shares of GLD, the biggest gold exchange-traded fund in the world. Paulson’s company has maintained this stake for a year and a half.
Gold-backed ETFs saw nearly 70 tons of gold inflows in January, the largest since September 2012. The majority of that – 49 million tons – occurred in GLD. However, speculative interest in the metal has dropped again in February, and GLD has fallen more than 8% from its January high.
Speculators think the January surge in the gold price was a short-term reaction to volatility in Europe, and many investors are now placing their bets on the supposed economic recovery of the United States. Paulson seems to be looking at things differently and sees inflation looming in America’s future.
Eric Sprott, the well-known billionaire asset manager, believes that investors need to buy gold and silver to protect themselves from the increasingly volatile currency markets. Last year, 84% of the world’s population would have made money owning gold. Sprott puts his money where his mouth is, claiming that 80% of his assets are in precious metals.
Since this January interview, the gold price has fallen in US dollars. However, Sprott is focused on the long-term picture of how the radical monetary policies of global central banks will damage the global economy. With banking policies like negative interest rates and massive money printing, the world is experiencing a completely new financial landscape. When paired with the fact that gold demand seems to be exceeding supply, he expects to see gold-backed currencies within the next decade.
Wal-Mart announced yesterday that it is going to raise its minimum wage to $9 an hour, which will affect a half-million employees. Many are praising the company and saying this will improve the lives of low-wage workers, while also providing a boost to the American economy. However, Peter Schiff isn’t so optimistic. He explained to Yahoo! Finance why Wal-Mart’s minimum wage increase isn’t necessarily a net positive for the economy.
The wage increase will cost Wal-Mart about $1 billion this year. Who knows if Wal-Mart will pass along the cost of higher wages to its customers by raising prices? More importantly, Wal-Mart will probably cut back on hiring, which means low-income Americans will have that much more difficulty finding a job.
In his new Gold Videocast, Peter Schiff explained how Obamacare has created a “job-sharing” economy that is skewing the government’s employment data. As he put it:
Obamacare forces employers to provide insurance for full-time employees. As a result, employers are hiring more part-time workers than they normally would and that is substantially influencing these numbers… [Suppose an employer] cuts [two full-time workers’] hours back to 10 hours a week and then he actually hires two more guys. So now he has four guys working 40 hours instead of two guys working 80 hours. He’s cut the hours in half but doubled his workforce. According to the government, he’s just created two jobs even though he has four people sharing one job.”
The dollar dropped while gold rose early this morning as the markets reacted to the release of the Federal Reserve’s minutes from its January meeting. The minutes show that Fed officials are more worried about raising interest rates than most of the markets thought. In fact, there was even talk of easing their monetary policy even further. Quoting from the minutes:
A few (members) expressed concern that in some circumstances the public could come to question the credibility of the Committee’s 2 percent goal… Indeed, one participant recommended that, in light of the outlook for inflation, the Committee consider ways to use its tools to provide more, not less, accommodation.”
Jim Rickards, author of Currency Wars, describes a game he plays with audiences when he speaks about gold and paper money. He presents to them US dollars, Monopoly money, and a gold coin. Then he asks, “Which of these is not like the other?”
Ivy League professors nearly always rationalize that the dollars are different, because they are a store of value while the other two cannot serve as real money. However, Rickards reminds us that the US dollar has lost 95% of its purchasing power since 1913.
Five-year-olds, on the other hand, instantly recognize that the gold coin is different. They probably don’t understand that gold has been a form of money for thousands of years, with a relatively stable value that entire time. Nevertheless, you have to wonder about the state of our basic economic knowledge when the instincts young children are more accurate than the reasoning of elite academics.
Last week, Peter Hug said that about 25% of all physical gold buyers are “crazies.” The comment is remarkable, because Hug is an executive at Kitco, one of the largest precious metals dealers in North America. In fact, Hug is the Director of Kitco’s Precious Metals Division.
Hug’s reasoning is that a lot of the people who buy physical gold believe that the United States financial system is headed for a dire crisis. Many are worried about a complete collapse of the US dollar. The rationale for this belief is pretty simple and comes back to basic economics.