Rene Magritte’s 1929 painting “The Treachery of Images,” depicts a tobacco pipe with a caption that reads “Ceci n’est pas une pipe,” (French for “This is not a pipe”). Everyone who has taken a course in modern art knows that Magritte’s exercise in contradiction was meant to draw a distinction between a real thing and a representation of that thing. Perhaps we should send Federal Reserve Chairman Jerome Powell a beret and an easel as he is attempting a similarly surrealistic take on monetary policy.
By: Spencer Schiff (@SchiffSpencer)
The recession narrative is suddenly catching on. That could spell major trouble for consumer spending and our economy as a whole.
Following the recent 2s10s inversion and subsequent stock market volatility, countless prominent news outlets have been reporting on the possibility of an impending economic downturn. The number of articles mentioning recession has spiked to a multi-year high. Even late-night talk shows, which garner millions of viewers, are covering the story.
When people talk about the economy, they generally focus on government policies such as taxation and regulation. For instance, Republicans credit President Trump’s tax cuts for the seemingly booming economy and surging stock markets. Meanwhile, Democrats blame “deregulation” for the 2008 financial crisis. While government policies do have an impact on the direction of the economy, this analysis completely ignores the biggest player on the stage – the Federal Reserve.
Typically, a strong dollar is considered one of the greatest “enemies” of gold and precious metals prices. In fact, a relatively strong dollar has created headwinds for gold for months.
Another interesting commodity we can take a look at is oil. Historically, oil and the USD have a negatively correlated relationship, with oil being one of the most inflation-sensitive commodities out there. However, this wasn’t the case late in April. Oil surged to around $65/barrel (WTI). The price has eased a bit since, but it is still trading in the $62/barrell range.
As the trade war continues to unfold, investors should keep an eye on the dollar
Heated rhetoric between the US and China continued as negotiators from the two countries prepared to sit down for the latest round of trade talks. Pres. Donald Trump accused the Chinese of “breaking the trade deal.” Meanwhile, the Chinese threatened to retaliate if the US increases tariffs. Trump has said he will move ahead and hike tariffs to 25% on $200 billion worth of Chinese imports at the end of this week.
Yesterday was tax day. We’d like to think the money we hand over to the IRS is paying for stuff – things like roads, education and national defense. But an increasing number of tax dollars are simply going to pay interest on the national debt. According to Committee for a Responsible Federal Budget president Maya MacGuineas, the average taxpayer forked over more than $2,000 this year just to cover their share of the interest on the national debt.
In other words, we’re not paying for stuff today. We’re paying for the spending of the past.
We’ve been following a number of central banks that have been buying gold recently, specifically the Russians and Chinese. But these two central banks aren’t alone. In fact, central bank gold-buying has surged over the last couple of years. What’s behind this trend?
Everybody wants gold. Some people want it so bad that they’re willing to break the law to get it. That’s why we have police. They stop the bad guys.
At least that’s how it’s supposed to work. But don’t miss what I said. Everybody wants gold. Police officers fall into the category of “everybody.” So, it should come as no surprise that every once in a while, you run into a cop willing to break the law to get his hands on some sparkling yellow metal.
This, in fact, happened recently in India.
Right after the last Federal Reserve Open Market Committee meeting, Peter Schiff said the “Powell Pause” won’t be enough to save the stock market and head off a recession. He said ultimately, the central bank would have to cut interest rates and launch another round of quantitative easing.
Well, it seems the mainstream is starting to catch up with Peter’s thinking. Yesterday, Bloomberg ran an article asserting that “instead of pausing, the central bank may need to start cutting interest rates to avoid a recession.”