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Advice from Jim Rickards: Look Past All the Happy Talk

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As Jim Rickards put it in a recent column, there’s a lot of “happy talk” coming out of Washington D.C.

To hear Donald Trump tell it, we might be in the midst of the greatest US economy in history. When the Q2 GDP number came in at 4.1%, the president called it “an economic turnaround of historic proportions.” Of course, Trump isn’t alone in his optimistic hyperbole. Politicians and pundits all across the mainstream keep telling us everything is great. They see growth from horizon to horizon. Employment is booming. Americans are spending.

The problem with all the happy talk is that it doesn’t have much to do with reality. The Trump economy looks pretty much like the Obama economy.

I know I just made a lot of people mad saying that. But just look at the numbers.

The economy has been growing since 2009. We are now in the midst of the third-longest expansion on record. But as Rickards noted, it’s also been one of the weakest expansions on record.

Average annual GDP growth through the 9-year expansion comes in at a tepid 2.14%. Growth during the first year of the Trump administration was 2.3%. That’s just slightly above the expansion average. Growth in Q1 of 2018 was recently revised down to 2.0% – slightly below the expansion average.

But what about the big 4.1 second quarter number? Yes, that’s pretty healthy. But we saw quarters like that during the Obama years too. GDP grew at 5.1% in the second quarter of 2014.

Rickards sums it up.

In short, growth under Trump has been almost exactly what it was under Obama. It’s true that the second quarter of 2018 looks stronger, at 4.1%. It’s the highest reading since 3Q 2014. But we’ve seen that movie before. Even during Obama’s weak expansion we saw strong quarters including the first quarter of 2015, which was 3.2%, and the second quarter of 2015, which was almost 3%.”

So, the big growth in Q2 doesn’t necessarily mean anything. We can pinpoint all kinds of reasons for the strong quarter that don’t translate to a trend. Rickards mentioned temporary impacts from the tax cuts, but said they will soon fade and “return growth to the same punk levels we’ve seen for nine years.”

In a recent podcast, Peter Schiff called the GDP number an “aberration” and offered some more concrete reasons for the Q2 number, including high levels of consumer borrowing and a massive surge in soybean exports as buyers tried to beat the effects of the tariffs. Consider this:  consumer spending was up 4%. But as we pointed out in a recent article, data shows that the rise in median expenditures has outpaced before-tax income for the lower 40% of earners in the five years to mid-2017. In other words, poor and middle-class Americans are driving the US economy by spending more than they earn. That’s not exactly what you would call a sustainable trajectory.

In another podcast, Peter provided a laundry list of economic data that should give everybody pause. Rickards also lists some concerning trends, including five straight months of dropping pending home sales, rising interest rates in a world awash in debt,  the student loan debacle, rising junk bond defaults, and on and on.

Rickards said we may well find ourselves in a recession by 2020. In fact, we could be entering one now. The way the reporting works, we won’t even know it for nine months.

Rickards offers a bit of advice – look past the happy talk.

The point is, there are many potential economic and geopolitical trouble spots on the horizon. With weak growth continuing and more Fed tightening in the cards, a recession is far more likely than a return to long-term trend growth. Basically, the stock market seems to agree since it peaked last Jan. 26 and has gone nowhere since then. My advice to investors is to look past all the political rhetoric and happy talk coming out of Washington and the mainstream media.”

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