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Jim Rogers Says 100% Probability US Is Heading for Recession; Data Backs Him Up

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Media and government officials keep telling us the economy looks great, but a peek behind the curtain tells a different story.

White-House-GDP-2

Some people do see the writing on the wall. Peter Schiff has been saying the US may well have already entered a recession. Last month, Jim Grant echoed Peter, saying the US economy likely went into recession in December 2015. And in a recent interview, Rogers Holdings Chairman Jim Rogers said there is a 100% probability the US will be in a downturn within a year:

It’s been seven years, eight years since we had the last recession in the US, and normally, historically we have them every four to seven years for whatever reason—at least we always have. It doesn’t have to happen in four to seven years, but look at the debt, the debt is staggering.”

The debt is indeed staggering, and that’s not the only sign of trouble on the horizon. But by and large, the mainstream just doesn’t get it. Last week, the government  revised GDP growth up to 1.0% for the fourth quarter of 2015. It was at 2.0% in Q3. That led to extensive cheerleading.

But once again, mainstream analysts put on rose-colored glasses and it’s blinded them to reality. Digging just beneath the surface, we find a lot of reasons to be less optimistic about future economic prospects.

As economist Bob Murphy pointed out, the GDP numbers aren’t good at all when you put them in context:

Yes, this new estimate of 1.0% real growth in 4q 2015 is better than the original estimate of 0.7% growth, but it is still half of the 3rd quarter growth. For those who rely on these numbers, why are we supposed to be happy that the annualized growth rate fell in half from 3rd to 4th quarter 2015?…Even according to the White House’s own chart (posted above), we can see that the recent announcement is hardly grounds for breaking out the champagne. In the chart above, we added everything in red. Look at how the quarterly 2015 growth figures compare to 2007. Why is all of this good news?”

Then we had this week’s “better than expected” job numbers. Employers added more workers than anticipated last month.

More cheerleading.

In fact, analysts in several mainstream publications suggested all of this good economic news may well put Federal Reserve rate hikes back on the table. But again, they ignore important underlying data. While the number of jobs rose, wages unexpectedly declined, “dashing hopes that reduced slack in the labor market was starting to benefit all Americans.” Bloomberg went on to point out, “Average hourly earnings dropped, the first monthly decline in more than a year, and workers put in fewer hours.” That means lower productivity.

In related employment news, a headline at CNBC proclaimed “US Layoffs Ease in Feb, Totaling 61,599.” But again, a little context takes the shine right of the headline. All you have to do is read three paragraphs into the story before you hit that uh-oh moment:

Despite the month-to-month fall, downsizing in February was 22% higher than in February 2015. In the January-February period, announced layoffs were 32% higher than during the first two months of 2015.”

This lead us to other troubling signs that the media brushed off while cheeleading jobs and GDP. The US trade deficit expanded to $45.7 billion in January. Exports fell for the fourth straight month. And US factory orders tumbled for the 15th straight month. As ZeroHedge pointed out, in 60 years, the US economy has not suffered a 15-month continuous year-on-year drop in factory orders without being in recession.

us factory

Finally, we have what Business Insider called “the clearest sign yet that something is wrong with the US economy:”

Markit Economics’ monthly flash services purchasing manager’s index, a preliminary reading on the sector, fell into contraction for the first time in over two years. The tentative February index was reported Wednesday at 49.8. That’s below 50, the border between expansion and contraction.”

The media and government spokespeople can keep spinning it all they want, but raw data doesn’t lie.

So, what should you do? Jim Rogers said he’s long the US dollar, even while calling it a potential bubble in the making. Bubbles pop. But historically, gold and silver provide a safe haven during times of economic trouble. In fact, that’s exactly why gold continues to climb in what many are now calling a bull market. Investors don’t seem to be buying the economic sales pitch. But they are buying gold and silver.

This post is part of our ongoing series Data Dependent: Reading Between the Lines, where we examine the real economic data not reported in the financial media. Click here to read all our articles in this series.

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4 thoughts on “Jim Rogers Says 100% Probability US Is Heading for Recession; Data Backs Him Up

  1. A massive crash is certain this year thanks to the monetary contraction (relative) that began in January 2014. The YoY growth in Corrected Money Supply (my measure) is down to 2.9% on 1 January 2016. When it goes into negative territory nasty things begin to happen.

    See the graph on http://www.philipji.com/item/2016-03-05/a-major-crash-is-on-the-cards-this-year

  2. HS says:

    Gold is not going to $5,000 an ounce as Peter Schiff forecasts. It’s going to $7,000 an ounce. That’s the ratio of total global GDP divided by the total supply of gold.

    When the world was on the gold standard, economic growth depended on a nation’s store of gold. If it ran out of the precious metal, say by importing superior quality goods from abroad, it had to eventually offset that deficit by attracting gold back to its shores with equally desirable goods and services for export. When that stopped working for many countries, they simply began printing money. That’s how we got into the mess we’re in today.

    When all of that debt comes home to roost and we complete the debt repudiation cycle (see the coming $1.2 trillion student loan crisis), total global GDP will once again be the product of the total supply of gold and the cost of that gold.

  3. Larry says:

    Long term we know these things will happen but trying to call the shot in the next few months is foolish and makes people look stupid. It’s not long before we have the cry wolf problem. The long term is what is important and a plan for the long term is what people need. There is no way to place all the chips on 365 day wheel and pick the day when the markets tank. I have a lot of respect for Mr. Schiff and see him on CNBC often and he is not taken seriously. Short term predictions are a waste of time. I agree with most of his positions but it’s a waste of time trying to present them to a long term Keynesian crowd.

  4. DWornock says:

    Gold is priced about right. That is, gold is priced near its average value, as it usually is. 100 years ago, an ounce of gold purchased 20 days of common labor at $1 per day and now an ounce of gold still purchases 20 days of common labor at about minimum wage.

    Other than as the result of excessive short term demand, if gold goes to $5,000 that only means that the dollar has lost another 3/4th of it purchasing power because if gold goes to $5,000 per ounce, an ounce will still purchase about 20 days of common labor + or – 25%.

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