Market Brief: Overdone Equities and Trump Rips the Fed
The following is a market update as it related to precious metals prepared by SchiffGold intern commodities analyst Jason Mezhibovsky and SchiffGold News managing editor Mike Maharrey.
Most mainstream analysts believe we remain in the midst of the longest bull market in history. If you consider the post-crisis S&P 500 low of March 9, 2009, as the beginning of this bull run, then it’s well over a decade long.
Peter Schiff believes the bull market actually ended last fall. He predicted that the December rate hike would be the last. Turns out he was correct in that prediction.
After that December hike, we got the “Powell Pause” that injected new life into stocks, beginning what Peter has termed a bear market rally. At the time, Peter predicted the pause wouldn’t be enough and the next move would be a rate cut. Fast forward to today and markets are once again rallying based on the hope of another injection of monetary heroin.
But even if you believe the mainstream narrative and think we’re in a long-running bull market, you should still be wary. Given the inherent cyclical nature of the markets, it is also inevitable that a downturn is on the horizon, if not overdue. It would be wise to keep an eye on this and closely monitor the overall economic climate to see if an overreached equities market will face a downturn soon. As expected, precious metals will be the preferable safe asset in an event like this.
Trump Rips Fed Again
The president certainly doesn’t think the “Powell Pause” was enough. Donald Trump took to Twitter again to slam the Federal Reserve on Tuesday. In response to a Bloomberg report about the number of tourists flooding European landmarks, Trump tweeted:
This is because the Euro and other currencies are devalued against the dollar, putting the U.S. at a big disadvantage. The Fed Interest rate way too high, added to ridiculous quantitative tightening! They don’t have a clue! https://t.co/0CpnUzJqB9
— Donald J. Trump (@realDonaldTrump) June 11, 2019
Federal Reserve bankers boast of their independence and claim this kind of pressure from the president doesn’t affect them, but you have to wonder how true that really is.
Jobs Market Disappoints
The US economy added just 75,000 jobs in May, according to the Labor Department employment report released on Friday. The projection was for 180,000 jobs — so a big miss. The Labor Department also revised March and April’s numbers down. The jobs report came on the heels of Payroll processor ADP reporting private employers hired 27,000 people in May, the lowest growth since March of 2010.
This could be a sign that the economy is slowing. It could also further motivate the Fed to move ahead with that rate cut.
Global Slowdown in Growth
Heading into the second half of 2019 and extending as far as into 2022, a global economic slowdown is expected. For many rapidly developing countries, such as India, growth isn’t expected to turn negative but is expected to continue at a much slower rate compared to previous years. Mounting trade tensions are expected to be a big aspect of it, with increasing uncertainty. Also, any tariffs from the trade war could have substantial effects on the price of consumer goods, which is also expected to be another major tailwind for the economic outlook in the coming years.
The economic climate at the moment, coupled with the potential for the equities market to take a downturn in the coming months, could point towards favorable conditions for gold and silver in particular.
Strong Demand at Treasury Auction
Demand was strong during Tuesday’s US Treasury’s auction of $38 billion worth of new three-year notes. Prices rose and yields fell in the aftermath of the auction. According to Reuters, the bid-to-cover ratio was 2.62 – the highest since September 2018. This is an indication of strong demand.
The surge in the bond market of late flashes recession. Investors are fleeing to what they perceive as a safe-haven. Peter has said bond-buyers are right about the recession, but they are making the wrong bet.
The market is correct. We are going into recession and the Fed is going to respond to this recession the same way it responds to all recessions that it causes, and that is by doing more of what caused it, which is slashing interest rates back to zero. But what the markets, I think, have got wrong is the reaction. Because the recession we’re going to get this time is going to be stagflation. We are not going to have stable prices or a drop in the official inflation rate. Inflation is going to rise. And that means bond prices are going to fall. And that is going to exacerbate the severity of the next recession … The bond market still hasn’t figured this out yet. They still think that we’re going to follow the playbook from the last financial crisis. We’re not.”
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