Good News Is Bad News Again
Good news is bad news again... The White House steps up its pressure on the Fed... Two more reasons to own gold today...
For years following the great financial crisis, U.S. markets often jeered positive economic news...
And it made sense, in a perverse kind of way...
After all, the Federal Reserve and other central banks had slashed interest rates to record lows and unleashed round after round of quantitative easing ("QE").
These efforts arguably did little to boost the real economy. But they provided a massive tailwind for stocks, bonds, and most other financial assets.
In that light, good economic data was seen as a negative for markets, as it meant these unprecedented stimulus efforts could be withdrawn.
This finally appeared to end after the election of U.S. President Donald Trump in late 2016...
For the first time in years, markets began to anticipate the possibility of strong economic growth. Suddenly, it was a bullish sign that the Fed was beginning to unwind its stimulus.
However, if the market's reaction to last month's better-than-expected jobs report is any indication, this may not be the case any longer. "Good" news could now be "bad" news once again. As the Wall Street Journal reported on Friday...
U.S. employers added 224,000 jobs to payrolls in June, the Labor Department said Friday. Meanwhile, the jobless rate last month ticked up from a 50-year low to 3.7% in part because more Americans said they were looking for work...
But there are several pillars of strength for the U.S. economy beyond historically low unemployment and a record 105 straight months of job gains. American household spending and incomes both rose at solid rates in May, consumer confidence remains relatively strong and the stock market touched a record high this week.
Markets, however, slipped Friday morning because investors viewed the solid jobs report as making it less likely the Fed will cut its benchmark interest rate by a half-percentage point, though a quarter-percentage-point reduction remains a possibility.
Meanwhile, if the president had his way, the Fed would cut regardless...
As we mentioned last month, Trump has already been pressuring the central bank to cut rates and reinstate quantitative easing to boost an already officially strong economy.
This weekend, he went even further. As Bloomberg reported yesterday...
President Donald Trump wrapped up the weekend as he started it, jawboning the Federal Reserve to lower interest rates...
If the Fed "knew what it was doing" it would cut rates, Trump told reporters before he boarded Air Force One in Morristown, New Jersey, to return to Washington after a weekend at his nearby golf club. Fed policy is putting the U.S. at a disadvantage versus Europe and suppressing gains in the stock market, Trump said.
Sunday's comments came after Trump said on Friday that the central bank "doesn't have a clue" and was "our most difficult problem."
Regular Digest readers know we believe more central bank manipulation is the last thing our overly indebted economy needs...
In short, while it could push financial assets even higher in the near term, it's likely to end in disaster.
We won't rehash it all here. But we will point out that a less politically motivated Trump apparently once agreed with us, too...
Of course, we suspect Trump will ultimately get his way sooner or later...
That only further strengthens the case for owning gold today.
As we've discussed in recent weeks, there are several strong indications that gold prices could move significantly higher from here. And in the latest True Wealth Systems Review of Market Extremes, our colleagues Steve Sjuggerud and Brett Eversole shared two more. As they explained...
Gold has been dead money for nearly a decade. The furious bull market of the 2000s culminated with a massive peak in late 2011. Gold nearly broke $2,000 an ounce. Then it crashed...
Prices fell for years, forming a major bottom in late 2015. And while prices have rallied here and there since then, we hadn't seen a major breakout.
Not until this month, at least... Gold prices took off at the end of May and have now staged a major breakout. Take a look...
As they noted, gold struggled to break out from similar levels in 2016 and early 2018...
Earlier this year, that appeared to be happening again. But then prices finally smashed through $1,400 an ounce last month. And like us, Steve and Brett believe this is a huge deal...
The metal has now jumped out of the range it's been stuck in for years. And this led to two separate extremes...
The metal had its best week since 2016, and it traded to a 52-week high as well. These are two extremes with similar positive outcomes. Just take a look at the table below. It highlights what's possible over the next few months...
These numbers cover more than four decades of history. And while gold has only jumped 5% per year on average since then, today's extremes say much higher returns are likely over the next several months.
According to their research, gold could easily rally another 19% here. And as we saw firsthand in early 2016, a move like that could push many gold stocks up by 100% or more.
New 52-week highs (as of 7/5/19): Axis Capital (AXS), Dollar General (DG), Hannon Armstrong Sustainable Infrastructure Capital (HASI), Nuveen Preferred Securities Income Fund (JPS), Coca-Cola (KO), MarketAxess (MKTX), Motorola Solutions (MSI), Invesco High Yield Equity Dividend Achievers Fund (PEY), Polymetal (LSE: POLY), Royal Gold (RGLD), ResMed (RMD), Stryker (SYK), AT&T (T), ProShares Ultra Financials Fund (UYG), and W.R. Berkley (WRB).
A quiet weekend in the mailbag. Send your comments and questions to feedback@stansberryresearch.com. As always, we can't provide individual investment advice, but we read every e-mail.
Regards,
Justin Brill
Baltimore, Maryland
July 8, 2019