Gold at 3-month highs as Trump warns U.S. is a mess
Posted onGold and stocks usually move in opposite directions, but on Tuesday, both asset classes were swimming higher with the tide.
Chinas 6% overnight stock slump helped buoy gold prices early Tuesday, and the price advanced by about 1.5% as the day progressed, topping $1,120 to hit three-month highs unseen since early November. Silver also gained about 2%, reaching six-week peaks near $14.58.
Whats driving gold now? As the Federal Reserve started a two-day meeting Tuesday, many analysts are banking on the central bank turning dovish because of the growing global economic slowdown.
Feds rate-hike pace to cool: Fundamentals continue to turn more favorable with lower bond yields, a slowing pace of U.S. rate hikes, and underinvested funds all supporting the move higher, Saxo Banks Ole Hansen told Reuters.
A note from HSBC also suggested that U.S. interest rate futures indicate the Fed may only raise rates one more time this year.
James Cordier of Optionsellers.com agreed, saying, The premonition that four rate hikes are supposed to happen in 2016 are dwindling down to two or maybe one rate hike, and thats giving gold a boost.
And in widely disseminated comments, DoubleLine Capital bond guru Jeff Gundlach warned that if the Fed doesnt back off its hawkish rate-hiking path, the markets are going to humiliate them.
Were in a bubble, Trump says: Stocks and oil also rose Tuesday, with the Dow Jones average up about 250 points at midday and crude prices back above $32 a barrel.
But dont necessarily assume that stock prices will continue to rally. Confirming what former Dallas Fed chief Richard Fisher said earlier this month namely, that the central bank juiced a tremendous stock market bull run with money printing GOP presidential candidate Donald Trump repeated a warning that stocks are in a bubble.
Were in deep trouble. The countrys a mess, Trump told ABCs Good Morning America program. Were in a bubble. And, frankly, if theres going to be a bubble popping, I hope they pop before I become president because I dont want to inherit all this stuff. Id rather it be the day before rather than the day after, I will tell you that.
Gold easily at $1,400 in time: Whats not in a bubble? Gold.One of the grand old men of the gold-investing world just issued a bullish statement on golds prospects, partly because he sees a renewed interest in bullion from Wall Street.
I think gold actually is going to start to stabilize, RBC Capital Senior Vice President George Gero told Bloomberg.
Im guessing (gold goes) higher this year; Im guessing probably higher the next couple of years. I think what were seeing this year are new factors. For five years the funds did not need gold or want gold because they were very happy with equities. For the first time in many years the fund managers that have really not been interested in gold are going to become interested in gold if we hold this $1,100 area. Also, gold has been acting like gold should as a contrarian to the stock-market volatility.
I think gold can get over to the $1,400-$1,500 area easily. I dont think thatll be a problem in the next few years, but I think its going to do that slowly this time.
Gero thinks the Fed is likely to be more dovish at its meeting this week because look at all the job cuts. Sprint today announced (layoffs); Walmart is closing stores, Macys closed stores, banks are laying off people. So while we had a beautiful 5% jobs figure, that may not continue either.
Stay tuned for Wednesdays announcement from the Fed concerning interest rates and the general state of the U.S. and global economies. If the Fed sounds pessimistic on the financial landscape, gold could continue its uptrend higher.
Gold bullion outshines mining stocks as a safe haven, study finds
Posted onIf youre looking for safe-haven assets, dont mistake gold-mining stocks as a substitute for gold bullion, suggests a new study by two economic scholars.
In a paper titled Are gold bugs coherent? Brian Lucey of the Trinity School of Business and Fergal OConnor of York St. John Universitys Business School compare the relationship of gold bullion prices (measured by the daily closing price of COMEX 100 oz. gold) versus gold mining stocks (as measured by NYSE ARCA Gold Bugs index) from 1998 to 2015.
Their conclusions? This paper finds that gold prices in general lead the NYSE ARCA Gold Bugs index of gold miner share prices when we look at periods of one year or greater. This fits well with recent studies, such as OConnor et al. (2015), who have found that gold prices also lead gold mine production costs. Both sets of results imply that miners do particularly well in a rising price environment as the gap between costs and prices widens in their favor, and vice versa. However, as it is gold that leads the relationship, the ability of gold miners stocks to provide the diversification or safe haven benefits attributed to gold is again called into question.
Every investors core gold holding should be in physical bullion, not gold mining stocks, futures contracts, options, or even gold-linked exchange-traded funds. Physical gold is an asset thats always there when you need it; everything else is just a paper or electronic promise. Gold stocks and ETFs are not bad investments; on the contrary, the latter are useful as trading devices, while the former can offer even more leverage on a rising bullion price (if youve picked the right company). But one holds gold for its attributes as real physical asset that can serve as financial insurance and as a crisis currency. Mining stocks and ETFs pale in comparison to physical bullion in this respect.
Gold is back in fashion as stocks implode, Bloomberg confirms
Posted onNearly $8 trillion has been sucked from the carcass of the 2016 global equity market so far, and despite the solid pulse in recent days, nobodys in a celebratory mood just yet, wrote Shawn Langlois at MarketWatch on Monday.
In contrast, the spot gold price is one of the bright lights in the investment world in 2016. Gold remains the best performing metal on the Bloomberg Commodity Index, which measures 22 materials, in 2016. Its risen 4% this year, Bloomberg reported.
In fact, Bloomberg was forced to admit in a separate story that gold is back in fashion after a $15 trillion global selloff with that $15 trillion figure tallied by tracing stock losses all the way back to May 2015.
The news agency notes that gold is attracting new interest from hedge funds, which more than doubled their net-long position in bullion last week, while holdings in gold-linked exchange-traded funds are expanding at the fastest pace in a year.
Time to add gold to your portfolio: People have become complacent about risks, whether its macroeconomic and geopolitical, George Milling-Stanley of State Street Global Advisors told Bloomberg. Whats out of fashion may be coming back. That atmosphere of people feeling completely calm and untroubled, I think, is starting to go away. Gold is a very good risk-off trade, and I think people are starting to look very, very carefully at the risky positions that they have on a number of other markets.
Golds outperformance so far this year suggests that investors are rebalancing their portfolios in light of the carnage on equities. An entry price here nearer to $1,000 than $2,000 makes a lot more sense, said Kevin Caron of Stifel Nicolaus & Co.
10 reasons why gold can thrive: Blanchard and Company has already noted how numerous punch-drunk stock investors in China are running from sinking equities and returning to gold and other safe havens. Just imagine how the tide could shift back into bullions favor when hundreds of thousands of Western investors realize that much of the stock market bull of the past few years has been the product of the Federal Reserve artificially inflating the markets with cheap money. Without that support, equities have dropped like rocks.
For more arguments on why gold could rebound even more strongly in the coming months, see this article from ValueWalk titled Top 10 reasons gold may shape up for a surprisingly strong performance in 2016.
- The U.S. dollar is a crowded trade.
- Foreign demand for U.S. Treasuries is declining.
- U.S. recessionary warnings are flashing.
- The U.S. credit cycle is turning.
- U.S. equity markets are richly valued and breadth is thin.
- The gold complex is experiencing bullish divergences.
- The physical markets for gold are establishing a durable price floor.
- The gold price should reflect the bloated Fed balance sheet and federal debt levels in 2016.
- Gold is diverging positively from the commodity pack.
- Extended Commodity Futures Trading Commission (CFTC) positioning bodes well for short-term prices.
Gold riding high as recession-like misery in Texas pressures the Fed
Posted onThe biggest economic report for Monday delivered a Texas-size shock and helped gold prices trade near 12-week highs above $1,100.
Falling oil prices continue to pressure U.S. stocks, and declining equities in turn bolstered gold. The painful effect of collapsing oil prices on the overall economy is felt perhaps nowhere as acutely as in Texas, and the Dallas Federal Reserves most recent economic-activity report confirmed that all is not well in that major energy-producing state.
Manufacturing activity in the Lone Star state suffered its biggest monthly contraction in nearly seven years as the fallout from the collapse in global crude prices ripples across its industrial sector, the Financial Times reported.
The headline general business activity index fell to -34.6 in January, its weakest level since April 2009. … This compares to the revised -21.6 reading in December and is far worse than economists expectations of -14.5. The drop marks the 13th consecutive month in which the index has languished in negative territory. A reading below zero signals contraction. The last time the index suffered a longer negative streak was the last U.S. recession when it endured 25 straight months.
Depression is far-reaching: One Fed respondent lamented, We expect thecontinued depressionin the oil and gas industry to negatively impact our customer base and result in significant demand reduction.
Lindsey Group analyst Peter Boockvar was expecting a bad report and we got that and then some, he wrote. Bottom line, the data speaks for itself and reflects the major recession the energy patch is in and the ripple effect on other industries.
Accordingly, all the major U.S. stock indexes were down by Monday afternoon trading. The losses in equities bode well for gold. The metal was trading near its 200-day moving average of $1,109.
Given the turbulence in financial markets, the Fed might not be able to hike interest rates too many times in 2016, Mark To of Wing Fung Financial Group told MarketWatch. If gold can stay above $1,100 in the coming days, it may signal a further rebound, maybe even to $1,200 in the coming months.
Gold could target $1,140 on Asian buying: And staying above $1,100 is an achievable feat given the approach of Chinas Lunar New Year holiday, which is celebrated in Asia by purchasing gold. Standard Bank, for one, is predicting that the bullion price could run up to $1,140 as the holiday approaches, although its since added that that target has become more of a challenge.
Meanwhile, the Federal Reserve is set to meet Tuesday and Wednesday this week, after which it will announce any changes to its interest-rate policy. However, since market turbulence has followed in the wake of its December decision to raise rates by a quarter point, its not expected to act again this week.
Although it was planning to hike rates as many as four times this year, the risks to that outlook are rising, Reuters reported. Investors have already pushed their expectations for a second rate rise deep into 2016, and Fed officials have begun to air their concerns about factors such as the recent drop in inflation expectations. If the steady drumbeat of bad news about the markets and the global economy continues, it could force the U.S. central bank to rewrite its plan for more rate hikes this year.
Summers says 4 hikes unlikely: Former Treasury Secretary Larry Summers, himself a former potential candidate to replace Ben Bernanke as head of the Fed (a job that eventually was awarded to Janet Yellen), is among those critics warning against the idea of four rate hikes this year.
Ive thought consistently that it was not a confident bet that the economy could withstand four rate increases this year and continue to grow robustly and continue to provide support for a very weak global economy, Summers told CNBC. Certainly the way markets have moved this year has done nothing but support the view.
The markets have never believed the Fed on the Feds expansion [on rates], he argued. I think the Fed has quite been very unwise when it has criticized markets for not believing it because … markets reflect the collective judgment of a number of people. It seems to me there was substantial grounds for concern.
Bottom line: The cracks in the economy are showing. Just look at Citis Economic Surprise Index, which is in negative territory, thus indicating that economic news has been worse than expected. With the U.S. economy increasingly falling susceptible to deflationary winds, the Fed is likely to hold off on another rate hike for the near future, and the central banks loose monetary policies will continue to support gold prices, which tend to thrive in low-rate environments.
Liberal Soros, conservative Stockman agree: Chinas facing dangerous hard landing
Posted onFormer Federal Reserve chief Ben Bernanke, the economist who denied the severity of the subprime-mortgage market in the leadup to the Great Recession, recently dismissed concerns about contagion from Chinas economic slowdown.
Dismissing Chinas $28 trillion debt as an internal problem, Bernanke said, I dont think Chinas economic slowdown is that severe to threaten the global economy.
But one high-profile duo respectfully disagrees with Bernanke, although each comes from different sides of the political spectrum. Both George Soros and David Stockman are singing similar tunes when it comes to the potential for Chinas troubled economy to wreak havoc on the rest of the world.
Soros made a name for himself and amassed a fortune worth billions by running his famed Quantum Fund, which famously broke the Bank of England in 1992 by betting against the British pound. In recent years he has established a reputation as a philanthropist who donates millions to liberal and left-leaning causes.
Stockman was active as a Republican congressman in the 1970s before being appointed as chief of President Ronald Reagans Office of Management and Budget. Stockman went on to join the private sector, serving at companies such as Salomon Bros. and Blackstone and running his own private equity fund company. In recent years he has become a high-profile critic of the Federal Reserve, rampant government spending, and the so-called Wall Street casino.
Deflation unseen since the 1930s: Now check out what Soros has to say about Chinas economic problems: Its deflation and overindebtedness of the Chinese economy, he told Bloomberg while attending the World Economic Forum in Davos, Switzerland. The total social debt is now 300%, and maybe actually it might be up to 350% if you take into account the external debt. So its serious. A hard landing is practically unavoidable. Im not expecting it; Im observing it. The key issue is deflation. Its a key condition that were not used to. None of us have lived in a deflationary environment. The last time that we had that was in the 1930s. We just dont know how to handle it. Its a different environment. But now we have to fix it. China can manage it. It has over $3 trillion of reserves and so on. However, they have a way of inflicting their problem, passing it on, to the rest of the world.
He warned elsewhere that China is responsible for a larger share of the world economy than ever before and the problems it faces have never been more intractable.
Europe on verge of collapse: Soros went on to reveal that he is shorting, or betting against, the S&P 500. This year is going to be a difficult year, and the balance is on the downside, Soros said. If you have a real bottom, its always retested.
He also doesnt expect the Federal Reserve to raise interest rates again this year, noting that he believes the central banks December hike in the face of the global slowdown was probably a mistake. And in a separate interview, he also said he thinks the European Union is on the verge of collapse.
Now listen to Stockmans recent interview on CNBCs Fast Money show. His devastatingly frank assessment of the global economy focuses at first on U.S. markets before moving on to China.
We have a dead-cat bounce, in no mans land around 1870 on the S&P, he said. Weve been there now for 700 days if you can believe that. It first crossed in February 2014. By my count weve had something like 35 attempts at rallying all of them have failed for what I call The Four Nos. Theres no escape velocity. I think were heading for a recession. Theres no earnings growth. Theyre actually going down. Honest earnings on a GAAP basis. Theres no dry powder left in the central banks of the world. Weve been through a spree of 20 years, and I think that theyre done, all of them, from China to here. And theres no reflation because there wont be any credit growth in the world and were going into a much different deflationary era.
We are at peak debt: Now let me just hit the first one, no escape velocity. Forget about jobs; its a lagging indicator, and besides that, the BLS counts anybody that can fog a mirror as having a job. Sales, business sales, are the heart of the matter; theyre down 4%. Capex orders are down 6% from the peak a year ago. Freight volume is down 7% from a year ago. Exports are down 12%. Inventories to sales are at an October 2008 low.
Were in a flat global economy. Everything is inter-related. Were now in a huge deflation as a result of this massive credit bubble weve had. Now let me give two numbers that I think are really important. Central banks had $2 trillion on the balance sheets about two decades ago. Its $21 trillion now. 10X, not chump change. This is high-powered money that caused an enormous expansion of credit and financial valuation bubble. Secondly, that resulted from debt in the world going from $40 trillion mid-90s to $225 trillion today. We are at peak debt. There is no more credit that can be shoved into the system. There has been massive overinvestment in everything: mining, energy, heavy industry, transportation, you name it, shipbuilding.
Everything is beginning to shrink: With credit expansion you can get China in this massive expansion, but now theyre drowning in excess capacity over everything. They created a billion tons of steel. They dont have demand for half of it. They doubled the size of their auto industry; demand is not growing that rapidly. So if we look around the world, everything for the first time in 20 years is beginning to shrink, and the central banks clearly cant do anything. The bank of China is facing a trillion of capital flight this year. When the December numbers are in, itll be a trillion in capital flight. They cannot run the printing presses or they will cause a total panic.
The Bank of Japan is crazy. Theyre buying anything in the fixed-income market that moves and anything that stands still. Theyre done. Europe (European Central Bank chief Mario) Draghi is down to emitting word clouds. There is no more that he can do. And the Fed sat on the zero bound for 84 months at zero. There is nowhere else to go except negative interest rates, which will cause a political explosion in this country.
So I say look at earnings. Honest earnings were $106 per share S&P GAAP LTM September 2014; they came in at $91 in the LTM just ended in the third quarter. Thats down 14% and I dont see why its going up. So therefore I now think were getting to the point where the chickens are coming home to roost, and youre not going to be able to fake your way any further. Theres no hope from the central banks, and thats why these rallies are getting weaker and weaker and shorter and shorter.
Diversify to weather the storm: There you have it: two separate interviews by two politically opposed, highly respected figures in modern finance and economics, and yet they both see many of the same hazards on the horizon: China, debt, deflation, overvalued stocks, and the potential for contagion.
Are you looking for protection from these dangers to the global economy? Because we dont know how all this is going to turn out, diversification across a range of uncorrelated asset classes remains a crucial strategy. Gold and silver bullion and rare coins are necessary elements for any properly diversified portfolio.
Gold a buy and the dollar is wildly overowned, says Barrons Roundtable expert
Posted on — 2 CommentsThe architect of the quantitative-easing and zero-interest-rate policies that helped send gold to all-time nominal highs in 2011 is now all but calling a top in the U.S. dollar, the primary strength of which has been a major headwind for the yellow metal in recent years.
Much of the appreciation in the dollar may have already happened we may not see much more, former Federal Reserve Chairman Ben Bernanke told a financial conference in Hong Kong on Tuesday.
Any further strength in the greenback depends on the pace of the Feds rate-hiking cycle, which it launched in December. And the odds of the central bank moving very quickly are diminishing daily as uncertainty over Chinas slowdown, the collapse in oil prices, and even recessionary winds in the U.S. continue to build and drag financial markets into bearish turf.
Zero chance of new rate hike: The robust dollar has helped hinder the U.S. manufacturing sector by making exports more expensive for foreign buyers. According to Bloomberg, the Feds trade-weighted gauge of the greenback rose to its highest level since 2002 on Jan. 15. But despite the Fed having announced a target of four rate hikes in all this year, financial markets are suggesting a zero chance of another increase at the banks Jan. 26-27 meeting and just a 31% probability of one at the March meeting.
The potential for an eventual decline in the dollar is one reason why Barrons Rountable member Stephanie Pomboy likes gold. The dollar is wildly overowned, said the MacroMavens president. I think there is zero chance that the Fed continues to raise rates this year, and as those expectations come out of the market, that will work to the detriment of the dollar and to the benefit of gold.
Dollars erosion plain to see: According to Pomboy, the dollar is only as strong as other currencies are weak. When you look at the dollar versus the euro and the yen, the dollar is clearly the cleanest dirty shirt, she said. But in the meantime if you look at a chart of purchasing power of the dollar since the day the Federal Reserve was instituted, its a straight line down. So there is no question that there is a debasement of the currency. The purchasing power is being eroded. The problem is that waters are muddied by the fact that weve got so much other competition in this debasement race from other currencies.
As for stocks, she is bearish on them for numerous reasons, primarily the removal of outright Fed stimulus programs such as quantitative easing. She claims to have no U.S. equity positions except for one sector: gold. She owns mining stocks and ETFs, the major gold ETF, and even bullion. She added: I view gold as becoming a currency rather than a commodity.
Fund kingpin predicts QE4: And while Pomboy is predicting that the Fed will merely keep rates on hold, the manager of the largest hedge fund in the world, Ray Dalio of Bridgewater Associates, sees a fourth round of QE possibly on the way. Summarizing his recent appearance on CNBC from Davos, Switzerland, Zero Hedge wrote: Dalio reiterated his contention that the Fed will ultimately be forced into QE4 and that the much ballyhooed tightening cycle will essentially amount to a one-off, just to show you we could do it, blip on the ZIRP radar screen. Every country in the world needs easier monetary policy.
With Pomboy and Dalio leery of fiat currencies in the long term and even the former Fed chairman suggesting that the dollar is running out of steam, now is the time to prepare for a potentially stunning policy reversal from the central bank by investing in gold, silver, and rare coins.
Gold glides, stocks slide as Citigroup declares safe-haven rationale is back in vogue
Posted onGold ripped higher Wednesday to hit two-week highs as falling oil prices sent Asian markets and then U.S. equities into a fresh tailspin. Given the growing global turmoil, Citigroup has now substantially raised its forecast for bullion prices this year.
Having bounced higher off the 50-day moving-average 3 days ago, gold has surged back above $1,100 this morning, pushing back above the crucial 100-day moving-average, Zero Hedge reported. Silver has also broken above its 50-day moving-average.” Gold rose almost 2% to top $1,106 Wednesday, while silver was up 0.2% near $14.16.
Sinking oil prices helped tip the United Kingdoms FTSE 100 index closer toward bear territory, while the Dow Jones Industrial Average was down more than 500 points midday and the S&P 500 closed in on last-ditch technical support near its April 2014 lows. Meanwhile, the MSCI global stock index fell into official bear-market status.
Imminent recession in U.S.?: Signs of growth are few and far between at the moment, as the Consumer Price Index (CPI) for December showed that inflation slipped by 0.1%, and weekly earnings fell to their lowest level since November 2014, adding further pressure on the Federal Reserve to halt and/or slow its interest-rate hiking policy.
Moreover, industrial production has declined in 10 of the past 12 months, and according to fund manager John Hussman, this losing streak has never been observed except in the context of a U.S. recession.” Hussman concludes that a U.S. recession is not only a risk but an imminent likelihood, awaiting confirmation that typically only emerges after a recession is actually in progress.
Banker says now is worse than 2007: Given the plummeting crude prices, Royal Dutch Shell has announced that its planning to cut 10,000 jobs in its merger with BG Group. But other companies wont be so lucky in staying afloat. William White, chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements, told the Telegraph newspaper that the stresses in the financial system are worse than it was in 2007.
He added: Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.
Commenting on the bearish turn of events as the worlds wealthy elite meet in Davos, Switzerland, former Pimco bond guru Bill Gross, now at Janus, tweeted: Davos fiddles while global markets burn. Monetary policy increasingly ineffective. Fiscal stimulation non-existent.
Citi raises gold price target by 7.5%: All this uncertainty means that gold is on the rebound. We have a lot of fear today thats gathering steam, James Cordier of Optionsellers.com told Bloomberg. We definitely have some diversifying going on out of stocks and into fear trades, which is gold today. With the combination of a lack of inflation in the U.S. and the turmoil in the stock markets, theres no other way to look at the Fed right now other than theyre on hold.
Given the current lay of the land in 2016, Citigroup has turned bullish on gold in its new outlook for commodities, raising its price forecast by 7.5%. Golds safe-haven rationale is back in vogue, its analysts wrote, predicting an average price of $1,070. While geopolitical issues typically tend to be short-lived in terms of lending support to gold prices, we expect ongoing global macro concerns to lend support this quarter, added by a modestly more benign U.S. dollar outlook, they added.
In fact, gold is one of the few bright lights it sees among commodities. Declining expectations of global growth are exacerbating the results of oversupply across commodity markets, the analysts wrote in the Jan. 19 report.
With fear rising in markets everywhere, the odds are increasing that we might see more bullish gold forecasts like Citigroups popping up amid the ongoing carnage in equities and oil.
Oil glut risks lighting fuse of next recession or fresh financial crisis
Posted onSagging oil prices have sent shock waves through the financial markets in the past several months, and now news that Iran is about to start pumping crude back into the global system has upped the ante on those fears.
The lifting of international sanctions against Tehran over the weekend means that oil prices which already were trading near a 12-year low of $28 a barrel Monday could have much further to fall, the International Energy Agency has warned.
While the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in oversupply, said the IEA. Prices could go lower.
Why is the falling price of oil important? Because in addition to higher prices being synonymous with positive world growth, plummeting energy prices mean that numerous drilling and refining companies, particularly those in North Americas shale patches, are going bankrupt. That means the loss of thousands of well-paying engineering and processing jobs.
Bonds signal 44% recession odds: The stress is already manifesting itself in the struggling high-yield, or junk-bond market, which is indicating a 44% chance of a recession in the U.S. within one year, largely because of the nose-diving oil sector, Bloomberg reported.
Furthermore, an analysis published at Zero Hedge estimated that 80 U.S. energy firms have a combined debt of $325 billion. And, since 2015, 42 North American oil companies have sought bankruptcy protection.
Recall that the mortgage meltdown helped spur the crisis of 2008-09. Now some analysts are concerned that dropping oil prices could light the spark for a new Lehman Bros.-style catastrophe. Big banks brace for oil loans to implode, a CNN story reported.
Three of Americas biggest banks warned last week that oil prices will continue to create headaches on Wall Street especially if doomsday scenarios of $20 or even $10 oil play out, the story said.
Banks burdened with massive exposure: According to CNN, Wells Fargo has loaned more than $17 billion to the energy sector and is setting aside $1.2 billion to cover any potential losses. Meanwhile, JPMorgan is setting aside anywhere from $124 million to $750 million to cover losses. And Citigroup has built up $300 million in loan-loss reserves, with the danger of that rising as high as $1.2 billion if oil prices keep stagnating.
Right now the banking industry to downplaying the issue. Were not worried about the big oil companies. These are mostly the smaller ones that youre talking, JPMorgan chief Jamie Dimon said.
However, remember when then-Federal Reserve Chairman Ben Bernanke insisted that the subprime mortgage crisis was contained? Now we seem to be hearing the same sort of razzle-dazzle.
For the moment, these big banks are telling the public that the damage can be contained, commented Michel Snyder of The Economic Collapse blog. But didnt they tell us the same thing about subprime mortgages in 2008? We are already seeing bank stocks start to slide precipitously.People are beginning to realize that these banks are dangerously exposed to a lot of really bad deals.
Imagine 1 billion refugees: Moreover, if oil continues to fester or tank even further, the risks of geopolitical tensions and unrest could grow. Look how many countries in Africa, for example, depend on the income from oil exports,said the World Economic Forums executive chairman, Klaus Schwab, ahead of the groups 2016 meeting in Davos, Switzerland. Now imagine 1 billion inhabitants, imagine they all move north, he added, warning of unexpected consequences and a substantial social breakdown.
Falling oil prices and cheap gasoline are often touted as a blessing in our automobile-centric society. But todays energy crisis is showing us that the issue is much more complex, with serious implications for all of our portfolios. While this situation plays out, the most prudent course of action is to stay defensive with a healthy allocation of precious metals and rare coins.
IMF slashes growth forecast as Chinas slowing GDP juggernaut hits 25-year lows
Posted onIf you needed any more proof that the world economy is slowing, then look to the latest growth report on the worlds second-largest economy, China. The International Monetary Fund already has, and its cutting its global GDP outlook for the third time in a year.
Chinas GDP for 2015 came in at 6.9% for the year down from the 7.3% gained in 2014 and 6.8% for the fourth quarter. The numbers verify that Chinas economy is growing at its slowest pace in 25 years.
This soft GDP announcement compounds to the recent data from China which has followed a negative trajectory and has consequently intensified the mounting anxieties around the slowing pace of growth in the worlds second largest economy, wrote Lukman Otunuga of FXTM. With China GDP growth below the golden 7% yearly target, the visible economic slowdown may have further elevated investors fears toward the failure of a series of aggressive measures by Beijing to revive growth and as such may reinforce the bearish sentiment toward the Chinese economy, Otunuga said.
Dr. Doom says China even worse off: Indeed, the Peoples Bank of China also announced Tuesday that it will inject more than 600 billion yuan ($91.22 billion) into the economy to help ease liquidity concerns before the Lunar New Year holiday on Feb. 8. Wall Street stocks bounced Tuesday on hopes of continuing Chinese stimulus.
But dont go believing everything the Chinese government tells you about its economy, contrarian economist Marc Faber said. My sense is that at very best, the economy is growing at around 4% per annum, but it could be lower, he told CNBC. We have this colossal debt bubble in China, and in my opinion this will have to be deflated through either huge losses in the banking sector or losses in the bond market for investors. In addition to that, we have essentially a stock market bubble, which now is being deflated.
Downside risks running high: As a result of Chinas woes, the IMF has now cut its growth forecasts for both 2016 and 2017, saying: Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy.
It cut its global GDP target for this year to 3.4% from a projected 3.6% in October, while also lowering hopes for 2017 by cutting its 3.8% target from 3.8% to 3.6%. The downgrades follow a 2015 that saw the global economy grow at its weakest pace since 2009 (at 3.1%).
This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects,IMF chief economistMauriceObstfeldwarned. Unless the key transitions in the world economy are successfully navigated, global growth could be derailed.
Feds rate hike causing turbulence: The IMF cited three major factors for its gloom: the emerging-market slowdown, Chinas shift to growth driven less by exports and manufacturing, and the Federal Reserves gradual exit from ultra-low interest rates, Bloomberg noted.
Although the IMF is relatively confident about the U.S. economy, others are not so sure. The latest sign that the U.S. is slowing down can be seen in 10-year Treasury bond yields, which fell to around 2% this month. Deutsche Bank has even issued a forecast for sub-2% yields, down to 1.75%.
The American economy has lost its animal spirits, Hideaki Kuriki of Sumitomo Mitsui Trust Asset Management told Bloomberg. The potential growth rate of the American economy is going down. Longer term, yields may go down.
The odds of the Federal Reserve raising interest rates again this year after December 2015s landmark hike have fallen to 69% from 93% at the start of the year, according to the same Bloomberg report.
The bottom line on all this slowing growth is that central banks around the world, particularly the Fed, will be hard-pressed to raise rates and in fact will be forced to further devalue their currencies in order to revive their economies and stoke growth. Just look to Canada, which increasingly seems to be considering imposing negative rates to lift itself out of its oil-crunch-induced depression. The current landscape remains highly favorable for precious metals such as gold and silver.
Indias gold imports rocket higher by 179% in December
Posted onAny concerns that the biggest consumer of gold in the world alongside China had lost its appetite for the yellow metal have dissipated with news that Indias imports exploded higher in December.
Indias trade deficit widened to the most since August as a 179% surge in gold shipments slowed an overall decline in imports, Bloomberg reported. Gold shipments rose to $3.8 billion, boosted by demand from the so-called wedding season in India that typically runs through mid-March.
Gold demand increased in December when prices were at the lowest level in 2015, and as retailers increased their inventory to optimum levels, said Sudheesh Nambiath of the metals consultancy GFMS.
A separate report from Reuters confirmed that festive buying in India is picking up. Those who have weddings next month are purchasing gold, Kumar Jain of the Mumbai Jewellers Association said.
Smugglers defy import duty: The nations biggest imports after crude oil are gold and electronics. The new trade deficit has spurred talk that maybe the Indian government should increase import duties once again to correct the imbalance. However, some in official circles are having none of that talk, and of course Indias huge jewelry manufacturing and retail industry opposes any increases and is lobbying for further cuts.
There is already a high duty (on gold imports) now so doing higher and higher import duties can in fact become counter-productive, more smuggling avenues, etc., and that is why we do not want to try and take further aggressive measures from our end, Additional Secretary in the Commerce Ministry Arvind Mehta said. Mehta was referring to the explosion in gold smuggling that occurred after the government preceding current Prime Minister Narendra Modi imposed a 10% import tax.
Gold interest rises as stocks fall: Instead, the government is banking on monetizing the nations current stockpile of gold, much of it held in Hindu temples across the nation as well as in individual households. This week it launched another round of sales of its sovereign gold bonds, which pay interest.
Hopes for the bonds are running high in some quarters. Given the correction in the stock market, interest is shifting in favor of gold, said Harish Galipelli at Inditrade Derivatives and Commodities. Investors are looking for safe-haven assets.
However, the first tranche of gold bonds were unpopular. Why? Because Indians are obsessed with physical gold, and paper representations simply dont measure up to the real thing.
Distrustful of banks: For centuries, East Indians have regarded gold as the primary source of wealth, noted Jeff Thomas of the International Man Web site. All Indians own gold if they can afford to. They keep it as close as possible, sometimes in coin form, but often as jewellery, since wearing wealth means that it can be kept very close. Theyre often especially reluctant to trust banks to hold their gold.
Hindus make up 80% of Indias population and, to Hindus, gold is sacred a symbol of purity, prosperity, and good fortune. It plays an important part in all Hindu ceremonial occasions and Hindus donate large amounts of gold to the temples. The temples are also distrustful of bank storage, although some do store gold in banks.
Chances are it will be a long time coming before the governments gold-linked bonds replace the love of coins and jewelry burned into the Indian psyche. In the meantime, demand is on the upswing in one of the biggest influencers in the global gold market.
