Economy Not All It’s Cracked Up To Be

On Friday, a nonfarm payroll increase of $224,000 sent everything falling dramatically when the markets opened. Stocks, bonds, commodities, and precious metals all were slammed hard but true to form, stocks rebounded into solid positive territory, such that the S&P ended up 1.65% for the week. So as of Friday, the markets were back to a “risk on” mood. As you can see, the safe havens of Treasuries and gold were down on the week. We note as well that copper was down this week as well on an inventory build. This is just one more sign that the global economy isn’t all it’s cracked up to be by President Trump.

Danielle DiMartino Booth pointed out in her Friday Daily Feather report that fewer heavy truck sales, a rising loss of small business construction jobs, and an increasing number of self-employed unemployment all suggest trouble ahead for workers, notwithstanding the hot number reported on Friday. It just so happens that unemployment among small business occurs well ahead of larger company layoffs. Danielle, who has a penchant for detail, has been offering quite a few data points demonstrating a softening economy. She did say on my radio show several weeks back that she thinks the odds of the U.S. heading into a recession this year are quite high. I will be anxious to hear what Alasdair Macleod, my guest next week, thinks about that. I will be surprised if he doesn’t agree. 

That said, the strong jobs numbers reported on Friday have caused the stock bulls to charge ahead with reckless abandon. But as someone noted this past week, the most deceitful time in a cycle is the end of a cycle. 

Unemployment is low and stock markets keep making new highs despite underlying signals showing reasons for concern, such as sinking bond yields, yield curve inversion, slowing growth, and weakening market internals, which are largely ignored by investors. I take today’s job numbers with a grain of salt because anyone who has watched government numbers for as long as I have known they can jump all over the place, and as economist John Williams has pointed out, there is always a bias to dress the numbers up to please the status quo.

As far as gold is concerned, I’m feeling more confident now not only because Michael Oliver has once again been proven right but also because of the monthly average gold price chart shown on your left. During the first trading days of July, the average gold price (London PM FIX) is $1,400.95. The 20-month average is $1,286.57 and the 40-month average is $1,274.89. Peter Schiff noted today that gold has a lot of catching up to do to be where it needs to be given how wrong the market expectations were regarding the Fed’s ability to shrink its balance sheet and normalize interest rates.