Here Comes the Next Recession
- Forget the pathetic GDP number…
- … Here’s a warning light flashing “Recession Ahead”
- Once again, gold traders know what the Fed still denies
- The chart that shows how undervalued some “junior” gold stocks really are
- Why the Bank of Japan’s latest decision really matters
- New York Fed reacts to The 5’s outrage (heh)… the latest impassioned entry in our feud over teachers… a report from the scene of an NFL owner’s attempted taxpayer robbery… and more!
The wheels are coming off America’s economic bus. And we’re not even talking about the stupid GDP number this morning… although we’ll get to that in due course.
No, this is worse: Earlier this week, the Federal Reserve Bank of Philadelphia issued its monthly state coincident index — crunching four varieties of job numbers for each of the 50 states.
The index runs on a scale of minus 100 to plus 100. Readings below plus 50 have heralded the onset of every recession across the nearly four decades the Philly Fed has compiled this index.
The reading just plunged from plus 74 to plus 44…
As usual, we caution that one month does not constitute a trend. Especially in the case of this index, which is often subject to revisions in subsequent months. But we’d be remiss not to pass it along.
OK, the stupid GDP number — which humiliated the “expert consensus.”
Econoday polled dozens of economists this week for their guesses at the Commerce Department’s first estimate of second-quarter GDP. The average guess was an annualized 2.6%. The lowest guess was 2.2%.
The actual number released this morning was 1.2%. Oopsie…
Bonus points: The first-quarter number has been revised (again) from 1.1% to 0.8%.
[Aside for newer readers: In the scheme of things, we don’t much care about GDP.
It’s a statistical abstraction with zero relevance to your life or your job. Agora founder Bill Bonner has long pointed out the following absurdity: If you mow your lawn and your neighbor mows his lawn, it has no impact on GDP. But if you hire your neighbor to mow your lawn and he hires you to mow his lawn, it’s a plus for GDP!
Alas, politicians and central bankers think GDP is important, and God help us, they use it to make decisions that do affect your life and your job. So we ignore GDP at our own peril.]
The takeaway from today’s number isn’t hard to figure out. Even MarketWatch could do it: “Lackluster growth could derail the Federal Reserve’s intentions to raise interest rates at a gradual pace.”
Gold traders sniffed that out right away: The price of the Midas metal popped the moment the GDP number was released.
As we check our screens, the bid is up to $1,347. That’s a $30-plus gain in less than three trading days. If you were with us on Wednesday, you’ll recall the bump began with the release of another sickly economic number, durable goods.
For all the Federal Reserve’s “hawkish” talk about raising interest rates before year-end, the Fed remains by its own admission “data dependent”… and the data point to more economic weakness, which points to continued loose monetary policy. And that’s bullish for gold.
Meanwhile, gold stocks are looking even spiffier than the metal. GDX, the big gold-miner ETF, is up 7.7% since the close on Tuesday.
“Over the past six months, we’ve seen a massive run-up in share prices for many mining plays,” says Byron King — our resident geologist who does the company-level research for Rickards’ Gold Speculator With Byron King.
“However, there are still many ‘undervalued’ names out there,” Byron goes on.
As evidence, he points us to the following graph of enterprise value divided by the gold reserves. A company’s EV represents the value the market puts on the whole business, including debt but minus cash.
The first line is an index put out by the mining-savvy Bank of Montreal comprising gold producers — the big guys. The next line is another BMO index, but this one comprises gold developers — outfits that are building mines but aren’t yet in production.
“Now look at the fourth line down,” says Byron, “which is a metric for generic juniors developed by Haywood Securities, a brokerage with extensive understanding of the mining space.” We’re talking explorers, companies that haven’t even started building a mine. “Haywood values juniors at $93 per ounce.”
Finally, check out the third line. That’s Kaminak Gold — the developer bought out by Goldcorp just three days after we launched Rickards’ Gold Speculator in May, delivering an instant 37% gain.
Key point: Kaminak is well along in building its mine in Canada’s Yukon; Byron told you on Wednesday about his visit to the site. It’s a developer… but the price Kaminak fetched was more like that of an explorer.
“When Goldcorp bought Kaminak,” says Byron, “the event was greeted with happiness across the sector because it demonstrated takeover action after a long hiatus of good news for mining.
“Still, when you compare metrics, it appears that Goldcorp picked up Kaminak at a relative bargain. This is likely because there are still two or three more years of permitting left in front of Kaminak.” And it was still good for 37% in three days…
Other names in the Rickards’ Gold Speculator portfolio are closer to production… but still bargain priced based on this EV-per-ounce figure. That’s a lot of upside.
Still more names are explorers priced well below the valuation for explorers as a group — as low as $28. More upside.
No wonder Byron sees the potential for a well-chosen basket of junior miners to make you “Midas rich.” Yes, his average open recommendation is up 56% in less than three months (wow, on Wednesday, it was only 49%)… but Byron’s convinced the fun’s just getting started, for reasons he explains here. You don’t even have to watch a long video to see him make the case.
The major U.S. stock indexes are little moved by the GDP number. As we write, the Dow is up fractionally. The S&P 500 is up a quarter percent.
Many names are moving less on “macro” factors and more on earnings. Quarterly profits at Google parent Alphabet are up 24%; shares are up 4.3% at last check. Amazon has turned its fifth straight quarter of profits, and its third straight quarter of record profits; Amazon is up 1.8%.
On the other hand, Exxon Mobil delivered a massive earnings “miss” and shares are down nearly 1.2%.
Speaking of which, crude prices are stabilizing for the moment, after tumbling below $41 in overnight trade. But oil is now in bear market territory — down 20% from its highs in early June.
Bonds are rallying sharply, sending yields plunging; a 10-year Treasury yields 1.47% this morning.
Here’s another sign the Shanghai Accord is “back in action after the Brexit speed bump” — as Jim Rickards tweeted a few hours ago.
The Bank of Japan issued its latest policy statement overnight — delivering a bit more stimulus, but not as much as conventional wisdom expected. The central bank is stepping up its purchases of ETFs… but “helicopter money” — outright printing money to finance new government spending — will wait for another day.
By easing policy less than expected, Japan is staying within the bounds of the “Shanghai Accord” — the secret deal Jim says was struck last February among the globe’s major monetary powers in hopes of averting economic catastrophe in China.
Under the accord’s terms, the Federal Reserve is supposed to be weakening the dollar. It’s been doing the opposite of late, hoping to put a lid on froth in the stock market right now… but as all these weak economic numbers demonstrate, the Fed will have no choice but to weaken going forward. Once again, good for gold…
We doubt our needling earlier this week had anything to do with it, but we see the Federal Reserve Bank of New York is trying to look a little less cozy with the banks it’s supposed to regulate.
“The New York Fed,” reports today’s Wall Street Journal, “expects that all of its nearly 250 on-site bank examiners… will be relocated to newly refurbished central bank offices in lower Manhattan by the end of 2017” — according to the paper’s anonymous sources, anyway.
Ponder that phrase, “on-site bank examiners” for a moment. Theoretically, they’re supposed to keep their distance. Sometimes for the sake of appearances they do — filing down to the cafeteria in separate elevators, for instance. But does anyone believe these people don’t all attend the same parties off-hours, sharing the same hookers and blow?
“I hate to, but I have to answer your logger vs. teachers debate,” a reader writes.
[We hesitate to drag out this debate, but readers’ passions are stoked, and on this occasion, we choose not to get in the way…]
“I live in a big city on a nice block with lots of good, hardworking neighbors. My hardest-working neighbor lives right across the street from me: He is a fourth grade teacher in a public school with a class size of over 30 kids. Many, many nights after he and his working wife have put their own son to bed, I would see him sitting at his kitchen table grading papers — often well after 11:00 p.m.
“He’s not just circling wrong answers and writing a percentage grade at the top of the page but reading each child’s thoughts, measuring comprehension and making dozens and dozens of corrections. Each young mind is getting a custom professional consideration and guidance tailored at forming the young minds that will be at the reigns of our society very soon. (So much for the 9 a.m.–3 p.m. hours.)
“Do I think that teachers should earn more than the mechanic working on Mr. Logger’s pickup truck? Yes, I do.
“Is it OK if they are represented by a union to negotiate with our duly elected government for pay, health and welfare benefits? Yes, it is, has been here in America for a long time.”
“I know nothing about the angry logger in yesterday’s 5, but I’ve worked with loggers in the past and it is my experience that they are highly dependent on access to BLM and other public lands — thereby receiving subsidized access to public resources with which to make a profit.
“My advice to the angry man would be to tell him that if he doesn’t like that, then take it up with his elected officials and leave the retired lady teacher alone: She most likely has had more of a positive impact on our society than he has.”
“Dave, please keep railing against government-financed sports stadiums,” implores one of our regulars — mercifully turning us to another subject.
“I’m writing from Buffalo, where an interesting propaganda campaign began — shortly after Terry Pegula became owner of the Bills — to ‘educate’ the community about why we should abandon Ralph Wilson Stadium and build a new one.
“All of the proposed sites for a new venue are ludicrous except one: downtown, where (a) a smaller stadium wouldn’t even fit and (b) Pegula can profit from the revenues it would drive through the fiefdom of businesses he’s building around First Niagara Center. That’s the home of the Sabres, an NHL franchise he also owns.
“According to the BS campaign, ‘the Ralph’ is obsolete. But friends of mine who work for NFL teams — and visit stadiums throughout the country — tell me it’s still one of the nicest venues in the NFL. Believe me, if anyone is going to gripe about a sports venue, it’s the folks who work for your opponents.
“Of course what’s not being disclosed in all of this is that residents of Erie County will pay the bill for a new stadium (again). As always, smart money players game the system to socialize costs and privatize profits.
“I’m no fan of the New England Patriots, but hats off to Robert Kraft for financing Gillette Stadium without burdening taxpayers. And kudos to the Green Bay Packers, the only community-owned professional NFL franchise in America!”
The 5: You have your editor’s sympathy; I lived in Buffalo and paid Erie County taxes for a while in the late ’90s.
The least these moneybags owners could do in exchange for a taxpayer-financed stadium is provide a little entertainment, for cryin’ out loud.
Like Jerry Jones of the Dallas Cowboys. In exchange for a half-percentage point increase in the sales tax to finance AT&T Stadium, Jerry furnishes nonstop laughs — diagnosing his quarterback’s injuries, trying to rehabilitate hardened criminals, using a top-five draft pick to take a running back. Taxpayers in Arlington are surely getting their money’s worth, and then some…
Have a good weekend,
The 5 Min. Forecast
P.S. What we’ve been describing this week, with considerable help from our geologist. Byron King, is what you might call the “$200 gold rush.”
Again, though, it does take courage to act. Do you have what it takes?