From the Desk of Craig Griffin, President and Founder of ITM Trading
I have written in these updates that the U.S. economy is in recession. This opinion is based upon Economic Cycle Research Institute’s (ECRI’s) recession call. ECRI says that a new recession began here in the United States around the middle to the end of summer 2012.
Jim Rickards recently stated that he believes the U.S. will enter a recession in 2014. I believe ECRI is right about their call. Calling recessions is their expertise and they have called the beginning and ending of every recession since 1990.
However, Rickards is one of the brightest and most well connected analysts I have come across. I interviewed Rickards a few years back and recently he pointed out that 50 million people in the United States are on food stamps. He also stated that an additional 26 million Americans are either unemployed or underemployed, and that 11 million more Americans (and rising) are on disability which Rickards says is a new form of unemployment because the barriers to claim disability are quite low, in other words it is much easier to get on disability at this time. Also, after two years of being on disability you automatically qualify for Medicare regardless of your age, so we see people in their 40’s getting Medicare which is normally reserved for those 65 or older.
Rickards also states that there is a variety of data coming out proving that the economy is fundamentally weak and that we should not believe the Rhetoric…I believe I have said those same things in these updates many times.
ECONOMY GENERALLY STRONG BEFORE RECESSION- NOT THIS TIME
It is periods like these when investors get crushed and I believe this period is more dangerous than any in my lifetime, and I just turned 60 years old this month.
Why do I believe this? Look at this chart of the Dow Jones Industrial Average from the Federal Reserve:
As you can see from this chart the stock market was rising significantly just prior to the 2001 and 2007- 2009 recessions. The economy was robust during both of these periods. But you can also see from this chart that the stock market declined into the 2001 recessions and beyond, and also declined to the very end of the 2007-2009 recession.
However, if ECRI’s call is correct (And again, they have called every recession since 1990) then a recession line will be added to this chart showing that a new recession actually began in the summer of 2012 or somewhere thereabout.
What we have in this instance is a stock market that is rising during a recession. So, instead of the robust growth that we saw prior to the 2001 and 2007-2009 recessions this economy is extremely weak and the Fed’s action in and of itself, QE (Quantitative Easing) to infinity confirms this fact.
FED CUTS BOND BUYING PROGRAM – BUT SIGNALS INTEREST RATES WILL REMAIN LOW THROUGH 2014
The Fed came out recently and said that it is going to cut back on QE by $10 billion a month. That still leaves $75 billion a month that is being added to the Fed balance sheet, or $900 billion a year. More importantly the Fed said it is going to keep interest rates low throughout 2014 which is exactly what the markets wanted to hear. As I see it they will keep interest rates artificially low well beyond 2014. This will ensure that the Fed will keep its foot on the accelerator as they are determined to put inflation back into the system. This will also put more pressure on the Dollar which will be good for gold over the long term.
In my last update I reported that the S&P500 has risen over 45% the last two years, while reported earnings had only risen by only 5% percent during this same period.
So remember, “It would be foolish to buy gold for the short term, but it is also unwise not to acquire gold for the long term!”
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Chief Market Analyst, ITM Trading