Gold futures have recently surged to their highest levels since August 2020, marking a significant turnaround from a previous bearish trend. This shift is highlighted by the emergence of a bullish indicator known as a "golden cross." This technical pattern occurs when a short-term moving average, such as the 50-day moving average, rises above a longer-term moving average, like the 200-day moving average. This crossover is often interpreted by investors as a sign of increasing momentum and potential for further price gains in the gold market.
Amid market uncertainty, investors are holding record amounts of cash, reflecting skepticism about the economy's health despite official positive statistics. The stock market's optimism is driven more by expectations of Federal Reserve rate cuts rather than true economic strength. With concerns about the long-term value of cash due to inflation and credit risks, there is increasing interest in gold as a stable and potentially more profitable alternative. Investors are looking for a catalyst to shift from conventional assets to precious metals like gold, seeing it as a safer option in uncertain economic times.
The escalating tensions in Ukraine and Gaza could potentially trigger a sharp increase in oil prices, potentially reaching $150 per barrel. This surge could induce a significant economic downturn, echoing the effects of past oil crises. Additionally, these geopolitical conflicts might precipitate a drastic drop in the Dow Jones index, similar to previous economic slumps caused by similar events. For instance, a severe downturn could lead to a decline in the Dow Jones index comparable to a 45% fall experienced during the 1974 recession, equating to a drop of over 15,000 points from current levels.
Americans are increasingly tapping into their savings to maintain their lifestyles amid rising living costs. Recent Morning Consult polling reveals a significant decrease in adults who can cover six months of expenses with their savings compared to last year. Additionally, about 21% are unsure how long their savings will last, up from 15.5% in July 2022. This trend reflects a desire to preserve consumption patterns, even at the cost of dwindling savings, and contributes to ongoing economic uncertainty and pessimistic sentiment.
Despite widespread economic concerns, consumer spending remains high, with record Black Friday participation and holiday spending predicted to reach $966.6 billion. However, this surge is fueled by "doom spending," where over a quarter of Americans spend mindlessly due to economic anxieties. Particularly among younger generations, this trend leads to rising credit card debt, now exceeding $1 trillion. Experts warn of the long-term negative impact on financial stability, urging a shift towards more prudent financial management.
Hedge fund manager Bill Ackman anticipates the Federal Reserve may start cutting rates as early as the first quarter of 2024, sooner than the market's mid-year expectations. Ackman cites signs of economic weakening evident in some of his companies. He argues that maintaining mid-5% interest rates with inflation below 3% results in high real interest rates, negatively impacting the economy. The shift from low to higher interest rates, especially for fixed-rate debts in businesses and real estate, could lead to a "hard landing" if rate cuts don't occur soon.
The global economy faces a bleak 2024, with growth slowing to 2.7%, the lowest since 2020, due to ongoing wars, high inflation, and continued interest rate hikes. The U.S. and China, key economic drivers, are both expected to see reduced growth, further dampening the global outlook. The U.S. growth is projected to drop to 1.5%, and China's to 4.7%. The eurozone is also set for a slowdown, with just 0.9% growth anticipated. This paints a picture of a challenging year ahead, with significant risks of economic stagnation.
The US Bureau of Economic Analysis reported that the revised Q3 GDP growth rate was 5.2%, the highest since Q4 2021 and above initial estimates. This growth was mainly due to increased government spending, which contributed 0.94% to GDP, and inventory investment. However, personal consumption's contribution decreased slightly compared to the previous quarter. Corporate profits also rose in Q3, with significant gains in both financial and nonfinancial sectors. Despite these positive figures, concerns about long-term economic stability remain.
The US Federal Reserve is facing significant operating and capital losses, raising concerns about its financial stability. These losses, potentially as high as $100 billion, are due to high-interest rates impacting its bond portfolio and increased expenses. There is a growing debate about who will bear the cost of these losses, with many analysts suggesting that American taxpayers may ultimately be responsible. This situation underscores the potential financial burden on US taxpayers due to the Fed's current financial challenges.
Growing support in Washington for a commission to address the U.S.'s $34 trillion debt faces skepticism amid congressional divisions. The proposed fiscal commission would explore debt reduction, but its effectiveness is uncertain, echoing past efforts like the 2010 Simpson-Bowles commission. Key lawmakers question the proposal's feasibility, citing political disagreements, especially regarding spending cuts and revenue. Despite these doubts, public surveys show strong bipartisan support for the commission, aimed at finding long-term fiscal solutions and addressing mandatory spending programs.
The aggressive monetary tightening has severely impacted US high-risk borrowers who previously depended on low-interest rates. With rates now around 5%, companies with leveraged loans linked to floating rates are struggling with liquidity issues. The LSTA Leveraged Loan index shows a steep drop in earnings growth and a significant decline in the average EBITDA to interest expense ratio. This scenario suggests heightened risk, especially for businesses heavily reliant on floating rate-leveraged loans, as they now face severe challenges in the current high-rate environment. A potential downturn could exacerbate these risks significantly.
The Biden administration's request for over $105 billion in supplemental security spending, mainly for Israel and Ukraine, is raising fears of global conflict incentivization, with the burden falling on U.S. taxpayers. Critics, including Robert Kennedy Jr., argue that this focus on defense diverts resources from vital domestic issues. The plan, potentially benefiting defense contractors significantly, stokes concerns about war profiteering and the influence of the defense sector on U.S. foreign policy. The final decision rests with Congress, where the defense lobby's sway is a contentious issue.
October CPI coming in cooler than expected ramped up expectations that the Federal Reserve is at the end of its inflation fight. In fact, many analysts now expect the Fed to begin cutting interest rates in 2024.Looking at the bigger picture, inflation's apparent retreat boosted mainstream belief that the economy will glide to a "soft landing." With a lot of economic data weakening, the markets anticipate that the Fed will proactively cut rates to preempt a recession and prevent a crash landing. The thinking is as soon as it sees the economy coming in for a landing, it’s going to cut rates to ensure that landing is soft.
Holiday shoppers plan on cutting back on spending and piling on even more debt this year, and nearly a quarter of Americans still haven't paid off their debt from last year's holiday spending spree.These were just a few revelations in a recent WalletHub survey that indicates American consumers aren't quite as "resilient" as pundits and government people would have you believe.
Gold prices surged on Tuesday, reaching $2,038.45, driven by a weakening US Dollar and dovish comments from Federal Reserve Governor Christopher Waller. Waller indicated that a continued decline in inflation could lead to a reduction in the policy rate. Chicago Fed President Austan Goolsbee also acknowledged significant progress in lowering inflation. Despite this, Fed Governor Michelle Bowman maintained a possibility of further rate hikes. These developments, reflecting a shift from the Fed's typically hawkish stance, led to a decrease in Treasury yields, with the 10-year and 2-year notes yielding 4.36% and 4.80%, respectively.
Chief Investment Strategist Michael Hartnett foresees a promising outlook for 2024, highlighting the potential for growth in what he terms the "3Bs": Bonds, Bullion (Gold), and Breadth (diverse investments). Hartnett's anticipation of a robust market is based on his expectation of a dynamic economic landscape. He is strategically waiting for the perfect alignment of factors - bearish investor positioning, a rebound in corporate profits post-recession, and a shift towards easing policy (the "3Ps").
Gold prices are expected to remain high due to several factors, even if inflation eases. Central banks, particularly China's, are buying gold to diversify and stabilize their reserve assets, partly influenced by geopolitical tensions like Russia's invasion of Ukraine. Additionally, in China, gold's demand as a wealth store is increasing due to economic challenges and property market issues. This trend, coupled with gold's status as a safe haven in uncertain times, suggests that its demand will stay elevated, especially with the approaching 2024 U.S. election year adding to market volatility.
The United States is at risk of a debt spiral and fiscal crisis, with the national debt surpassing $33 trillion in 2023. Economists warn that the government's deficit spending and the Federal Reserve's strategies to manage debt are increasingly ineffective. Investor confidence in U.S. Treasurys is declining, as evidenced by downgraded ratings and growing skepticism over the U.S.'s ability to manage its debt without causing inflation or default. Restoring investor trust in U.S. financial stability is becoming a critical challenge.
The Federal Reserve's extensive bailouts of major banks, as shown by FRED's data, highlight the precarious state of the U.S. financial system. Since the 2008 crisis, these banks have fluctuated wildly in cash assets, indicating a shift from stable to chaotic financial operations. The Fed's actions, aimed at preventing bank runs and panic, have led to repeated, massive injections of emergency funds, underlining the banks' dependency on Fed support rather than robust regulatory oversight. This situation, further exposed by the recent major bank failures, calls into question the Fed's effectiveness as a regulator and the need for a more competent and independent supervisory body.
The November Conference Board Consumer Confidence index improved to 102.0 after a significant downward revision of October's data to 99.1, marking the lowest since July 2022. The Present Situation Index dropped to 138.2, the lowest since April 2021. Consumer expectations, remaining below the recession-indicative level of 80 for the third month in a row, signal growing concerns about an impending economic downturn. Around two-thirds of consumers anticipate a recession within the next year, and labor market indicators continue to worsen.