Precious metals news

The U.S. government budget is characterized by vast sums that are difficult to comprehend. Translating these figures into terms that non-experts can understand reveals the imbalance and urgency of the situation. Government debt is growing rapidly, surpassing the value of goods and services produced in a year. Each American household currently owes $194,000, a figure that would rise to $696,000 in 30 years. Excessive government borrowing leads to negative consequences such as lower economic growth, reduced incomes, and higher interest rates. If the debt spirals out of control, a fiscal crisis could occur, causing severe economic turmoil. The government budget is irresponsibly unbalanced, with spending exceeding income. If an average family acted similarly, they would spend $100,000 a year while earning only $78,000, resulting in excessive borrowing. In 2022, the government spent $6.3 trillion, collected $4.9 trillion in taxes, and added $1.4 trillion to the existing $22.3 trillion public debt. The majority...

Financial conditions for junk-rated companies have shown limited tightening despite the Federal Reserve's efforts. The narrow spread between junk-rated debt and risk-free Treasuries, coupled with increasing bankruptcy filings, raises concerns. Loose financial conditions persist, creating a disconnect from economic realities. Structural changes, such as the growth of e-commerce, further exacerbate the challenges faced by struggling companies. The effectiveness of tightening measures in addressing underlying issues remains questionable, increasing the risk of a severe crisis.

Corporate profits are a crucial indicator of economic performance and financial health for U.S. corporations. These profits contribute to retained earnings and funding for capital investments. The Bureau of Economic Analysis prepares estimates of corporate profits as part of the national income and product accounts. In the first quarter, profits from current production decreased, including a decline in profits for domestic financial and nonfinancial corporations. Real and nominal profits have experienced a significant decline, comparable to the lead-up to the Great Recession. There have been instances of consecutive quarters of declining corporate profits, both within and outside of recessions. The debate between GDP and GDI (Gross Domestic Income) is relevant, with corporate profits favoring the GDI perspective. Caution is advised when interpreting reported earnings, as corporations may employ various strategies in reporting to the public versus the IRS.

The 10-year yield reached its highest level since early March, indicating a shift in the bond market. Previous rallies fueled by hopes of QE have been replaced by a selloff, causing yields to rise. The Treasury Department plans to increase issuance of longer-term notes and bonds, attracting more buyers but also increasing supply. The Fed's reduction of Treasury holdings further adds to this dynamic. The longer-term Treasury market is gradually accepting the likelihood of higher inflation and interest rates, challenging previous assumptions. In contrast, short-term Treasury yields have adjusted to market conditions, projecting two more rate hikes this year. The six-month and one-year yields reflect this sentiment, with no denial of the prospect of higher rates within their respective timeframes.

The European Commission has estimated the cost of its Green Deal to be €620 billion, but has only allocated €82.5 billion towards it, leaving the deal largely unfunded. This lack of funding poses a significant challenge to the implementation of the Green New Deal and other programs. The absence of a consensus on financial instruments and the inability to issue Eurobonds further hinder the EU's ability to secure necessary funds. The EU must address its funding limitations to effectively carry out its ambitious goals, or risk the collapse of the Green Deal and other initiatives.

The risk of deflation in China is a real concern, as producers grapple with lower commodity prices and weak demand. If consumers and businesses continue to hold back from spending and investment, it could trigger a self-fulfilling downward spiral in prices. To avoid a third consecutive contraction, a stimulus is becoming increasingly necessary, potentially leading to another surge in commodity prices. However, the scope for policy intervention is limited due to concerns about debt risks. While the government has taken some measures to support the economy, expectations are that any stimulus will be targeted and coordinated rather than massive in size. Nonetheless, if China's economy and property markets worsen and deflation persists, Beijing may have no choice but to take stronger action.

41+ Countries Join BRICS Gold-Backed Reserve Currency as US Economic Policies Face Criticism. A growing number of countries have signed on to the BRICS gold-backed reserve currency, a move perceived as a divergence from the US's fiat currency. Amid concerns about the direction of the American economy under President Biden and the policies of the Federal Reserve, the BRICS reserve currency offers the stability of gold backing. Furthermore, US Treasury Secretary Janet Yellen's recent meeting with the Chinese vice-Chairman has drawn attention, with some criticizing her perceived capitulation in bowing three times without receiving a reciprocal gesture.

During the upcoming BRICS summit in South Africa, an official announcement is expected to introduce a new transaction unit backed by gold, potentially posing a significant challenge to the US dollar's global supremacy. The idea of a gold-backed currency has garnered attention as it could provide a robust alternative to fiat currencies. However, there are concerns about the convertibility of the new currency into gold on demand, with uncertainties surrounding its true implementation and potential effects on fiat currencies. The official announcement of this currency is anticipated during the BRICS summit in August.

More countries are repatriating their gold reserves as a safeguard against potential sanctions, according to a survey by Invesco. The study, which involved 85 sovereign wealth funds and 57 central banks, revealed that over 60% of respondents found gold more attractive following the freezing of Russia's reserves by the West. The survey also indicated that geopolitical concerns and opportunities in emerging markets are driving some central banks to diversify away from the US dollar. While most still view the dollar as the world's reserve currency, a growing 7% see rising US debt as a negative factor.

Bidenomics represents a combination of significant Federal spending and the Federal Reserve's monetary policy, which critics argue lacks clarity. The approach emphasizes a top-down economic management style, with government intervention in picking winners and losers rather than relying on the free market. Some perceive the current administration's economic policies as favoring the wealthy elite while leaving others with fewer resources.

The US national debt has surpassed $32 trillion, and when considering unfunded liabilities, such as Social Security and healthcare programs, it reaches $224.5 trillion. Corporate bankruptcies in the first half of 2023 have hit a 13-year high, with 340 companies filing for bankruptcy. June saw 54 corporate bankruptcy filings, including notable companies like Lordstown Motors and Rockport Co.

Household net worth has experienced negative year-over-year growth for three consecutive quarters, marking the most severe decline since the Great Recession and Financial Crisis of 2008/2009.

Homeowners face a negative equity timebomb as property values decline, resulting in a collective loss of $108.4 billion this year. In the first quarter of 2023, the average borrower experienced a decrease of $5,400 in home equity compared to the previous year. Washington, California, and Utah are the most severely affected states. If prices continue to drop by an additional 5 percent, over 200,000 households could find themselves in negative equity, putting their home loans at risk.

Leveraged investors have shifted to a net short position on the US dollar, with 20,091 contracts flipped to short in the week through July 7. This marks a significant change from the net long position of 5,196 contracts the previous week. The Bloomberg dollar gauge has dropped 1.6% this year as signs of the Federal Reserve nearing the end of its tightening cycle and global rate increases to combat inflation have impacted the currency. Weaker-than-expected job growth in June has further bolstered expectations that the central bank will ease policy sooner. Market focus now shifts to the US CPI report as the next major risk, prompting increased selling of the dollar and potential retests of previous highs in currency pairs such as euro-USD and dollar-yen.

The US market faces potential slowdown as negative noise from the earnings season and expected further rate hikes contribute to the market's decline. According to a survey, the tightening of financial conditions is seen as the biggest negative factor. Many anticipate that the slump in S&P 500 firms' earnings per share will only cease after the third quarter. However, analysts expect a rebound in EPS growth for benchmark members in the final months of the year.

US banks are expected to report the largest increase in loan losses since the pandemic as rising interest rates put pressure on borrowers. The nation's six largest banks, including JPMorgan Chase, Bank of America, and Citigroup, are estimated to have written off $5 billion tied to defaulted loans in the second quarter. They are also predicted to set aside an additional $7.6 billion to cover potential bad loans. Credit card loans and commercial real estate loans are major sources of concern. While investment banking revenues may be impacted, analysts expect increased interest rates to outweigh negatives for most big banks.

US job growth is slowing and signs of trouble are emerging in rising costs and pressure on profit margins for blue-chip companies. Despite this, investors are not fully pricing in the risks. Over $500 billion of bonds near junk status are at risk of downgrades, potentially leading to difficulties in raising cash and an increase in defaults. Executives are becoming more conservative with cash usage, anticipating a downturn. Bankruptcy filings suggest the default cycle may have begun.

Former Treasury Secretary Lawrence Summers cautioned policymakers not to become complacent about inflation, emphasizing that the decrease in inflation rates should not be mistaken for long-term stability. He anticipates a further decline in bond prices as investors adjust to the need for more monetary tightening. Summers made these remarks following the release of a robust US jobs report, which showed strong payroll growth and increased wages. While certain economic indicators suggest potential softening, the bond market has reacted with sell-offs in anticipation of future interest rate hikes by the Federal Reserve. Summers expects ongoing adjustments in interest rates based on incoming data. The upcoming consumer price index is predicted to show a decline in annual inflation rates. Summers emphasized the need for the Fed to raise rates enough to bring inflation back to target levels, even if it leads to an economic downturn.

A surge in US real yields, which reflects bond investors' expected return after accounting for inflation, has raised concerns among investors. The yield on 10-year inflation-protected securities (Tips) reached its highest level since 2009, signaling the belief that the Federal Reserve will need to maintain higher interest rates for a longer period to control inflation. Real yields serve as a measure of borrowing costs and impact the attractiveness of riskier assets. The increase in real yields has made low-risk government debt more appealing, potentially impacting other asset classes. This surge in yields surpasses the levels seen last October during a period of bond sell-off and greater uncertainty regarding US inflation.

Federal Reserve Chairman Jerome Powell reassured lawmakers about avoiding a repeat of the 2019 repo market disruption. However, economists caution that quantitative tightening (QT) remains complex and unpredictable. The full impact of the Fed's current QT program is yet to be felt. Powell acknowledged past problems and emphasized the Fed's experience. The Fed is currently reducing bond holdings at a faster pace but from a larger base. So far, things have been smooth, with ample reserves. Analysts estimate $2.5 trillion is needed for banking system stability, but with low confidence.