Gold prices settled slightly lower after a disappointing retail sales report. U.S. stocks build on gains from yesterday as S&P 500 and DJIA close at record levels. Gold last traded at $1,294 an ounce. Silver at $19.55 an ounce.

The US stock market is performing in ways not supported by underlying economic fundamentals and that should make investors nervous.

The S&P 500 rose above the 1900 level earlier today for the first time ever. That might be cause for celebration in some circles, but we must remember that every heavy night of partying is paid for with a hangover.

The current run in stocks is over 5 years old – well past the average length of uninterrupted bull markets – and investors must be prepared for the inevitable reversal.

Time is not the only factor working against the stock market. Economic factors are not supportive of a continuing bull market. It appears the stock market is being propped up by the artificial stimulus of the Fed, which even Janet Yellen knows cannot continue forever.

The latest worrisome data on the economy came today in the form of a report on retail sales.

U.S. retail sales barely rose in April and a gauge of consumer spending slipped, which could torpedo hopes of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Tuesday retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars, and online retailers.

Economists had forecast sales advancing 0.4 percent. Retail sales account for a third of consumer spending.

So-called core sales – which strip out automobiles, gasoline, building materials and food services and correspond most closely with the consumer spending component of gross domestic product – fell 0.1 percent in April.

Retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores. Sales at furniture stores fell 0.6 percent, while receipts at food services and drinking places dropped 0.9 percent.

Sales at non-store retailers, which include online sales, fell 0.9 percent.

The housing market is another faltering economic sector. Higher costs and rising interest rates may signal a retreat of this major economic driver, raising fears it once again may drag down the rest of the economy.

New and existing home sales in March were down by 13.5 percent from their peak nearly a year ago.

Economists say the nearly 1 percentage point jump in 30-year mortgage rates spurred by Federal Reserve policy over the past year has combined with fast-rising home prices to make housing less affordable for the average consumer, who continues to be pinched by limited wage gains and impaired access to credit. Moreover, first-time home-buyers, a group that plays a pivotal role in propelling housing growth, have been in short supply because of high unemployment rates and bloated student loan debts among the millennial generation.

Hopes that housing would regain momentum this year amid a broader economic recovery have been disappointed. Reports show the housing slump continued, and even deepened, during the normally busy Spring.

There could be further economic trouble on the horizon thanks to the federal government, specifically the Environmental Protection Agency. At least that is what the coal industry is saying.

The Environmental Protection Agency’s carbon dioxide limits for new power plants will devastate the economy by leading to a steep surge in energy prices, the coal industry and its allies are warning.

The American Coal Council said the new standards would essentially take coal off the market as a power source for new plants.

Separately, the Chamber of Commerce said the rules would have an effect well beyond the coal industry by leading to job losses in the broader economy.

The new rules, which the EPA plans to roll out in January 2015, are a key part of President Obama’s climate change initiative and are intended to reduce global warming.

Speaking of higher prices, many Americans realize the cost of living is in fact rising substantially, despite the fact it isn’t reflected in official government statistics.

The rising cost of living is visible in items like food, energy, housing and, of course, health care. It’s also in less visible items, such as contracts to service air conditioners, heating systems and motor vehicles. Not to mention in income taxes, property taxes, water bills, etc.

The market basket of goods and services used in government inflation surveys does not adequately capture buying patterns.

Finally, in Europe, banks are undergoing one of those so-called “stress tests” and even before the test concludes, things don’t seem to be going well.

European banks are being urged to boost their ability to withstand losses before the conclusion of the stress test that is drawing criticism for its design.

The European Central Bank is leading the charge to prove the region’s banks are robust before it takes over financial supervision in November, and has squeezed an unprecedented Asset Quality Review and a stress-test into its year of preparation. That pressure has led to some disquiet about the compromises needed to get the job done on time.

Some banks may have difficulty passing the adverse stress-test scenario, which was unveiled by the European Banking Authority and ECB last month. The model simulates turmoil that starts in a global bond-market rout.

Gold prices end lower as bulls struggle to gain momentum. U.S. stocks end choppy session higher, Dow hits record close. Gold last traded at $1,287 an ounce. Silver at $19.19 an ounce.

Overseas news is dominating the headlines today as we head into the weekend.

European shares were down across the board overnight as tensions are ripe to heat up again in Ukraine.

There will be a referendum of pro-Russian Ukrainians this weekend, despite Russian President Vladimir Putin calling for it to be postponed. This is almost sure to raise tensions.

Putin has also ramped up his inflammatory rhetoric.

Putin visited the Crimean city of Sevastopol on Friday to celebrate Victory Day, which is a Russian celebration of victory in World War II. During the visit, Putin said Russia had become stronger with the addition of Crimea.

“I am sure that 2014 will go into the annals of our whole country as the year when the nations living here firmly decided to be together with Russia, affirming fidelity to the historical truth and the memory of our ancestors,” Putin said in a brief speech.

That certainly doesn’t bode well for Ukraine.

Putin’s speech in Crimea came as Ukrainian interior minister, Arsen Avakov, said security forces had killed around 20 pro-Russian rebels in Mariupol, in what looks to be a significant move by Kiev in an attempt to end the insurgency in the east of the country.

Russia’s actions have resulted in economic sanctions from the US and Europe, but other nations are not going along with the sanctions. In fact, some are using them as an excuse to establish closer ties to Russia.

Top officials from China and Russia met yesterday in Beijing to prepare for a visit by Putin to China next week.

China is currently Russia’s fourth largest source of foreign direct investment.

The two countries appear to be taking direct aim at the US dollar.

“Financial cooperation between China and Russia is growing as local currency settlement in two-way trade increases and consultations on a package of currency swaps are on-going,” said Chinese Vice Premier Zhang Gaoli.

This would remove the necessity for transactions to be settled in two foreign exchange trades via the US dollar.

Beijing is keen on substituting the US dollar with the yuan in all of China’s trade with other countries. The Chinese currency now trades directly with the Japanese yen, the Australian dollar, the Brazilian real, the EU’s euro, the New Zealand dollar and many other currencies.

The news out of China is not all good for the Chinese though. There are growing fears about a wave of bad debt in China and no one trusts the Chinese government figures, so no one really knows how severe the problem might turn out to be.

The combination of a massive, five-year expansion in credit, with the recent economic slowdown in China, has many worried about China’s bad-loan levels.

China’s reported nonperforming-loan ratio is only 1 percent.

The real situation is probably far scarier, says a new report released May 8 by consultancy Oxford Economics. More likely, China’s bad-debt ratio is somewhere between 10 percent and 20 percent, amounting to 6 trillion to 12 trillion yuan ($1 trillion to $1.9 trillion).

If indeed China’s bad-debt ratio is now in the 10 percent to 20 percent range, that has alarming ramifications. Non-performing loans on such a scale could be the trigger for a serious banking crisis in China, with major regional and global economic implications.

Back here in the United States, U.S. employers advertised slightly fewer jobs and slowed hiring a bit in March. The Labor Department reported today that employers posted 4 million jobs in March, down 2.7 percent from February. Total hiring, meanwhile, dipped 1.6 percent to 4.63 million in March. That’s below the 5 million monthly hires typical for a healthy job market.

On the stock market front, the American Association of Individual Investors survey for the week ending May 7th showed 28.3% ‘bulls,’ 28.7% ‘bears’ and a whopping 43% of respondants ‘neutral.’ It’s the highest level of neutrality in more than 10 years.

History suggests a sharp move follows peaks in neutral sentiment. However, historical analysis doesn’t give a clear sign as to which direction that sharp move will take. Given the current stock market has gone well over 5 years without a bear episode, which is historically very long, prudent investors should be on the lookout for a fall.

Great opportunities exist in the gold market, at least according to one of this generation’s most esteemed investors. Famed commodity investor Jim Rogers says he sees a great buying opportunity developing for gold in the next year.

Gold prices ended lower on better-than-expected jobless claims. U.S. stocks ended volatile session with modest losses. Gold last traded at $1,287 an ounce. Silver at $19.14 an ounce.

Central bankers are once again in the news today.

In Europe, the European Central Bank (ECB) announced today that it is poised to cut interest rates or adopt radical measures next month to stimulate the European economy.

Unemployment remains stuck just below its record level of 12%, zapping consumer demand. The euro is trading near its recent peak above $1.39, making life harder for European exporters and exerting more downward pressure on prices as imports become cheaper. So, naturally, the ECB is going to undermine its value, which seems to be the standard practice for central banks. This will result in higher gold prices in terms of euros and higher demand for gold as well.

To make matters worse, there are early signs that the meltdown in Russia’s economy is starting to hurt some of Europe’s big companies. Any escalation in the conflict in eastern Ukraine could hit business and household confidence.

That crisis contains significant risks for Europe, and the region would feel the impact more than other parts of the world if it escalates.

When it comes to geopolitics, don’t listen to what world leaders say, watch what they do. Amidst all the talk, Putin oversaw a military exercise involving Russia’s nuclear forces and a Russian aircraft carrier task group sailed into the English Channel.

The other central banker in the news is US Fed chair Janet Yellen, who has been spending a lot of time on Capitol Hill lately.

Two statements by Yellen are cause for concern.

Responding to a question from socialist Senator Bernie Sanders, Yellen said she didn’t know whether America was still a capitalist democracy or an oligarchy in which economic and political power rests with a billionaire class.

Additionally, citing the Congressional Budget Office’s long-term budget projections, she told the Joint Economic Committee of Congress that under current policies the federal government’s deficits “will rise to unsustainable levels.”

What she meant by “unsustainable” was left unsaid, as were the economic and political consequences.

In the 10-year budget projections it released in April, the CBO estimated the federal government will run $7.618 trillion in deficits from 2015 through 2024. At the same time, the CBO projected the federal government’s debt held by the public would rise from $11.983 trillion at the end of fiscal 2013 to $20.947 trillion by the end of 2024.

The total debt of the federal government at the end of fiscal 2013–including both the debt held by the public and the intragovernmental debt–was $16.719 trillion. The CBO estimates by 2024, the total debt of the federal government will be $27.159 trillion—of which $20.947 trillion will be debt held by the public.

If that projection holds up, the federal debt held by the public in 2024 would be more than four times the $5.035 trillion federal debt held by the public at the end of 2007.

Finally, a leading market prognosticator expressed worries this week about the possibility of a new, severe financial crisis.

Marc Faber, publisher of The Gloom, Boom & Doom Report, says he believes the 2008 financial crisis could be just a precursor to a more severe economic fallout on the horizon.

As a percentage of the advanced economies, total credit—including corporate, government and consumer debt—is 30 percent higher than it was in 2007, Faber said. “I don’t think the economy is recovering at all. We have in the American economy a slowdown.”

Under that scenario, “stocks in the advanced economies are basically fully priced,” he argued, and said government bonds are expensive, given their low yields.

He also cited the crisis in Ukraine among the geopolitical problems that serve as a negative for the financial markets.

Faber said he expects the selling in the momentum names to spread to the broader U.S. stock market. He predicted a correction later this year.

While Democrats are cheering the April Jobs report and pushing the
headline ‘unemployment fell to 6.3%’, Swiss America Chairman Craig
R. Smith says we must not overlook the 806,000 Americans
who fell out of the workforce last month, the highest number
since 1978. “This report may play well politically, but it is doing
nothing to help the economy,” says Smith. He feels strongly the
U.S. Q1 GDP number of .1% growth is a harbinger of bad things
ahead. Charlie Gasparino feels we’re just “one major shock away
from falling back into recession.” Gary Smith said he feels government
unemployment figures are a “propaganda number” and agrees we’re one
“government-mandated program away from recession.”

How do we fix it? According to Smith, We must, 1) abandon the notion of command-control
economy, 2) Stop the Fed, who is making things worse by piling on
more debt, 3) Break up the big banks which are now bigger now than before the 2008 crisis.

Western Nations’ Debt at 200-Year High

Governments Considering “Desperate Measures”

4.29.14 – A gigantic surprise tax is coming, warns a highly regarded financial author.

debt It could be sprung without warning on an unsuspecting America this year, either before or after the November elections, and could confiscate anywhere from 10 percent to more than 80 percent of a person’s savings – depending on how much money you have.

“The signs that this could soon happen are all around us,” says Lowell Ponte, whose fifth book co-authored with monetary expert Craig R. Smith – titled “Don’t Bank on It” – will be published this summer.

“Prominent economists at the International Monetary Fund (IMF) now advocate at least one round of massive surprise taxation on the wealthy,” writes Ponte in his April 29 column at Newsmax.com.

A huge “Savings Tax” was proposed last December in an IMF paper by influential Harvard economists Carmen Reinhart and Kenneth Rogoff.

“And now such a giant tax on the world’s wealthy is being advocated by the latest darling of the American Left, French neo-Marxist economist Thomas Piketty [pronounced PEEK-et-tee] in his new best-seller ‘Capital in the 21st Century,’” says Ponte.

Think you are safe from such an international seizure of the savings of the wealthy? You probably are not, writes Ponte, because “Any American earning $37,000 a year is among the top one percent of income earners on this planet.”

“Ask not for whom such ‘confiscatory tax’ (Piketty’s term) tolls,” says Ponte. “It tolls for thee.”

Western nations now face the highest debt in 200 years, and politicians are considering “desperate measures” to grab more money from a minority of wealthy people, says Ponte. Their proposed banking tax can only work if it takes people – and their bank accounts – by surprise, without any warning that would prompt them to withdraw their funds.

Ponte and Smith in their forthcoming book Don’t Bank On It – part of which is available as a free White Paper – explores the 19 surprising risks to American bank accounts.

Their book concludes that today it is simply “irrational and foolish” to keep your life savings in a bank account that now pays little or no interest but is exposed to 19 huge risks, including the coming taxes on savings accounts of the wealthy.

To schedule interviews with Smith or Ponte, contact Bronwin Barilla at 800-950-2428 or email at bkbarilla@greatwithdrawal.com.

SOURCES:

Lowell Ponte, “French Economist Advocates Hefty Taxes,” Newsmax, April 29, 2014 (See text below).

Tyler Cowen, “Capital Punishment: Why a Global Tax on Wealth Won’t End Inequality,” Foreign Affairs, May/June 2014. URL: http://www.foreignaffairs.com/articles/141218/tyler-cowen/capital-punishment

Tim Worstall, “Why Thomas Piketty’s Global Wealth Tax Won’t Work,” Forbes, March 30, 2014. URL: http://www.forbes.com/sites/timworstall/2014/03/30/why-thomas-pikettys-global-wealth-tax-wont-work/

Bill Frezza, “The International Monetary Fund Lays The Groundwork For Global Wealth Confiscation,” Forbes, October 15, 2013. URL: http://www.forbes.com/sites/billfrezza/2013/10/15/the-international-monetary-fund-lays-the-groundwork-for-global-wealth-confiscation/

Gold prices fall sharply lower on a rise in consumer spending and income. U.S. stocks ended generally lower after three days of gains as jobless claims unexpectedly rose. Gold last traded at $1,283 an ounce. Silver at $19.04 an ounce.

There are fresh indications the price of gold is set to move higher. Meanwhile, technical analysis suggests we are on the cusp of a 20% correction in the stock market. Additionally, there was yet another disappointing jobs report put out today.

Gold has been one of the better performing assets year to date and has risen in value in 12 out of the past 13 years. Even so, it remains extraordinarily undervalued if we look at many historical metrics.

For instance gold is at the lowest price it has been, if we compare the value of the U. S. gold stockpile to the Federal Reserve’s monetary base. This means that, hypothetically, if the U. S. were to back the dollar with gold, we would have to see a tremendous appreciation in the gold price in order for such a system to function smoothly.

We are finding more and more that foreigners are less willing to hold dollars and are increasingly swapping these dollars, and dollar-denominated assets, for gold.

We saw extremely strong buying from the Chinese at the $1,200/ounce level. Now we are seeing buyers come in whenever we see downward price action towards that level.

Foreigners, especially in the East, want gold. We have seen tremendous central bank buying from Turkey, Russia and Kazakhstan over the past few years, and this buying goes unabated. While there is no official report of the People’s Bank of China buying, many gold market analysts believe that the PBoC has been the world’s largest buyer and that its officials are afraid to announce the bank’s official holdings because of the effect it will have on the gold price.

There are other forces supporting higher gold prices as well. Mining companies are having a very difficult time producing gold profitably at $1,300/ounce. While most large gold producers are announcing they can produce the yellow metal at $1,000 – $1,100/ounce. When all is said and done, most of these companies have razor thin margins with the current gold price. Many companies were forced to reduce their gold reserve estimates, meaning they now have less in-ground gold they can mine profitably.

If the gold price remains low, it is possible more such action will be taken. More mines may shut down and this will reduce global supply.

With supply declining and demand rising, the price must rise. Now that we are consolidating the gains from the beginning part of the year, some of the larger buyers will begin to push prices higher.

The outlook from technical analysts for the US stock market isn’t nearly so bright.

Despite the Dow Jones industrial average reaching a new record high, Richard Ross, global technical strategist at Auerbach Grayson, says certain technical indicators are calling for a serious correction.

“I’m going to be completely clear here: I’m quite bearish and I think the market’s going significantly lower,” said Ross.

Ross sees a big problem with the S&P 500’s chart—a 20 percent problem to be exact. In 2011, the index corrected by about that much to its 150-week moving average after making moves very similar to its most recent price action.

“I think that we’re in exactly the same scenario,” said Ross, who notes that a similar decline to the current 150-week moving average would also be roughly 20 percent to around the 1,500 level. “I think that’s what we’re staring at right here.”

The economy may not be supportive of a continued bull market in stocks either. The number of Americans filing new claims for unemployment benefits unexpectedly rose last week. This is yet another statistic in a parade of such statistics on the jobs market over the past few months.

Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 344,000 for the week ended April 26, the Labor Department reported today. That was the highest level since February.

Economists had forecast first-time applications for jobless benefits falling to 319,000.

Gold prices flat after weaker-than-expected consumer confidence data. U.S. stocks higher, house prices flat in February. Gold last traded at $1,299 an ounce. Silver at $19.53 an ounce.

There are more signs today of economic trouble in the US and overseas as well as evidence of the decline in the purchasing power of the US dollar over the long-term.

Two weeks ago we reported Gallup had conducted a survey that indicated Americans viewed real estate as the best investment category. Since then, we’ve seen multiple negative reports from the real estate market and today is no exception.

Home prices cooled off in February, according to the S&P/Case-Shiller home price index. Prices were relatively unchanged compared to January. Overall, the housing market isn’t doing much to drive an economic recovery and most economists maintain real estate must form a key component of any true economic recovery.

“Five years into the recovery from the recession, the economy will need to look to gains in consumer spending and business investment more than housing,” said David Blitzer, spokesman for S&P. “Long overdue activity in residential construction would be welcome, but is certainly not assured.”

“Sales of both new and existing homes are flat to down,” said Blitzer. “The recovery in housing starts is faltering. Home prices nationally have not made it back to 2005 levels.”

Long-term trends are no more encouraging.

The home ownership rate in the U.S. has declined to the lowest in almost 19 years as rising property prices and mortgage rates have held back demand.

The share of Americans who own their homes was 64.8 percent in the first quarter, down from 65.2 percent in the previous three months, the Census Bureau said in a report today. The rate is the lowest since the second quarter of 1995, when it was 64.7 percent.

One of the reasons for the weakness in real estate has been the disappointing employment picture – both persistently high unemployment and underemployment.

In 20 percent of American families in 2013, not one member of the family worked; according to new data released by the Bureau of Labor Statistics (BLS).

A family, as defined by the BLS, is a group of two or more people who live together and who are related by birth, adoption or marriage. In 2013, there were 80,445,000 families in the United States and in 16,127,000 (or 20 percent), no one had a job.

The BLS designates a person as “employed” if “during the survey reference week” they “(a) did any work at all as paid employees; (b) worked in their own business, profession, or on their own farm; (c) or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family.” Members of the 16,127,000 families in which no one held jobs could have been either unemployed or not in the labor force. BLS designates a person as unemployed if they did not have a job but were actively seeking one. BLS designates someone as not in the labor force if they did not have a job and were not actively seeking one. (An elderly couple, in which both the husband and wife are retired, would count as a family in which no one held a job.)

Of the 80,445,000 families in the United States in 2013, there were 7,685,000 – or about 9.6 percent – in which at least one family member unemployed.

Fresh concerns about the job market are pushing down consumer confidence.

Americans grew concerned in April that jobs have become more difficult to land, prompting an unexpected drop in confidence. The Conference Board’s sentiment index decreased to 82.3 from 83.9 a month earlier.

For those who are working, a long-term statistic culled from data released by the Census Bureau paints a stark picture of the declining purchasing power of the dollar in the hands of America’s breadwinners. The real median income of American men who work full-time, year-round peaked forty years ago in 1973. In that year, median earnings for men who worked full-time, year-round were $51,670 in inflation-adjusted 2012 dollars. The median earnings of men who work full-time year-round have never been that high again. In 2012, the latest year for which the Census Bureau has published an estimate, the real median earnings of men who worked full-time, year-round was $49,398. That was $2,272 below the peak median earnings of $51,670 in 1973.

The US is not the only country with employment problems. In fact, some European nations are in an outright depression based on unemployment figures. One such nation is Spain, where the unemployment rate just hit 26%.

The implosion of a decade-long property bubble in 2008 flooded the country in debt, tipped the economy into a double-dip recession and wiped out millions of jobs.

Economists had been hopeful Spain’s economy was recovering, but the latest unemployment figures suggest the economy is still in deep trouble which, in turn, clearly means the European Union economy is vulnerable to a renewed financial crisis, especially with tensions in Ukraine flaring up.

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