Labor Market Struggles To Gain Momentum

Gold prices end lower on upbeat U.S economic data and safe-haven appeal. U.S. stocks higher as traders cheered upbeat earnings reports. Gold last traded at $1,293 an ounce. Silver at $19.60 an ounce.

Weekly jobless claims have risen yet again, but the cheerleaders on Wall Street and in the so-called mainstream media still insist on trying to put lipstick on this pig of an economy.

Claims rose to a seasonally adjusted 304,000 last week, an increase of 2,000 from the previous week’s revised level.

Government, particularly the Federal Reserve, is taking credit for what it says is an improving economy and a better employment situation. Other, unbiased, observers are not so sure.

Lindsey Piegza, chief economist for Sterne Agee, says she doesn’t see momentum building in the labor market. If frigid weather alone could explain the disappointing batch of employment reports from over the winter, then the economy would have seen a bigger bounce as companies played catch-up with their hiring, Piegza said. The economy would have added more jobs than the 192,000 jobs created in March, she said.

“Taken together, the labor market is losing momentum from the start of 2013 and it’s really not painting an encouraging picture for the next 12 or 24 months,” Piegza said.

John Ryding, the chief economist for RDQ Economics, questions whether monetary policy can truly spur more hiring.

Manipulation of interest rates and the dollar by central bankers cannot take the place of sound, underlying economic fundamentals and those just don’t appear to be in place. That’s why, for months now, we have kept seeing disappointing economic reports and statistics. Meanwhile, the Fed keeps telling us everything is looking brighter. But most Americans don’t see any evidence of this claim.

For those who are currently employed, the government-sponsored Ponzi schemes known as “entitlement programs,” have placed a huge, unsustainable burden on their shoulders. The latest census report shows that 86 million full-time workers are sustaining 148 million benefits recipients. Eventually, there will be too few carrying too many and the economic implications of that reality are something the policymakers in Washington refuse to recognize or address.

In other financial market news, hedge funds posted their worst first-quarter results since 2008, according to financial data service Preqin, whose “All Hedge Fund Strategies” index shows a gain of 1.2 percent since the start of the year. That compares poorly to many other categories of investments, including gold, which was up some 8% during the first quarter.

The Chinese understand the value of gold and that’s why Chinese demand for gold, both from investors and the Chinese government, has been skyrocketing.

As we have previously reported, this trend is expected to continue, with Chinese gold demand slated to rise another 20% to 25% by 2017. One reason for official Chinese demand for gold is the desire to supplant and eventually replace the US dollar as a medium of exchange and reserve asset.

The combination of rising demand for gold and the inevitable devaluation of the dollar has tremendous implications for those who choose to hold gold and those who choose to hold dollars. Gold, priced in dollars, will see its value increase as the value of the dollar continues its fall over the long-term.

NOTE: Swiss America Trading will be closed tomorrow (April 18) in observance of Good Friday. We hope you and yours have a blessed Easter! Check back Monday for the latest market news.

The Global Economy Is Struggling

Gold prices end slightly lower on weak data from China and Europe. U.S. dollar higher on emerging market concerns. Gold last traded at $1,316 an ounce. Silver at $21.68 an ounce.

Despite what you might be hearing from the so-called, mainstream financial press, there is mounting evidence the global economy is on shaky ground.

The first indication comes from yet another disappointing employment report in the US. Applications for unemployment benefits fell slightly in the second week of February but the level of claims appeared to signal little improvement in the U.S. labor market. Initial jobless claims dropped by 3,000 to a seasonally adjusted 336,000 in the seven days ended Feb. 15, the Labor Department reported this morning. The average of new claims over the past month, usually a more reliable gauge than the erratic weekly number, rose by 1,750 to 338,500.

Meanwhile, the government said continuing jobless claims increased by 37,000 to a seasonally adjusted 2.98 million in the week ended Feb. 8. Continuing claims are reported with a one-week delay and reflect the number of people already receiving benefits.

The second indication involves the Philadelphia Manufacturing Index, a widely watched gauge of industry activity in the US put out by the Philadelphia Federal Reserve Bank. This index has taken a big dive thus far in February, sinking to negative 6.3 from 9.4 in January. This is the weakest reading since February 2013 and the first negative reading since last May. Economists had expected a 7.3 reading. Any number below zero indicates contraction.

But indications of economic trouble are not limited to the US.

China’s vast factory sector contracted over the past month and a widely anticipated acceleration in euro zone business activity failed to materialize, highlighting the fragile state of the global economy. A similar survey out of China reinforced concerns of a minor slowdown in the world’s second biggest economy.

The flash Chinese Markit/HSBC PMI (a manufacturing activity index) fell to a seven-month low of 48.3 in February, although some analysts cautioned against reading too much into the report, noting it was a shorter-than-usual snapshot. Anything below 50 in this index indicates a contraction.

Markit’s Eurozone Composite PMI, another manufacturing index, dipped to 52.7 indicating an increasingly fragile recovery. The overall index masked news France is lagging far behind its European peers, pouring cold water on hopes for a recovery gaining momentum in that country.

Is it any wonder investors around the world are increasingly turning to gold?

Stocks can’t hold up indefinitely under the weight of poor underlying economic fundamentals. Gold, on the other hand, is an asset in its own right. It has historically moved independently of stocks and has proven a hedge against economic crisis and uncertainty, which erode the value of paper assets and currencies.

1.30.14 – Fed Announces It Will Continue To “Taper”

Gold prices fall nearly 2% on higher U.S. dollar, equities gain. U.S. jobless claims jump 19,000 to 348,000. Gold last traded at $1,242 an ounce. Silver at $19.13 an ounce.

The Ben Bernanke era comes to a close tomorrow at the Federal Reserve and the Fed commemorated the event by announcing it would continue to “taper” its bond buying program in February by reducing bond purchases from $75 billion in January to $65 billion.

The Fed justified this decision by citing improved economic conditions, particularly improvements in the unemployment rate.

This is curious because the economic data in recent months has been mixed at best and the employment picture has been masked by steep declines in the labor participation rate to previously unheard of levels .

Of course, this assumes the Fed’s monetary “stimulus” can boost the economy in the first place, a dubious assumption to be sure.

Just this morning, there was yet more evidence of economic stagnation.

The number of people who sought U.S. unemployment benefits near the end of January rose to the highest level in six weeks. In the seven days ended Jan. 25, initial jobless claims jumped by 19,000 to a seasonally adjusted 348,000, the Labor Department said this morning . Economists had generally expected claims to edge up to 330,000.

Consumer confidence dropped last week to the lowest level in two months. The Bloomberg Consumer Comfort Index declined to minus 31.8 in the week ended Jan. 26 from minus 31 reading the prior period. The buying-climate gauge slumped to a three-month low. Retreating stock prices are probably damping sentiment among upper-income groups, while higher gasoline costs at the pump hurt the nation’s lowest earners.

Barring a large rally in the stock market today and tomorrow, the S&P 500 will be down for the month of January, an early warning sign that usually means further weakness ahead.

This will be the first January loss since 2009, and the largest monthly decrease in eight months.

The January barometer has been right in 62 of the last 85 years, or 73 percent of the time. Since 1929, the index followed January’s direction 80 percent of the time when it finished positive, and 60 percent of the time, when it finished negative.

More recently, in the past 35 years, the S&P 500 followed January’s direction 25 times, or 71 percent of the time (83 percent of the time for the Dow, and 74 percent of the time for the NASDAQ).

Volatility as measured by the VIX, is up 26 percent this month. Since the VIX was launched in 1986, there have only been three instances when the so called fear gauge gained over 15 percent in January.

In two of those times, the S&P ended the year down more than 5 percent. The other year, 1987, the market crashed in October, but managed to close positive.

While January is only one of 12 months of the year, history shows it tended to predict the year’s direction quite accurately. Meanwhile, another expert is forecasting higher gold prices in the medium and longer term. Lawrence Roulston of the Resource Opportunities newsletter had this to say about the value of gold to investors:

“Gold is headed higher in the medium term and the long term. There will still be a lot of volatility at play during the short term, but gold will continue its uptrend of the last 13 years. Gold is always going to have an intrinsic value. Think about the big selloff in paper gold last year. People were lining up to buy physical gold as investors were dumping exchange-traded funds and paper gold on the market. But central banks are still net buyers of gold. China is emerging as the biggest buyer at both the consumer and the central bank level. Gold has been the mainstay of financial systems for more than 5,000 years!”