Reported yesterday, the GDP of 1.2 percent annualized growth for the quarter April through June was far below the 2.5 percent predicted by economists. In this post, I’m going to share a couple of articles (links) from yesterday written in response to the lowly GDP number, articles that don’t paint a rosy picture of what may lie ahead. While I try to follow the economic data and achieve a balanced perspective, as a stock investor in this current environment I remain very risk averse and watchful-eyed, especially with the stock market indices setting records after almost 7 years of market strength following the March 2009 lows in major indices.
First, go here to see what Jeffrey Gundlach, founder of an investment firm called Doubleline Capital has to say. Then go here to see what a chief global currency strategist at Morgan Stanley has to say about near-term prospects for the dollar.
Gold jumped significantly again this past week, with a big move up on Friday, probably driven by the GDP result. Over the years I’ve applied my CSW strategy, there have been times I’ve been less invested in stocks and more in cash when it has seemed prudent to do so. Earlier this year, for the first time in many years, I added to my portfolio a couple of cheap, but value-rich (based on my balance sheet methodology) gold and silver stocks and they have done real well. Even so, with commodity companies like gold/silver, the future for related stocks is highly dependent on the pricing of the gold and silver metals. And there’s always going to be uncertainty about future pricing of such commodities.
Yet, it does seem a “different” sort of situation at the moment where great uncertainty exists over what role the Fed can and should play for the foreseeable future given the very erratic economic data we have been witnessing for several months now. Add to this Brexit and related global concerns, and maybe including some sort of safe haven stock investments like gold and silver makes some sense at a time like this.
Have a great weekend and next week, friends.
It will take a thick book to analyze the Fed’s actions during the past seven years. I have expected high inflation for the last five or more. Inflation is raging in the stock market, one of the few places the Federal Government cannot hide it. It can manipulate it in other indices, and have done so dramatically, e.g. I am dependent on insulin to control diabetes. The cost has doubled in the past year. Ironical, since the SSA has denied a cost of living increase to “insurance” recipients for the past three or four years — and medicare, under SSA administration,is one of the most aggressive price raisers.*
The most frightening thing about the situation is that when the crash comes, the Federales will rush in with a flood of laws and programs to fix it. (Probably Sharia law if the wrong person is elected in November.) Pessimistic is not the word for my mood. I pray every day for another Calvin Coolidge. (Unfortunately, the Federal Reserve Bank tried to cool the booming 1920’s stock market and caused Franklin Roosevelt.)
The Federal Reserve cannot raise interest rates. The Treasury could not borrow enough to pay the interest. That is another thing. When will the world wake up and refuse to buy U.S. debt securities?
* the regular price of the pharmaceutical company increased from $900 to $1000 for the amount I get, almost all of the increase passed on to Medicare members. (Info from Express Scripts, so take it with ample skepticism.)
“It will take a thick book to analyze the Fed’s actions during the past 7 years.”
James, that statement is a humdinger. You won’t get an argument from me on that. Your comment about seeing inflation in the stock market is surely defensible, I believe. I’ve often considered that the inflated money supply from continuous printing of new paper has indeed weakened the buying power of the dollar. When we think of inflation in the traditional sense, we think of rising wages and a booming economy where demand for goods and services overwhelms supply such that prices rise. Yet, we don’t seen that scenario. During the stock market increases, we have not witnessed a booming economy in that traditional sense. Yet prices for many goods and services are rising as you point out. So if elevated demand is not causing the price rises, what is the explanation? I believe it is again an inflated money supply that has caused it to take more and more dollars to buy the same goods or services as time passes.
Thanks for your comment!