Month: June 2023

Authored by Peter Reagan via Birch Gold Group,

Two years ago, we referenced various reports about Americans’ savings (consumer and retirement), reporting that they had dropped to the lowest point in years.

Unfortunately, things haven’t improved much since then.

We just discussed the state of consumer debt, and it isn’t very good at all, reaching a record $17 trillion.

Since the economy is primarily driven by consumer spending (currently 68% of GDP), if American households are tapped out and buried in debt, the stage is set for an economic disaster.

So today we’re going to explore the current state of the typical American household’s finances, and extrapolate the future consequences for the entire economy.

Overall American financial wellbeing “declined markedly”

A recent report published by the Federal Reserve examined the Economic Wellbeing of Households in 2022. Unfortunately, households aren’t doing very well at all, according to the information in the 85-page report.

I won’t bore you with the entire thing. Instead, we’ll take a look at the main culprits straight from the report’s summary:

Results… indicate a decline in peoples’ financial well-being over the previous year.

…self-reported financial well-being fell sharply and was among the lowest observed since 2016. Similarly, the share of adults who said that they spent less than their income in the month before the survey fell in 2022 from the prior year, while the share who said that their credit card debt increased rose. Among adults who were not retired, the survey also showed a decline in the share who felt that their retirement savings plan was on track, suggesting that individuals had concerns about their future financial security.

As you might expect, inflation’s impact on adults in the U.S. has been pretty severe since it moved from “transitory” to a seemingly permanent fixture over the last two years.

The Hill offered this pithy summary of the summary:

Americans’ financial well-being “declined markedly” between 2021 and 2022…

Fifty-four percent of adults said their budgets had been affected “a lot” by increased prices in the U.S.

In fact, 75% more Americans are worse off today than they were the year Biden took office:

via Federal Reserve’s Economic Well-Being of U.S. Households in 2022 report

All politicians, especially those in the Biden administration, are notoriously bad at anticipating the ripple effects of their “solutions” to problems like pandemics and inflation.

Their response to emergencies has left us worse off.

And, speaking of emergencies…

Most Americans can’t afford an emergency

When an emergency happens, the consequences could be dire, especially if you aren’t financially equipped to handle it.

But you already know this! I truly appreciate that my readers are mostly well-informed, financially-savvy individuals who are well aware of the importance of expecting the unexpected. Who wouldn’t need to call up a bachelor uncle and beg for a loan to cover, oh, a trip to the ER, or having their brake pads replaced.

Most Americans are different.

For most people, ever since the stimmie checks dried up, they’ve lost the resilience to handle even a minor financial emergency.

Specifically:

• 1 out of every 3 adults can’t cover a $400 emergency expense

• Barely half of Americans have three months of emergency savings

(Yes, both categories have grown significantly in the last year last year.)

Wolf Richter delved deeper, and broke down just how severe a financial emergency that people could handle. The results were eye-opening:

What is the largest emergency expense individuals could handle right now using only “savings,” as opposed to borrowing or selling assets? These are the results:

– 46% could handle $2,000 or more
– 11% could handle $1,000 to $1,999
– 11% could handle $500 to $999
– 14% could handle $100 to $499
– 18% could handle less than $100

In other words, more than half of Americans couldn’t pay for a visit to the emergency room (average cost $2,200) without resorting to loans or possibly having a yard sale…

And let’s remember, as we recently discussed, consumer debt is already at an all-time high.

Consumer spending, the redlined engine driving economic growth over the last two years, is simply out of gas. Running on fumes.

That’s obviously bad for the families who find themselves in increasingly-difficult financial situations.

The point I want you to understand is it’s also bad for everyone else, too.

And, as we’ve seen, the White House and Federal Reserve’s attempts to make things better all too often backfire.

Fortunately, there are a few things we can do to increase our resilience during tough economic times…

Diversifying your “money of last resort”

Ideally, your emergency fund is:

1. Ample: big enough to cover three months’ worth of your expenses

2. Liquid: easily converted to ready cash

3. Stable: with a historical track record of holding its value

4. Inflation-resistant: doesn’t decline in purchasing power month after month

The first is up to you.

The second is pretty obvious – and also why we generally don’t consider things like a rental property or part ownership of a small business as “emergency funds.” These assets do have value, but realizing that value (selling them) is complex and time-consuming.

The third, well, obviously you don’t need the hassle of checking the balance of your emergency fund every month. Unfortunately, volatility – the opposite of stability – is a feature of most financial assets.

The fourth (really a subset of the third) raises the bar even higher. Why would anyone want to keep their emergency fund in a savings account yielding 0.25% when inflation is officially at 4.9%?

Fortunately, there’s an asset that meets these criteria: physical precious metals.

Diversifying your savings (yes, even your emergency fund) with physical precious metals can give you a highly liquid, stable and inflation-resistant asset you can rely on whether the economy is in the throes of a deep recession or not.

I think Ray Dalio said it best in his Principles for Dealing with the Changing World Order:

There is an old saying that “gold is the only financial asset that isn’t someone else’s liability.” When you receive gold coins from a buyer, you can melt them down and exchange the metal and still receive almost the same value as if you had spent them, unlike a debt asset like paper money, which is a promise to deliver value (which isn’t much of a promise, given how easy it is to print). When countries are at war and there is no trust in their intentions or abilities to pay, they can still pay in gold. So gold (and, to a lesser extent, silver) can be used as both a safe medium of exchange and a safe storehold of wealth.

Learn more about the benefits of investing in precious metals here. When you’re ready to diversify your savings, Birch Gold can help – get started here.

Authored by Alex Wu via The Epoch Times,

China has resumed COVID-19 PCR testing in Beijing and Shandong Province amid rising re-infections, while the regime’s top health advisers have warned of a new wave of mass infections.

Since May 29, mainland netizens have posted on Chinese social media platforms that PCR test kiosks in Beijing are quietly back in business.

Mainland media “City Interactive,” a subsidiary of Zhejiang “City Express,” reported on May 30 that one of the PCR testing booths that netizens posted about was in Beijing’s Xicheng District, where the central government and the Beijing municipal government are located.

The staff of that testing kiosk said that the PCR test there has never stopped, reported “City Interactive”, without being clear how long it had been open.

“We have been doing nucleic acid testing in Xicheng District, but I’m not sure about other districts in Beijing,” a staff member said.

The staff member said the laboratory she works for is mainly responsible for nucleic acid testing within Xicheng District. Currently, there are more than ten testing points outdoors, and one person is on duty for each booth from 9:00 am to 5:00 pm.

Residents get swabbed during mass COVID-19 testing in the Chaoyang District in Beijing on June 14, 2022. (Andy Wong/AP Photo)

A testing kiosk in Chaoyang District, Beijing’s central business district, has been operating since March, reported “City Interactive.” The testing booth staff said it is in the health center near Jinsong Middle Street.

Ms. Wang, a Beijing resident, told The Epoch Times on May 28 that some people have taken the PRC test while others have chosen not to.

She said many people around her, including her child, have already re-infected twice.

“This time, the symptoms seem to include a high fever and then sore throat, very painful,” she said.

“Most people are just resting at home now. Seeing a doctor is very expensive, and now many medicines are paid for by ourselves.”

Gao Yu, a former senior media person in Beijing, confirmed what Wang said. She told The Epoch Times that the relatives around her have been re-infected two or three times, and most are just resting it off at home.

Shandong Resumes Testing

PCR testing booths in Qingdao City, Shandong Province, have also reopened.

A “Peninsula Metropolis Daily” report included a screenshot of an online notice posted by the Laoshan District Health Bureau in Qingdao, which announced that from May 29, the district will conduct COVID-19 PCR testing for “all people who are willing.”

It also listed the working hours of the testing sites, from 7:00 am to 4:00 pm, seven days a week.

Another mainland Chinese media, “Xinmin Evening News,” reported on May 31 that the staff in the district bureau confirmed that the testing has resumed and is for free.

Next Wave

Zhong Nanshan, China’s top respiratory disease specialist, predicted on May 22 that a new wave of COVID-19 infections in China will likely peak in late June when weekly cases could reach 65 million. Then, one Omicron-infected patient will be able to infect more than 30 people,  Zhong said, adding that the infection is difficult to prevent.

A security personnel in a protective suit keeps watch as medical workers attend to patients at the fever department of Tongji Hospital, a major facility for COVID-19 patients in Wuhan, Hubei Province, China, Jan. 1, 2023. (Staff/Reuters)

Chinese citizens across the country have said on social media that infections have been swelling since March.

Zhong also said there had been a small peak in infections at the end of April and early May.

Most COVID-19 infections in mainland China are currently caused by the XBB series mutant strains of Omicron. Among the locally transmitted cases, the percentage of XBB series variants increased to 83.6 percent in early May from 0.2 percent in February.

Zhang Wenhong, China’s top virologist and director of China’s National Center for Infectious Diseases, also warned in late April at a conference that COVID-19 infections would reoccur after six months when immunity gained from prior infections has worn out.

The Atlantic hurricane season officially kicked off on Thursday, and it’s already showing signs of an active start. 

The National Hurricane Center said a tropical depression is churning in the Gulf of Mexico northwest of Ft. Myers, Florida. 

Initially called Invest 91L, the system has since been upgraded to Tropical Depression Two. The latest data shows the storm has maximum sustained winds of 35 mph. If winds exceed 39 mph, it’ll be the first named storm of the season. 

“Recent satellite wind data, along with buoy and ship observations indicate the area of low pressure over the northeastern Gulf of Mexico has a broad but well-defined circulation with maximum sustained winds of about 35 mph,” NHC said Thursday afternoon.

The six-month Atlantic hurricane season ends on Nov. 30. Peak season is around mid-Septmember. 

Earlier this month, NHC forecasters said the first cyclone of the year occurred well before the season even started. A reanalysis of a major winter storm moving up the East Coast in January qualified it as the first tropical cyclone.  

Meanwhile, there’s some good news. Researchers at Colorado State University expect tropical activity to be slightly below average due to El Nino producing upper-level winds that help break apart hurricane formation in the Atlantic. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

Could monetary conditions be supportive of the “soft landing” scenario? While the “recession” versus “no recession” debate rages, there is a precedent for a “soft landing” scenario. Such is where the economy slows substantially but avoids a deeper contraction. However, the problem with that is that it works against the Fed’s mission of bringing down inflation.

In 2011, the world faced a manufacturing shutdown as Japan was shuttered by an undersea earthquake creating a tsunami. The flooding of Japan also sparked a nuclear meltdown. Simultaneously, the U.S. was entrenched in a debt ceiling debate, a debt downgrade, and threats of default. Given the combination of events, the economy’s manufacturing sector contracted, convincing many of an impending recession.

However, as shown, that recession never happened.

The reason such was possible is that the service sector of the U.S. economy kept the economy afloat. Unlike in the past, where manufacturing was a significant component of economic activity, today, services comprise nearly 80% of each dollar spent.

This isn’t the first time we have seen the manufacturing side of the economy contract, but services remained robust enough to keep the overall economy out of recession. The economy similarly avoided a “recession” in 1998, 2011, and 2015.

Another consideration is that the economy has already contracted sharply. A recession would be assured if the economy ran at its previous 2% rate. The difference is the contraction occurred with the economy at nearly 12% due to $5 Trillion in liquidity. The contraction from the peak is as significant as the Pandemic recession and the “Financial Crisis.”

Such will keep inflation above the Fed’s target rate without an economic contraction.

Monetary Conditions Providing Support

There is another problem facing the Fed. In a previous article on why the “Bulls May Not Like The Pivot,” I introduced a composite index that tracks changes to monetary conditions. Monetary conditions tightened significantly in 2022 as the Fed hiked rates and inflation surged from massive tranches of monetary support. 

The “monetary policy conditions index” measures the 2-year Treasury rate, which impacts short-term loans; the 10-year rate, which affects longer-term loans; inflation which impacts the consumer; and the dollar, which impacts foreign consumption. Historically, when the index has reached higher levels, it has preceded economic downturns, recessions, and bear markets. To visualize the correlation, I have inverted the monetary conditions index so that “easier” monetary conditions correspond to rising economic growth.

It is worth noting that the monetary conditions index typically precedes Federal Reserve rate cuts.

Importantly, if the monetary conditions index suggests that economic growth will pick up later this year, such does explain the rally in the stock market since October of last year. As shown, there is a decent correlation between the monetary conditions index and the annual change in the S&P 500.

The reason for the optimism in the stock market is the expectation that earnings will increase over the next. If monetary conditions point to strong economic growth, earnings should follow. Already, Wall Street analysts are boosting earnings expectations for 2023 and 2024.

The problem for the Fed is that higher asset prices ease monetary conditions, which will keep inflation elevated. Such works against the Fed’s goal of slowing economic growth, increasing unemployment, and reducing economic demand.

Working Against The Fed

At the next Fed meeting, the Federal Reserve is widely expected to “pause” on hiking rates. Such was what the Fed alluded to at the last FOMC meeting suggesting the tighter bank lending standards are doing the work of additional rate hikes to slow economic growth. The chart below, which inverts the bank lending standards index, shows that tighter lending standards precede slower economic activity.

As noted above, the monetary conditions index suggests that financial conditions are indeed easing in the economy. Such is problematic for the Fed, which needs the opposite tighter conditions to bring down inflation towards their target rate.

From the market’s perspective, it has been rallying since October, hoping the Fed would pause its rate-hiking campaign and start cutting rates in the latter half of this year. However, the bullish case hinges upon:

• The economy avoiding a recession.

• Employment remains strong, and wages will support consumption

• Corporate profit margins will remain elevated, thereby supporting higher market valuations.

• The Fed will “pause” the tightening campaign as inflation falls.

So far, those supports have allowed investors to chase stock prices higher this year despite higher rates from the Fed. However, there is also a problem with those supports.

If the economy avoids a recession and employment remains strong, the Fed has no reason to cut rates. Yes, the Fed may stop hiking rates, but if the economy is functioning normally and inflation is falling, there is no reason for rate cuts.

However, sustained economic growth and low unemployment will keep inflation elevated, such leaves the Fed little choice but to become more aggressive in tightening monetary accommodation further.

I don’t know who eventually wins this particular tug-of-war, but the Monetary Conditions Index suggests that the Fed’s fight is far from over.

Yesterday we pointed out something stunning (and a big problem for the Biden administration): while the US economy has added 3.3 million jobs from the pre-covid highs (make that 3.8 million after today’s blowout print)…

… all of the new jobs have gone to foreign-born workers, with native-born workers stagnating and unable to surpass their pre-covid highs of 131.7 million, set in Oct 2019.

Well, as shown in the chart above, when updating the series for the latest May data, we find something startling, if not completely unexpected: in May, while the headline payrolls print was a blowout 339K (almost double the 195K expected), a quick look at the underlying numbers shows where the BLS grift was this particular month.

The answer: in May, the number of native born workers tumbled again, dropping by a whopping 369K to 130.744 million, still below the pre-covid highs and barely higher than at the start of the year, but this number was offset almost 1 to 1 by the increase in foreign born workers, which surged by 297K to a record high 30.359 million. This was the biggest monthly drop in native-born workers since November 2022.

And so, when Joe Biden takes his daily victory lap, patting both himself and his data-fudgers at the BLS on the back, maybe someone in the press corp can ask the president: is he more focused on creating jobs for Americans, or foreigners?

Authored by James Rickards via DailyReckoning.com,

ChatGPT and artificial intelligence (AI) are all the rage right now.

In fact, AI and GPT together are almost the only drivers of positive stock market performance today.

A small group of companies with advanced capabilities in AI/GPT (Microsoft, NVIDIA, Google, Apple, and a few others) are rallying sharply on the profit and productivity potential offered by the new technology.

If the AI/GPT plays were removed from stock market indices, the remainder of the stocks would be down on a year-to-date basis. Whether this performance is a bubble or a genuine leap based on fundamentals remains to be seen.

History is filled with investing fads that fizzle out.

Still, there’s no doubt about the impact. That said, GPT has a dark side that is quickly coming to the fore. What do I mean?

Good News for Bad Guys

Malign actors can use the speed and comprehensiveness of GPT to produce fake images and content. They can then push that content into social media and mainstream channels to cause market rallies and crashes.

In other words, for market manipulators, inside traders, and geopolitical adversaries, GPT is one of the best tools ever invented. Here’s a recent case in point…

Last Monday, May 22, a story appeared on ZeroHedge, Facebook, Twitter, and several other media channels showing a large building on fire near the Pentagon along with speculation that a terrorist attack might be underway.

Stocks immediately began to sell off. Within minutes, it was realized that the building fire photo was fake (based on some windows that had an irregular instead of uniform appearance).

And indeed, the entire story was fake.

The image of the building with billowing smoke was generated by AI. Investors should get used to this type of AI-induced panic that can manipulate markets.

The AI/GPT technology is already in the hands of bad actors and they won’t stop using it just because this one fake was detected quickly.

Computer vs. Computer

Most stock trading is done by computers primed to look for keywords in breaking news. This was a case of computers selling stock based on what another computer was reporting with the use of a fake photo and fake news.

It’s computer versus computer using AI/GPT as advanced weaponry. Here’s why that’s so potentially dangerous…

Today, stock markets and other markets such as bonds and currencies can best be described as “automated automation.” What do I mean?

There are two stages in stock investing. The first is coming up with a preferred allocation among stocks, cash, bonds, etc. This stage also includes deciding how much to put in index products or exchange-traded funds (ETFs, which are a kind of mini-index) and how much active management to use.

The second stage involves the actual buy and sell decisions — when to get out, when to get in and when to go to the sidelines with safe-haven assets such as Treasury notes or gold.

What investors may not realize is the extent to which both of these decisions are now left entirely to computers. I’m not talking about automated trade matching where I’m a buyer and you’re a seller and a computer matches our orders and executes the trade. That kind of trading has been around since the 1990s.

I’m talking about computers making the portfolio allocation and buy/sell decisions in the first place, based on algorithms, with no human involvement at all. This is now the norm.

The Demise of Active Investing

Over 80% of stock trading is now automated in the form of either index funds (over 60%) or quantitative models (under 20%). This means that “active investing,” where you pick the allocation and the timing, is down to less than 20% of the market. Although even active investors receive automated execution.

In all, the amount of human “market making” in the traditional sense is down to about 5% of total trading. This trend is the result of two intellectual fallacies.

The first is the idea that “You can’t beat the market.” This drives investors to index funds that match the market. The truth is you can beat the market with good models, but it’s not easy.

The second fallacy is that the future will resemble the past over a long horizon, so “traditional” allocations of, say, 60% stocks, 30% bonds and 10% cash (with fewer stocks as you get older) will serve you well.

But Wall Street doesn’t tell you that a 50% or greater stock market crash — as happened in 1929, 2000 and 2008 — just before your retirement date will wipe you out.

But this is an even greater threat that’s rarely considered…

Shouting Fire In a Crowded Theater

In a bull market, this type of passive investing amplifies the upside as indexers pile into hot stocks like, for example, Nvidia, Google and Apple have been recently. But a small sell-off can turn into a stampede as passive investors head for the exits all at once without regard to the fundamentals of a particular stock.

It’s like shouting “Fire!” in a crowded theater. AI could issue the false alarm that sends investors scrambling for the exits.

Index funds would stampede out of stocks. Passive investors would look for active investors to “step up” and buy. The problem is there wouldn’t be any active investors left, or at least not enough to make a difference.

There would be no active investors left to risk capital by trying to catch a falling knife.

Stocks will go straight down with no bid. The market crash will be like a runaway train with no brakes. It all comes back to complexity, and the market is an example of a complex system.

One formal property of complex systems is that the size of the worst event that can happen is an exponential function of the system scale. This means that when a complex system’s scale is doubled, the systemic risk does not double; it may increase by a factor of 10 or more.

The emergence of AI-generated “fake news” can amplify these market movements.

As the technology improves, which it inevitably will, it’ll become increasingly difficult to distinguish reality from fiction. Stories like the fire near the Pentagon will become much harder to debunk.

Investors need to understand these technological developments before their portfolio holdings are badly damaged.

One thing we can be sure of is that the threat is not going away.

Update (0945ET): In a very ‘soft denial’, an Amazon spokesperson told Reuters that the company is “always exploring adding even more benefits for Prime members, but don’t have plans to add wireless at this time.”

For now, the denial is being ignored with shares of telecom stocks lower.

In Europe, the Stoxx Telecom Index fell as much as 2.7% in its biggest one-day decline since February.

In the US, Verizon fell more than 4% in early trading, while T-Mobile slid as much as 7%.

AT&T ’s stock was down more than 5%. Dish shares surged more than 14%.

*  *  *

It looks like Amazon is going to try its hand in cell phones.

The e-commerce giant reportedly is working with wireless carriers about potentially offering low-cost service for its PRIME members, a Friday morning Bloomberg report says.

Just when you thought Amazon couldn’t agitate Democratic leaders who conjure up antitrust complaints for a living any further…

As of now the company is talking to AT&T, Verizon Communications Inc., T-Mobile US Inc. and Dish Network Corp. to try and find its lowest cost wholesale option, with the goal of offering PRIME members wireless plans for as little as $10 a month – or possible even free.

Talks have been ongoing for about 2 months, the story says, and could take several more months to launch. The idea could also ultimately wind up scrapped, the report says. 

An Amazon spokesperson said: “We are always exploring adding even more benefits for Prime members, but don’t have plans to add wireless at this time.”

About 167 million Amazon customers have PRIME memberships, with U.S. customers paying $139 per year for the service.

The pros of such a service from Amazon are that (1) it could help fill out 5G infrastructure and (2) it could help boost wholesale revenue for the wireless industry.

Bloomberg writes that this gives Amazon some leverage, noting that major carriers are looking to create return on their investments into 5G:

“Having poured billions of dollars into super-fast, high capacity 5G wireless networks, the mobile operators have little to show for the effort and are eager to find new applications and sales outlets that can generate some return on the investment.”

However, mobile carriers are also aware of the risk that Amazon’s low-cost service takes hold and starts to erode the business of major carriers, where low-cost monthly service generally starts closer to $60 than $10. 

“Anytime Amazon enters a new market, it sends shivers through the industry,” Bloomberg wrote Friday morning, pointing out the obvious: that such a behemoth entering into a newly established industry would cause obvious shockwaves.

And, of course, anytime any large company moves into any new industry, its a given we’ll be getting a strongly worded letter from AOC and Elizabeth Warren on the matter…