By Bud Conrad, Chief Economist
The basic imbalance driving our economy is the government deficit, which spun out of control as a result of the Credit Crisis of 2008/9. But the sequester, improving tax base, lower interest rate, and elimination of stimulus spending have caused the big government deficit, while still extreme, to drop to half its previously nosebleed levels. Continue reading "Despite Declining Deficit, Foreigners Aren’t Bailing Us Out, So the Fed Will Keep QE Going"
By Bud Conrad, Chief Economist
How can we explain gold dropping into the $1,300 level in less than a week?
Here are some of the factors:
- George Soros cut his fund holdings in the biggest gold ETF by 55% in the fourth quarter of 2012.
- He was not alone: the gold holdings of GLD have contracted all year, down about 12.2% at present.
- On April 9, the FOMC minutes were leaked a day early and revealed that some members were discussing slowing the Fed $85 billion per month buying of Treasuries and MBS. If the money stimulus might not last as long as thought before, the "printing" may not cause as much dollar debasement.
- On April 10, Goldman Sachs warned that gold could go lower and lowered its target price. It even recommended getting out of gold.
- COT Reports showed a decrease in the bullishness of large speculators this year (much more on this technical point below).
- The lackluster price movement since September 2011 fatigued some speculators and trend followers.
- Cyprus was rumored to need to sell some 400 million euros' worth of its gold to cover its bank bailouts. While small at only about 350,000 ounces, there was a fear that other weak European countries with too much debt and sizable gold holdings could be forced into the same action. Cyprus officials have denied the sale, so the question is still in debate, even though the market has already moved. Doug Casey believes that if weak European countries were forced to sell, the gold would mostly be absorbed by China and other sovereign Asian buyers, rather than flood the physical markets.
My opinion, looking at the list of items above, is that they are not big enough by themselves to have created such a large disruption in the gold market. Continue reading "Physical Gold vs. Paper Gold: The Ultimate Disconnect"
It is my contention that the 70-year debt supercycle has come to an end.
To put the current financial situation in perspective, here's a long-term history of the debt-to-GDP ratio, which reached a record high at the beginning of the current crisis. It was a dramatic change in 2009, unlike anything since the aftermath of the Great Depression. Continue reading "The Coming Crash in the Bond Market"
The label "the fiscal cliff" evoked the fear that something terrible was about to happen if the previously legislated spending cuts and tax increases came into effect. From my point of view, our nation's deficits and debt are growing at an alarming rate and need to be cut back. The reason these laws were enacted was to offer markets some hope that we would eventually work toward eliminating our serious deficits. But the prevailing opinion that such drastic decreases in our deficit would slow our economy and bring recession created the impression that this "cliff" must be avoided.
The chart below indicates the size of our federal government's budget deficit. The blue bars reflect what would have happened if there were no legislative changes, and the harsh measures of tax increases and spending cuts occurred. The red bars reflects potential tax increases, the green spending cuts, and the purple is additional interest paid on the expanded debt as a result of bigger deficits. The cliff is seen in the rapid drop of the deficit in the first few years of the blue bars. Continue reading "The Fiscal Cliff Was A Wasted Opportunity"
If you haven’t heard by now, the Fed is back at it! Bud Conrad of Casey Research has written a great article on how it is affecting current markets and what to expect in the near future. Be sure to take a look and comment below with your own thoughts. For more from Bud and Casey Research click here.
The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words: Continue reading "The Fed Resumes Printing"