I co-host the “Financial Survival” radio show each workday from 3 to 4PM (central time). The program deals with stock and bond markets, but primarily focuses on physical gold and physical silver markets and the economic and political events that affect precious metals.
Each day I write a “script” that consists of several articles or topics that we might talk about during the program.
Those articles are a slapped together quickly and might be a little “rough”. Still, I think they sometimes contain enough of an unusual insight to make them worth reading.
Here are the articles for today’s script:
No News is Good News?
Interest Rates Unchanged
Impact on markets and prices: Volatility was slightly increased. Initially, there was a significant spike downward in the Dow and S&P 500, but that spike was almost instantly reversed and the Dow was up nearly 1%. Then a reversal and the Dow finished down 65 points. All in all, there wasn’t much change in equities. Why should there be? The interest rate remained unchanged.
Even so, gold is up almost $12 (1.12%) for the day. The USDX is down 1.16 (1.2%).
Maybe the Fed should do nothing more often.
Here are some facts and implications relevant to the Fed’s interest rate announcement:
Fact 1: A 0.25% interest rate is irrationally low. A 0.25% interest rate maintained for six years isn’t merely irrational, it’s fantastic. Creditors are being robbed and/or driven out of the US economy.
Implication 1: Federal Reserve Chair Yellon is afraid raise the irrationally-low interest rate. Someone or something is holding a gun to her head.
Implication 2: The Federal Reserve believes the US economy is still too fragile to absorb the potentially adverse effect of a mere one-quarter-point increase in the interest rate.
Implication 3: Inflation is low and unlikely to increase significantly in the near future; we are therefore facing potential deflation.
Implication 4: There’s been no real economic “recovery”. The US economy is weak and the markets are vulnerable to significant declines.
Implication 5: If deflation is near or even rising, so should the frequency of bankruptcies as debtors are increasingly unable to repay their debts.
Implication 6: If, after six years of QE, the economy is still too vulnerable to risk raising interest rates, the positive effects of QE over the past six years (pumping trillions of fiat dollars into the economy and holding interest rates to Near Zero) have been largely negligible. If QE hasn’t worked significantly in the past, there’s little cause to suppose that QE will work in the future. The probability that the Fed will reinstate another round of QE is not high. Even if they do, the probably that another round of QE will have a positive effect is low.
Implication 7: If the economy isn’t strong enough to absorb a mere 0.25% interest rate increase, there’s little reason for optimism and at least some cause for pessimism.
Fact 2: Janet Yellen suggests that interest rates will not return to normal until late A.D. 2018.
Implication 8: The Federal Reserve does not expect the US economy to fully regain its normal strength for another three years.
Learning to Recall Fundamental Principles.
The Wall Street Journal recently published an article entitled “Worries Rise Over Global Trade Slump. I thought the article was silly. It read in part,
“A sharp drop in global trade growth this year is underscoring a disturbing legacy of the financial crisis: Exports and imports of goods are lagging far behind their pace of past expansions, threatening future productivity and living standards.”
“Expansion”? What “expansion”? Have we been in an economic expansion anytime recently? I wish someone would’ve told me.
In fact, The Wall Street Journal is reporting a story that’s been common knowledge for several years: as seen on the Baltic Dry Index (a measure of how much cargo is being moved by ship around the world), global trade has fallen from 2,800 units on that index in A.D. 2010 to 818 today. That’s a 71% decline in the past five years. That decline hasn’t been steady. There’ve been some ups and downs in the Baltic Dry Index, but the major trend has been downward for at least five years.
The current level of 818 is consistent with a global recession and/or global depression.
Nevertheless, The Wall Street Journal is announcing this “trade slump” as if it were news.
• This is a tribute to how quickly all of us forget the news. We hear Monday’s news, but tend forget it when we hear Tuesday’s. After hearing Wednesday’s news, we tend to forget Tuesday’s.
For example, we now all know that Donald Trump is running for the Presidency in the A.D. 2016 election. How many of us remember that Donald Trump gave serious consideration to running for the Republican nomination for President in A.D. 2012?
I didn’t. I had to be reminded.
And I surely didn’t remember that The Donald first talked about running for President in an A.D. 1988 interview by Oprah Winfrey.
How quickly we forget individual facts, hmm?
• Our forgetfulness makes it easy for politicians who’ve deceived us before, to deceive us again.
I don’t know that we can afford to remember “everything” we’ve seen or heard. Maybe doing so would overload our minds.
In any case, it seems to be our nature to forget most facts.
Nevertheless, we might to able to remember principles. We might be able to learn and remember a handful of fundamentals against which all future facts can be judged and evaluated. Then we might not be so easily deceived.
Thus, it’s incumbent upon all of us to read, listen, study, try to understand—and try to remember—at least enough fundamental principles to allow us to independently discern what’s happening at any given time.
It used to be that the world moved so slowly we could get by by just remembering the facts.
Today, the world is moving so fast that facts are coming and going, changing and disappearing so quickly that they the sometimes tend to be almost meaningless.
But what still changes so slowly that they might be understood, remembered and applied?
Principles. Values. Fundamentals.
If you can begin to grasp and apply those concepts, you might be able to make sense of our fast-moving world.