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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

August 2018 - Week 1 Edition

The U.S. Economy is Doing Well – Creating More Demand for Special Coins

Gold remains in the summer doldrums, but the “dog days” of summer are almost over.  Historically, the best months for gold are about to begin, while the worst months for the stock market are just beginning.  In the last 20 years, August and September are the two worst months for the stock market.  This September marks the 10th anniversary of the collapse of Lehman Brothers in September 2008, launching the 2008-09 financial crisis. By contrast, September is gold’s best month.

We don’t believe the stock market will crash like it did 10 years ago. Unlike many other coin dealers and gold advocates, we don’t believe that the stock market has to crash to make gold attractive. We believe in a proper portfolio diversification with a portion of one’s portfolio in stocks, but also a 10% to 25% position in gold and rare coins to offset any volatility in stocks, bonds, real estate, commodities or cash-like investments in the rest of one’s portfolio. In an ideal environment, stocks will rise along with gold, since a rising ‘wealth effect’ in one’s whole portfolio makes purchases like rare coins and fine art more affordable.

Although some of the press and some biased commentators like Paul Krugman try to paint the economy as fragile or favoring only the rich, the vast majority of Middle America is prospering and generally happy with President Trump’s policies, including fewer regulations, lower tax rates, more protection from onerous foreign tariffs and fewer illegal immigrants.  One example is my hometown, Lake Charles, Louisiana.

Southwest Louisiana, along with the rest of the state, is enjoying a low unemployment rate – with Cameron Parish at 3.4% and Calcasieu Parish at 3.7% having the lowest rates in all Louisiana. There are nearly 5,000 more jobs today than a year ago in Southwest Louisiana.  Business Facilities magazine ranked Lake Charles as the #1 mid-sized metro region for Job Growth – in the nation! And in early July, Southern Business & Development magazine named Lake Charles the “Small Market of the Year” for the 8th consecutive year.

The average annual earnings in Louisiana for all private sector employees has grown 6.1% since January of 2016. Unemployment is currently at a 10-year low. In the same Business Facilities issue that named Lake Charles as the #1 mid-sized metro area for job growth, named LED FastStart — the workforce recruitment and training arm of Louisiana Economic Development — as the #1 workforce development program in the nation for a record 9th year in a row.   

These are just some of the reasons why the bulk of the nation is celebrating the President’s policies, even though many in the media and politics are doing their best to paint a dismal picture of the economy. Most Americans are feeling well-off enough to consider buying art and rare coins for their portfolios!  As I’ve written before, five billionaires have already jumped into the coin market with both feet, and I think they’re ahead of the curve in doing this. Don’t wait for the next big move in gold. Do what the billionaires are doing!  Call us today!

Paul Krugman is Wrong Again!

Last Thursday, August 2, the day before the jobs report came out, Paul Krugman wrote a column for the New York Times entitled, “Stop Calling Trump a Populist,” in which his subhead claimed, “he’s been relentless about hurting working-class Americans.”  The next day, the jobs report added 59,000 new jobs in May and June to a total of 516,000, plus a preliminary estimate of 157,000 new jobs added in July – a number which will undoubtedly be revised higher next month, due to the early release of the data.

The July unemployment rate fell to 3.9%, and the unemployment rate for those lacking a high school diploma fell to an all-time low of 5.1%. So, Mr. Krugman, working-class America is doing just fine, as I showed in the data from Southwest Louisiana, with unemployment rates under 4% and wages up.

The previous Saturday, July 28, Krugman penned a column, “Why One Quarter’s Growth Tells Us Nothing,” in response to the phenomenal 4.1% GDP growth rate for the second-quarter, released that day.  It was the biggest increase in four years. But four years earlier, when President Obama scored a similarly robust quarter, Krugman labeled it “The Obama Recovery,” even though that recovery later fizzled.

In his July 28 column, Krugman picked one negative indicator, ignoring the fact that business investment grew at a healthy 5.4% rate and inventories were rapidly depleted, deducting 1% from the GDP estimate. (That’s very bullish, since those depleted inventories will need to be replenished in the current quarter.)

We’ve seen this bias before. Krugman didn’t see any problem with huge deficits under Obama, but in the Bush years he said much smaller deficits would cause a “fiscal train wreck.”  In 2003, Krugman said he was “terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits…. We’re looking at a fiscal crisis that will drive interest rates sky-high.”

Krugman’s prediction was way off the mark by two measures. The deficit in fiscal year 2004 was $412 billion, but then the Bush deficits began rapidly falling, to $318 billion in 2005, $248 billion in 2006 and a remarkably low $160 billion in 2007.  Krugman failed to give Bush any credit for his declining deficits. Secondly, Krugman was wrong about deficits causing higher interest rates.  The Fed Funds rate was zero to 0.25% for all eight of Obama’s years, despite Obama’s huge deficits, averaging $1 trillion per year.

Krugman’s worst prediction came at 12:42 am Wednesday morning, November 9, 2016, in an on-line post for the New York Times titled “The Economic Fallout,” which began: “It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear. Still, I guess people want an answer. If the question is when markets will recover, a first-pass answer is never.”

The Dow closed Monday at 25,502, up over 39% in the 21 months since Donald Trump was elected, a far cry from “never” recovering. Perhaps predicting the market is not really Krugman’s specialty after all.

Iran is Trading Their Worthless Paper for Gold

The weakest currency in the world right now may be the Iranian rial.  It declined 18% early last week before recovering somewhat.  At the start of the year, it took 43,000 rials to equal a $1. Early last week, it dropped to 119,000 rials before bouncing back to 101,000. Deeper U.S. sanctions were scheduled to be re-imposed at midnight, Monday, August 6, so Iran’s last hope is to try to diversify out of the rial into gold.

The Monday Wall Street Journal published an article, “Iranians Buy Gold as Sanctions Hedge.”  As the clock turned from Monday into Tuesday (EDT), U.S. sanctions began to impose penalties for banks that finance any precious metals trade with Iran or anyone who sells precious metals to Iran’s government.  This has pushed many Iranians to convert their savings into gold, sending gold prices skyrocketing in rial terms.

The Journal reports:

“Demand for gold bars and coins in Iran tripled year-over-year in the second quarter to about 15 metric tons, according to a World Gold council report on Thursday. Iran’s central bank has minted hundreds of thousands of new coins – more than 60 tons of gold in total – to feed the demand.  The move has had little impact beyond stoking more demand for the metal. ‘People are changing their money into gold because it’s a reliable investment commodity,’ said Mohammad Kashtiaray, the head of gold and jewelry committee under Iran’s Chamber of guilds a coalition of merchants. Inflation and unemployment are both in double digits this year, and the economy is expected to shrink next year as sanctions bite.”

The Trump Administration has offered to meet with Iran, but a meeting is unlikely since there are several stiff pre-conditions that will likely delay any meeting. Iran blames their 2018 currency collapse on their “enemies” and has vowed some kind of revenge “in the coming days.”  There is widespread unrest with the Iranian leadership, so it will be interesting to see if the Iranian people force them out or force them to the negotiating table. Either way, this kind of crisis could send more Middle East investors back into gold.

 

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