Four Truths About the U.S. Economy All Investors Should Know
By Michael Lombardi, MBA for Profit Confidential
Truth #1: At the beginning of 2008, there were 28.22 million people in the U.S. economy on food stamps. Fast-forward to 2012, and the number has increased to 46.60 million—an increase of more than 65%. (Source: United States Department of Agriculture, March 8, 2013.) The number of Americans now on food stamps represents almost 15% of the entire population in the U.S. economy right now.
Truth #2: The poverty rate in the U.S. economy also increased in the aftermath of the worst economic condition since the Great Depression. In 2007, the official U.S. poverty rate was 12.5%. By 2011, this rate increased to 15%. We have experienced a 20% flight in the number of Americans living in poverty. (Source: “Poverty and the Great Recession,” The Russell Sage Foundation and The Stanford Center on Poverty and Inequality, Stanford University web site, October 2012, last accessed March 18, 2013.) As it stands today, about one in every seven Americans is technically poor.
Truth #3: Similarly, job prospects for Americans have declined since the beginning of the financial crisis. In January of 2008, there were 4.2 million job openings in the U.S. economy. As the U.S. Department of Labor reports, in January 2013, there were 3.6 million job openings. (Source: Federal Reserve Bank of St. Louis web site, last accessed March 15, 2013.) There are 12 million unemployed individuals in the U.S. economy, with a significant number being jobless for more than six months.
As the U.S. economy faces severe headwinds because of the financial crisis, cities across the U.S. are suffering as well. According to the 2012 census, one in every three counties in the U.S. economy is “dying off” due to weakening economic conditions and an aging population. (Source: Huffington Post, March 15, 2013.)
Truth #4: We have a long way to go before we see any real improvement in the U.S. economy. The only thing that has improved since the financial crisis is the stock market, courtesy of cheap interest rates and extensive paper money printing. Don’t get lured into believing that a rising stock market means economic growth. The stock market and the U.S. economy are moving in opposite directions. Many public companies listed on the key stock indices are already warning investors about troubles ahead, profitability issues.
Sure, the old adage is, “Don’t fight the Fed.” But the stock market utopia can only go on for so long before “regression to the mean” becomes a reality again.
Michael’s Personal Notes:
Looking at the long-term chart of gold bullion and the U.S. dollar, there is an interesting technical chart pattern developing that may help us predict the next move in the greenback and the yellow metal.
In the chart below, the red line represents the U.S. dollar index and the golden line represents gold bullion prices.
Chart courtesy of www.StockCharts.com
Both the U.S. dollar and gold bullion are going through the formation of the technical chart pattern called the “symmetrical triangle.” This pattern occurs during a trend and is often the result of a consolidation in prices. The majority of instances when the symmetrical triangle pattern emerges eventually result in a continuation of the prior trend.
If you observe closely, the trading ranges in the dollar and gold bullion have been getting smaller since the beginning of 2011. While keeping with their respective trends, they appear to be consolidating. The U.S. dollar has declined, compared to other major currencies. Meanwhile, gold bullion prices have been trending higher—from below $300.00 an ounce to close to $1,600 an ounce.
As I have been harping on about in these pages, the demand for gold bullion is robust, to say the very least. Central banks are rushing toward gold, seeking safety—they have turned into net buyers of the yellow shiny metal. In the last quarter of 2012, they bought the most gold in almost 50 years.
In contrast, by buying gold bullion, central banks may be losing trust in the U.S. dollar. According to a report by the World Gold Council (WGC), in 2000, central banks held 62% of their assets (or reserves) in U.S. dollars. By 2012, that percentage of U.S. dollar holdings decreased to 54% of the reserves. (Source: Market Watch, March 13, 2013.)
It isn’t a hidden fact anymore: the Federal Reserve has been increasing the money supply, as its balance sheet has grown to more than $3.0 trillion and its paper money printing program continues at a rate of $85.0 billion a month. The more paper money the Fed prints, the more vulnerable the greenback becomes.
Time will be the better judge of where the greenback and gold bullion end up, but from the looks of the chart above, the U.S. dollar appears bearish and gold bullion’s future seems bright.
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What He Said:
“Prepare for the worst economic period ahead that we have seen in years, my dear reader, as that is what I see coming. I’ve written over the past three years how, in the late 1920s, real estate prices fell first before the stock market and how I felt the same would happen this time. Home prices in the U.S. peaked in 2005 and started falling in 2006. The stock market is following suit here in 2008. Is a depression coming? No. How about a severe deflationary recession? Yes!” Michael Lombardi in Profit Confidential, January 21, 2008. Michael started talking about and predicting the economic catastrophe we began experiencing in 2008, long before anyone else.