| MARKET ROUNDUP | |
| Dow | -115.44 to 18,010.68 |
| S&P 500 | -13.40 to 2,107.39 |
| Nasdaq | -27.95 to 5,070.03 |
| 10-YR Yield | -0.04 to 2.095% |
| Gold | +1.30 to 1,190.10 |
| Crude Oil | +$2.44 to $60.44 |
It’s official: The U.S. economy is shrinking again.
First-quarter gross domestic product contracted at a 0.7% annualized rate, compared with an earlier estimate of a 0.2% expansion. That was roughly in line with the estimate of economists, but a sharp deterioration from the 2.2% growth we saw at the end of 2014.
The rising U.S. dollar was a key driver of weakness because it ballooned the trade gap. As a matter of fact, the gap between the imports we take in and the exports we send out subtracted the most from GDP (1.9 percentage points) than at any time in 30 years! Household spending and inventory growth were also revised lower.
Now, Wall Street economists will tell you that growth is going to bounce back in the second quarter. They’re looking for a 2.7% increase, and blaming everything from the West Coast port strike to cold winter weather for the Q1 debacle.
But I believe the dollar’s impact on domestic industries like manufacturing is a significant, fundamental factor. So is the plunge in energy prices, which torpedoed business investment and oil and gas drilling.
Those forces have nothing to do with the fact – surprise, surprise! – that it actually snows in winter. And no “double-secret-probation” book-cooking by government statisticians can cover them up.
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| The rising dollar has made U.S. exports more expensive, hurting domestic industries. |
The rising dollar has made U.S. exports more expensive, hurting domestic industries.
We’re going to need to see the dollar lose ground again, and energy prices continue with their rally from the March lows, to get things going. I believe policymakers will do everything they can to kick the dollar in the teeth in order to bring the first development around, and I believe the self-correcting plunge in drilling will help fuel the second.
But if we don’t, then the markets could get rockier this summer. So make sure you pay attention to Money and Markets for my latest observations. I’m also planning to make some moves in the Safe Money model portfolio shortly for subscribers.
In the meantime, what do you think about the shrinkage in the first quarter? Is it all “statistical noise” … or is something more substantial going on here? If the surging dollar and falling energy prices helped bring about the weakness, will the opposite turn things around?
Are you expecting to see those trends reverse or not? What else could help improve our economy? Hit up the Money and Markets website and let me and your fellow investors know!
| Our Readers Speak |
Is there too much oil supply, and too little oil demand? Or are we heading toward the exact opposite situation as a result of production and drilling cutbacks? That’s what you were debating over at the website in the wake of my latest piece on the oil tanker market.
Reader Paul said he thinks the market is tightening up, for the following reasons:
“A) The Chinese are buying large quantities for spot and future delivery, which lays a floor on daily tanker rates
B) Oil demand is rising due to improved economies and the summer season nearing
C) Traders may be expecting crude and product prices to rise again after the summer, so buy spot, charter tanker space to store and deliver once prices have actually risen. This is called the contango game.”
Reader Jim also weighed in on the bullish side, saying: “I get savaged every time I throw cold water on the oil bears, but here I go again. The top twelve producers have all turned in static or declining production numbers over the last ten years except the U.S. The Great American Shale Boom has increased worldwide production by 4 percent.
“I have personally participated in the drilling in the legendary Bakken Field. The last one was drilled by Whiting Petroleum 30 months ago in Billings County, North Dakota, a pretty hot area. Initial production was 360 BPD. Last month the well averaged 12 BPD, a 95 per cent depletion, and still falling. There is nothing unusual about this well.
“The real question you have to ask yourself about shale is, ‘Will the junk bond money be there to restart the ‘boom’ or won’t it if prices rise?’ I contend that it will not and that the plunging rig count indicates higher prices ahead as it always has. Ignore the tankers, watch the drill rig count.”
But Reader Regis countered by saying: “Saudi Arabia is pumping as much oil as possible regardless of price because of the Yemen conflict and the ‘fracking effect’ on prices. Iran is pumping like crazy. Oil will sit on the high seas until it gets a buyer because all the storage facilities seem to be filled.
“Considering all of this, I would guess that oil prices are doomed to go much lower. If not, what am I missing? Which economy on the planet is cooking on all cylinders? Like … none?”
Reader Chuck B. added: “A market decline often starts big, as oil did last year, then bounces up a bit, as oil has recently, then drops again, before finding a true bottom area, which can last longer than anyone thinks. All that oil stored in tankers, which are more expensive than land storage, are going to make oil very cheap, as owners do their best to sell it off.”
I appreciate all the feedback, as this is an incredibly important topic. I’ve been harping on energy so much lately, versus other topics, because A) I believe the opportunities in that sector are incredibly attractive vis-Ã -vis almost any other sector out there, and B) There is so much bad and conflicting information out there. My job is to help you sort through it, and make sound investment decisions based on what’s really going on.
Please do continue to share any other thoughts you might have, using the website as your outlet like always.
| Other Developments of the Day |
GDP figures from elsewhere in the world also showed contractions, in part because of the commodity price weakness we’ve seen. Canada’s GDP shrank a worse-than-expected 0.6% in the first quarter, dragged down by a huge 30% plunge in oil and gas activity.
Brazil’s economy also contracted by 0.2% in the quarter. But that was smaller than the 0.5% decline that economists expected.
What do you think about some of the latest topics in the news – the dollar, the economic weakness, the fraying of the pension system, the latest mega-merger in tech? Or other topics. Let me know over at the website.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 21 comments }
Another slow down was tax time being later to begin filing, for myself I used my tax return to pay my property tax so nothing when to retail.
The U.S. government going after corrupt FIFA officials. That’s the pot calling the kettle black!!!
Besides my lifetime membership with Weiss Research I take several other letters. I keep seeing predictions that the Chinese yuan will soon be granted reserve currency status when the IMF meets in October and that the dollar is doomed in a coordinated effort by China a Russia. What is your take on both of these potential scenarios, and how would you hedge if it happens. Just curious what the Weiss group believes the impact would be?
CLARITY IN A CONTROLLED ECONOMY
In a “managed” economy like we now have, credit contraction and credit expansion are the primary influences on the domestic, consumer based economy. You can infer the driver of our first quarter slowdown in aggregate demand. The rest is all talk and noise (radio static).
I would think the lower price of fuel would more then offset the higher dollar for domestic reasons. Even with the higher dollar we still pay less for fuel for fleets and airlines etc.
Lumber is soft and interest rates are down. That’s a plus. It’s normal for the market
to bounce. Don’t worry about that. Just prepare for the earthquake. That could come in
a week or ten years-more or less—God willing.
As I said yesterday, I think history will show that we entered a new Depression, about 2008. (under Bush). Moderated, perhaps by spending on the Mideast wars. As bad as the Great Depression? We’ll have to wait to see. But I was a kid in the 1930’s and we survived in good shape, as did everyone else on both sides of the family. No one had college educations, either, beyond the one of Hard Knocks. Markets rise and fall during hard times, much as they do when things are easier.
Hi Mike … Your daily updates like this one are really helpful (and interesting as well). Thanks..
Sure, the dollar is weakening for now, but it will strengthen again and bring on a new recession. Then, down the tubes for gold. Too bad, as we have inflated the dollar in trillions that can never be paid back and gold is really the only place to be.
Well… give me your opinion. If you never comment on my comments, why should I give you my insight?
Worse yet Mike, I for one do not trust any of the government numbers. Tweaking, and BSing the numbers a tad is one thing. Outright manipulation to mislead is something else.
Will the economy improve? No! Bad dept started the recession and it is a fact that we have even more debt now. Until this debt is deleveraged we will stay is this slow depression because the fundamentals are unchanged.
Cutting state and federal regulations would be a good start towards improving our economy, Secondly, government needs to discredit Keynesian economics and take a serious look at supply side economics. Increasing debt and consumption to gain prosperity makes no sense when examined closely. Consumption destroys wealth and production creates wealth. There is no such thing as trickle-down economics but there is supply side economics and supply creates demand, (Says Law.)
As long as the Fed continues to say that a rate hike is in the cards, then the USD will not only remain strong, but get stronger. Take the rate hike off the table and the dollar will weaken. Jmvho.
Hi!, Patrons Of Money & Markets Et. Al.:
Oil supplies are relevant to demand aren’t they? Remember when we thought gas at the pump would fall fast and far but it actually fell into the median range only? If prices would fall enough at the retail level to attract truckers and motorists to buy a lot more fuels at attractive prices, wouldn’t that open up consumption or what is the pumping it out of the ground for but retention and storage? But no today retail gas sellers compete to see who can achieve the highest prices regardless of the price per barrel. Remember when everyone thought that cheaper fuel prices would lead to alternative purchases in mass that didn’t happen either? We are in an all together separate era of gouging consumers and so let’s see what happens during Christmas etc.? If it takes a depression to get the message across to the retailer/oil company combo. then that’s exactly what we will give is predicted and how about yours dear reader? Are the ail rigs drilling and pumping only to put barrels of crude into on-landstorage compartments and offshore tankers or to sell to consumers across the board right down to our lawn mowers and rototillers etc.? Some people think that milk comes from a super market without the cow and these guys seem to think demand comes from consumers stretched for buying power incomes from non-employment and food stamps! That’s basically NOT an economy in my view but a giant mess that needs cleaning up ASAP!
RUSS SMITH, CA. (One Of Our Broke, Fiat Money Corrupt States)
resmith1942@gmail.com
Over the past several months it is obvious to me that quite a few very smart, well informed people contribute to the discussions here. Yet, I have yet to see any kind of consensus on any subject. I presume that you, like me, base your opinions on historical observation and experience. What if the past is not prologue? I am beginning to think our leaders have led us into some grand experiment that has no historical precedent. As youngsters we would have laughed at anyone who said interest rates would ever be at zero, a home mortgage at 4 per cent, Oil over $100 a barrel, etc. How can we possibly know the long term effects of six years of zero interest rates, the creation of $4 trillion out if thin air, $18 trillion in debt, $50 trillion in entitlements, 92 million Americans not working, 75 million productive baby boomers retiring at the rate if 10,000 per day will have on our economy and society? We are someplace we have never been before, meaning everything we have come to rely on means absolutely nothing. I’m thinking we have no way of knowing what will happen tomorrow, otherwise next year. Jim
It’s true that the economy is weak thanks to Obama’s policies. But one stat that got overlooked is that corporate profits are up. Remember, profits are the mother’s milk of stocks. My advice? Buy the dips (via a diversified index fund). Then kick back, enjoy your summer, and count your profits later.
There is only one conclusion Mike the whole world has gone insane. Talking about insane I think I will go out and buy that new largest yacht in the world for 770 million. Opps time to wake up.
DEAR!WRITE CAN SALE TEHNO IDEAS GEORGE BUSH .HE TAKE PART ECONOMY BILLIONS $ FOR YUORSELF.THANKS! SERGEJ LEVCENKO
IM WRITING THIS HOPEFULLY YOU UNDERSTAND dear write me can sale tehno ideas ( GEORGE BUSH ) OOOPS lets cross out put in correct name BARRACK HUSSEIN OBAMA ahhhh yes much better HE TAKE PART ECONOMY BILLIONS $ FOR YUORSELF
This economy is a balloon full of hot air. If 93 million of the labor force are without em,employment, our GDP must shrink. Companies are still relocating to other countries like Mexico. The Fed has used up all their ammo.
If the leeches that control our government would make the business environment attractive, we would see improvement, but I fear thee is such a level of corruption that there is no hope….
Hi Mike,
Could you please review my earler feedback under your article:
“Interest Rates are Rising … Finally! So Who Wins, Who Loses, and Why?”
(on why the heck the Feds would want to raise rates at all)
Perhaps you can address this question in your next article regarding interest rates?
WHAT EVER…. happened to that hope and change OBAMA promised everyone you know that + 6% GDP growth he promised for every year he was in office ……LIES … I remember his exact words let some one who knows how to run a economy RUN IT that’s what he said in November 2008 when he won the election, and every time theres bad news his claim to fame its BUSHS FAULT it became the rallying cry of the libtarded demoncrats . lets fast forward its now 2015 and were showing a (-.07 ) GDP and now democrats are raving about how good the employment numbers are barely creating 200k jobs you’ve got to remember over 300k are retiring every month ,in previous economys good employments numbers were 650k to 850k even 900k jobs created each month not this paltry 200k in fact numbers before that low showed a slowing economy and if the economy is stalling like I think it has been for months sooner or later they have to raise interest rates the sooner the better because they need some type of ammo to stimulate the eeconomy . BUT what bothers me the most is the debt of the united states has surpassed 18 trillion 2000 billion dollars and in a few years all that debt that OBAMA created comes due in 2019 , maybe if he adhered to his campaign promises of balanced budgets and removing 5 trillion off the national debt this great country would be in great shape but since his promises were nothing but lies our great country faces a sad sad future
that’s 18 trillion 200 billion dollars