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Every investor is focused on the upcoming U.S. elections, little more than one month away. Then, all eyes will turn apprehensively toward the approaching fiscal cliff and the devastating impact it could have on the economy and markets.
But judging from recent data, it looks like a significant slowdown in the U.S. economy is ALREADY happening!
We learned last week that orders for durable goods — big ticket items like autos, home appliances, machinery and industrial equipment — plunged last month by the most since January 2009, when the U.S. economy was falling off another cliff called the Great Recession.
Click the chart for a larger view.
And there’s more evidence that suggests a significant slowdown in momentum:
Recent revisions to U.S. Gross Domestic Product data show the economy limped along at a rate of just 1.3 percent during the second quarter …
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Add it all up, and it tells me a rapid slowdown in the economy is already underway.
Of course this is why the Federal Reserve just launched a new round of quantitative easing: QE III — which is open-ended this time around. In Ben Bernanke’s own words it’s an effort to promote: “the sort of broad based growth in jobs and economic activity that generally signal sustained improvement.”
And this is exactly why the stock market closed out the third quarter on such a high note too.
At any other time or place, markets would perhaps already be plunging in anticipation of a slowdown — if not outright recession. But stocks have been doing just the opposite thanks to the Fed’s never-ending supply of easy money.
Markets have continued to grind steadily higher since the June low with the S&P 500 gaining 6.3 percent in the third-quarter, and up 13.3 percent so far this year!
How can we reconcile this apparent contradiction between the sad state of the real economy down on Main Street … and the giddiness taking place on Wall Street?
You simply can’t underestimate the power of the printing press.
In fact, the Fed’s ultra easy monetary policy may be the only thing that has thus far staved off an outright recession — including the usual 20 percent-plus drop in the S&P 500.
Click the chart for a larger view.
QE III may do little if anything to promote broader based growth and more jobs, as Bernanke wishes. But it has worked wonders for stock prices in the past, as you can see in the chart above.
However, each subsequent round of QE has generated less bang for each buck spent by the Fed. So a fair question to ask is: How long can this contradiction last … and which investments may benefit most in the meantime?
As the Fed, European Central Bank, Bank of Japan and other central banks the world over resort to more money-printing, the price of gold stands out as a major beneficiary.
Click the chart for a larger view.
The chart above demonstrates just how closely the price of gold tracks the Fed’s bloated balance sheet. And when you add in all the central bank balance sheet inflation taking place in Europe and Asia too … perhaps gold’s recent move is just the beginning.
Good investing,
Mike Burnick
P.S. My International ETF Trader members have already been making money on gold. Last month they could have nailed down gains of about 12.7 percent on Market Vectors Gold Miners ETF (GDX), based on the original recommendation price. That’s a great move for a position held for just over two weeks!
And now I’m looking for another opportunity in gold, perhaps after a pullback gives us a more attractive entry price!
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Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.