Decayed empire…or 21st century phoenix?

Monday, 4 June 2018
Melbourne, Australia
By Bernd Struben

  • US$1,400 per ounce gold only the first step
  • In the mailbag

Is the US a basket case? A waning empire? One soon to be pushed aside by the rising might of China?

If you follow the mainstream media analysis, you’d be forgiven for thinking that’s very much the case. The mainstream appears to delight in spotlighting the woes of the world’s biggest economy.

In Australia that may tie into the ‘tall poppy syndrome’. This is the syndrome that sees us trying to cut the powerful and wealthy down to size. No one likes to look over the fence at greener grass, after all. Let alone a larger lot with a pool.

The US, as you’ll often read, is awash in debt. The national debt stands at US$21.2 trillion…and growing fast, according to the US Debt Clock.org.

Despite this massive debt spending, the nation’s infrastructure is crumbling. Its health care costs are out of control. Its prisons are overflowing. And its education system barely ranks in the middle of the pack internationally.

According to the Pew Research Center:

The most recent PISA [Programme for International Student Assessment] results, from 2015, placed the U.S. an unimpressive 38th out of 71 countries in math and 24th in science. Among the 35 members of the Organization for Economic Cooperation and Development, which sponsors the PISA initiative, the U.S. ranked 30th in math and 19th in science.’

In today’s climate, where US citizens regularly gun each other down in mass school shootings, those rankings are unlikely to improve.

And on the global scene, US military influence is waning near and far.

You’ve likely even read that Australia can no longer depend on the US to defend it should China come knocking on Darwin’s doorstep. That’s despite the fact that the US Navy is the only force in the world really pressing China with its freedom of navigation exercises. Just last week, their warships came within a stone’s throw of disputed South China Sea islands China has effectively militarised.

Then there’s US President Donald Trump.

The US is now saddled with a populist, erratic president. One who appears intent on dividing the American people. Atop that, he’s instituted unaffordable corporate tax cuts to the tune of US$1 trillion. And he’s engaged in trade wars with staunch allies and long-term foes alike.

Surely, these tariffs will backfire. Everyone knows trade wars are unwinnable. And everyone knows that, like the Roman Empire, the US empire is on its last legs.

Except no one seems to have passed on all the dour news to US businesses. The latest unemployment data out of the US shows the jobless rate has fallen to the lowest level since 1969…and 2000.

From Bloomberg:

Employers added 223,000 jobs last month, more than forecast and bringing payroll gains for the year to 1.04 million, Labor Department figures showed Friday. The jobless rate fell to 3.8 percent to match April 2000 as the lowest since 1969…

Average hourly earnings increased a larger-than-projected 2.7 percent from a year earlier.

The robust pace of hiring comes amid what employers frequently cite as a shortage of qualified, available workers to fill positions as demand accelerates, with a gauge of U.S. factory backlogs at a 14-year high.’

An unemployment rate of 3.8%. Hourly earnings going up 2.7%. Factory backlogs at 14-year highs…those are hardly figures from a teetering economy.

US carmakers are some of the big beneficiaries of the strong American economy. Also from Bloomberg:

The pickup in hiring and President Donald Trump’s tax cuts have helped keep new-vehicle demand humming. Almost every automaker’s May results beat analysts’ estimates, and several posted increases, led by General Motors Co.’s 12 percent jump and Fiat Chrysler Automobiles NV’s 11 percent gain. Profitable sport utility vehicles and pickups also are defying rising gasoline prices and interest rates.’

General Motors Company [NYSE:GM] share price is up 14.2% since last Wednesday, 30 May. And that’s for a company with a market cap of US$60.88 billion (AU$80.32 billion).

Although investors in Fiat Chrysler Automobiles NV [BIT:FCA] have not enjoyed the same results.

After falling 4.53% on Friday, FCA is down 1.37% since last Wednesday. That’s likely related to a US Justice Department civil lawsuit alleging the company used illegal software to do an end run around emissions controls in 104,000 of its diesel vehicles.

Oops.

Now to the markets, where major indices across the globe enjoyed a boost from the latest economic news out of the ‘has-been’ US empire.

Markets

Over the weekend the Dow Jones Industrial Average closed up 219.37 points, or 0.90%.

The S&P 500 gained 29.35 points, or 1.08%.

In Europe the Euro Stoxx 50 index finished up 46.89 points, or 1.38%. Meanwhile, the FTSE 100 rose 0.31%, and Germany’s DAX climbed 119.38 points, or 0.95%.

In Asian markets, Japan’s Nikkei 225 is up 310.39 points, or 1.40%. China’s CSI 300 is up 0.65%.

In Australia, the S&P/ASX 200 is up 26.71 points, or 0.45%.

On the commodities markets, West Texas Intermediate crude oil is US$65.88 per barrel. Brent crude is US$76.72 per barrel.

While the oil price is down from recent highs, I still expect it has further to fall.

Saudi Arabia is likely to push for increasing output at OPEC’s next meeting on 22 June in deference to their good friend Donald Trump. And Russia appears eager to pump more. The nation has already exceeded its agreed to limit for three months running now. Though only by around 5%.

Granted, US sanctions on Iran and the political quagmire in Venezuela should see supplies from these two oil producing nations greatly restricted. But global supply looks to be heading up.

From Bloomberg:

Russia currently has about 500,000 barrels a day of spare production capacity, according to Gazprom Neft PJSC, the country’s third-largest producer. The company and Rosneft PJSC will lead the ramp up once output restrictions are eased, according to Citigroup Inc. and ESAI Energy LLC. Rosneft this week started testing its capacity to increase output.

OPEC’s de-facto leader Saudi Arabia is also lifting supply. Production rose to the highest in seven months in May, according to tanker-tracker Petro-Logistics. Kazakhstan, the second-biggest oil producer in the former Soviet Union and a signatory in the supply deal with OPEC, is set to boost output to a record in May, data compiled by Bloomberg showed.’

Add record US production to the mix, and WTI shouldn’t hold above US$60 for long.

Turning to gold, the yellow metal is trading for US$1,293.14 (AU$1,705.99) per troy ounce. Silver is US$16.42 (AU$21.66) per troy ounce.

(More on gold below. Or you can click here to find Jason Stevenson’s favourite gold plays over at Gold & Commodities Stock Trader now.)

One bitcoin is worth US$7,708.57.

The Aussie dollar is worth 75.80 US cents.

US$1,400 per ounce gold only the first step

Our resident gold expert and senior resources analyst, Jason Stevenson has a range of techniques for forecasting the gold price.

These include detailed technical charting analysis…of which your editor admittedly grasps only the basics. He also tracks global buying patterns compared to estimated new supplies. And the likely path of the US dollar, a key determiner for the gold price.

And then there’s what he calls the ‘macro playbook’. This is where he studies geopolitical situations around the world, looking for simmering conflicts that may boil over into something more serious. When that happens, people tend to invest more in haven assets, like gold.

Connecting all the dots, Jason believes the gold price is set for a major run up. And he’s not alone. Toronto based TD Securities is forecasting US$1,400 per ounce next year.

From Bloomberg:

‘[Gold] is set to shrug off the blues and rise in 2019 as the dollar weakens.

The precious metal will start to rebound in the final quarter of this year to average $1,375 an ounce in the last three months of next year and could touch a high of $1,400, said Bart Melek, global head of commodity strategy at TD Securities in Toronto. That’s a level last seen in 2013.’

The chart below gives you a good indication of the inverse relation between the gold price (white line) and the US dollar index (blue line):



chart image

Source: Bloomberg
Click to enlarge


While Jason would agree with Bart Melek’s take on the falling US dollar correlating to higher gold prices, his own price target for gold is considerably higher.

But whether gold goes to US$1,400 per ounce or north of US$1,500 per ounce, Jason is convinced he’s uncovered the best way to play gold’s rise. And it has nothing to do with buying bullion or rare gold coins.

As he explains here, that’s not the way to potentially make five or even 10-times your investment in a matter of months.

You can find all the details, including the larger risks that go hand in hand with chasing big gains, by clicking here.

In the mailbag

In Thursday’s Port Phillip Insider, we revisited the government’s war on cash. A war, essentially, on your ability to make private financial transactions.

While this is a global effort, Australia is certainly holding up its end of the bargain. Among the federal government’s latest restrictions, cash payments of over $10,000 are about to be outlawed.

And on a state level, Victoria upped the ante by banning any cash payments at all in the scrap metal industry.

In response, reader Charles wrote in with the following:

We are moving inexorably to a more autocratic democracy. Security concerns, technology choices made by the young, and concerns about the Black Economy are providing all the justification the political elite need to gain greater control over the governed. Moreover on many issues we now have oppression of the (silent) majority by the minority. It is time to speak up before it is too late. As Edmund Burke suggested “evil prospers when good men do nothing”.’

Thanks for writing in Charles. And thanks for throwing out the term ‘autocratic democracy’. That’s a new one for me…but it really hits the nail on the head.

As Charles suggests, do speak up to anyone who may listen…or even those who won’t. And do vote with your principles. Even if it’s for a candidate in a minor party who stands little chance of winning a seat.

As Edmund Burke also said, ‘Nobody made a greater mistake than he who did nothing because he could do only a little.

Remember to send your queries or feedback to letters@portphillipinsider.com.au. If we publish your letter we’ll only use your first name.

Finally, here’s the latest on the still elusive corporate tax cuts, from The Australian Tribune:

Labor Take Note: Majority of Voters Support Business Tax Cuts

You’ll hear a lot of noise that providing tax cuts to large businesses is merely handing money to the wealthy.

While some higher earners in those big corporations may indeed benefit, those benefits will come because their companies are more competitive under less onerous tax burdens. And more competitive companies — whether large or small — are likely to do more business.

That means more profits. And hiring more people, often at…

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

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You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd