The Danger Of The Fed's Tall Tales

Gold is rallying again. The dollar’s not.

You should probably make peace with this trend; it’s going to define our future into the 2020s.

Because now the market plainly sees — as I have been saying since 2012 — that the U.S. economy is a bit like Wile E. Coyote: His jerry-rigged plans to catch his prey never quite work out, because he’s not wily enough to understand that his plans are doomed from the outset. He doesn’t understand his prey.

Thirty-eight thousand jobs. That was the latest Acme anvil to smack the coyote senseless.

It came out of the blue to shock Wall Street, and the Street quickly beat a retreat on what passes for cogent analysis. All the pundits, prognosticators and newsletter commentators who told you with great certainty that the coyote would catch the roadrunner at their June meeting suddenly decided that, nope, the coyote will now miss again. They’ve now decided, based on what the coyote is telling them, that roadrunner is likely on the menu for July.

Once again, they will all be wrong.

All of which means, of course, that gold is where you should be invested today…

Here’s my prediction: If we see an interest-rate increase this year — and that is a very tenuous “if” — December is the earliest month it will happen. And I’m not convinced the Federal Reserve will raise rates until 2017 or even 2018, but more on that in a moment.

The dismal jobs report last week killed any hope of an interest-rate hike when the Fed meets next week for its June confab. Wall Street was expecting 162,000 jobs for May. The economy delivered less than a quarter of that.

The cherry on top: the Bureau of Labor Statistics also revised downward by 59,000 the number of jobs the U.S. economy ginned up in March and April. Here’s how it all shakes out graphically:

Jobs Growth - interest rates

And here’s a look at what the economy has been doing in the last four quarters:

GDP Growth - interest rates

Question: Do those two charts tell the tale of an economy so healthy it’s in need of a rate increase to temper the exuberance?

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As a lifelong world traveler, Jeff ...

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