Final revised fourth quarter GDP figures released today come in at 2.9 percent. The street was expecting 2.7 percent. These results were before the tax breaks were implemented. When the numbers were released this morning Dow futures curiously dropped 50 points off the number.
Ten-Year Treasuries this morning are trading in the 2.75% area and all Ten-Year Yields across the globe are trading lower. I’m perplexed trying to understand why the price of Gold isn’t reacting better to the news. So I felt compelled to call my economist friend for an explanation.
I asked if the economy is growing at close to 3 percent why aren’t the equity markets happy about the news? He said, “First of all, you must remember it’s the end of the first quarter. Investors will not be putting new money into the market at the end of the quarter. Especially with a three-day weekend ahead and the wild volatility seen in the markets in the last three months. You told me last time we spoke that you believed that the increase in the fourth quarter GDP growth was accomplished using borrowed money. I cannot confirm nor dispute your argument. That could be true, especially looking at individual debt climbing to an all-time high of over 13 trillion dollars.
“The other reason I expect is that both the equity markets and your markets are afraid of more hike hikes imposed by the Fed. I expect if we see multiple rate hikes, the impact will be a slowing economy. Higher interest rates curb spending. No one knows what effect the tax cuts will have on the growth in the first quarter. We will just have to wait and see.
“I’m sure your market is no different than the equity markets. They both don’t like uncertainties. I’m not an expert in the Gold market. I call you for information regarding the price of Gold, but what I surmise that what is holding your market back is the value of the greenback and the threat of more interest rate increases. Until you get some clarity in those two areas, I don’t think you will see much movement. Then again you are the guy I turn to when I need a pulse of the Precious Metal markets. So for the time being, we’ll just have to wait and see what the 1st quarter results show before I can give you my take on where the U.S. economy is headed. Enjoy your holiday and thanks for the call.”
Well there you have it. It seems he’s as confused as I am trying to understand where we go from here. Anyway, it is time to celebrate the holiday with family and friends and to recharge your batteries up to 100 percent because in the upcoming months, with markets like this, we will need all the energy we can muster.
BOE Has Something In Common With the Fed
On Friday, a member of the Bank of England’s Monetary Policy indicated he was ready to vote for a rate hike at the May meeting. This comment was equivalent to one of our Fed Presidents’ “between meeting comments” trying to sway other members or trying to get help from the market for his cause.
Back in November, the Bank of England increased rates by a half of a percent for the first time in over a decade. They went on to say that at least two quarter point rate hikes would be needed to control inflation. But the markets over the pond as well as here in the states are still looking for an increase to their inflation target rate before raising rates.
Still hanging over the heads of the members of the BOE is the risk that the Brexit negotiations won’t pan out as hoped.
It seems that our Fed and the BOE are still looking for the data to justify future rate hikes and unfortunately for the hawks, the data is not there yet.
Here in the States, the last three months came in at 1.8 percent below the Fed’s target rate of two percent. The inflation rate in the UK in February was at 2.7 percent down from 3 percent the previous month. February’s inflation rate was the lowest there since July last year.
So my argument is, why are you both predicting many rate hikes when you don’t have the data to back up predictions? We all know that the March rate hike here in the States was Equity market and tax driven, because without those occurring, the Fed would be hard pressed to raise rates when inflation is coming in at a steady 1.8 percent.
That alone should keep the hands of the Fed tied.
We are taking off Friday, so there will not be a Market Gage. Warm wishes for a happy and safe Easter and start to the Passover for you and your family.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.