Job Report Boosts Precious Metals

The Market Gage - Dillon Gage's Precious Metals Newsletter

We were ending the week with all four metals in negative territory, but as soon as the Non-Farm payroll number was released at 8:30, all four metals had a healthy recovery and traded higher. Non-Farm payroll figures came in at 138,000 after the street expected 185,000. The report shows retail and manufacturing jobs declined, possibly giving the Fed board something to think about before raising rates at the June meeting. In addition to a poor May job report, significant downward revisions to the March and April job reports were also released.

The current CME Watch Tool figure for a possible rate hike in June now stands at 93.5 percent.

Sounding off

I‘m sure this will get you going on a Friday morning. We’re hearing talk on Capital Hill that there is a bill being proposed by some lawmakers to tax employee health care benefits. Great, individual tax cuts in one hand and a tax increase in the other. Are they kidding? The only winners will be the corporations and the executive committees at these firms looking at higher payouts, because the government will be giving them a hand out with lowering corporate taxes. So the average Joe gets nothing and the top of the heap gets it all.

Next topic – Italy’s banking crisis

If you remember a while ago, we shared with you the financial condition of Italian banks. One bank in particular, Italy’s oldest bank, Monte De Paschi, was in particularly bad shape as their uncollectable loans were about to take down the institution.

Once again, just like the Greek situation, Brussels comes to the rescue. Brussels and Italy have agreed on a rescue plan to keep the bank afloat. The plan calls for significant cost cuts, some pain for some investors of the bank and a cap on executive compensation.

You see, Italy banks cannot be bailed out by the state unless their bondholders
take loses first. This initially takes the tax payer off the hook for keeping the banking industry afloat. The Italian government knows that in the end, this policy could wipe out the retail investor. Obviously, this plan just seems to be putting a finger in a leaking dike.

It seems that Brussels doesn’t want to see any bank in Italy fail as they are afraid that it might be the start of a potential banking crisis across all of Europe. The truth is that a significant amount of Italian banks are at the brink of failing. A recent study done by an Italian investment bank revealed that 114 banks out of 500 have a Texas ratio over 100 percent and 24 have a Texas ratio of over 200 percent. (For those not familiar with the term, a “Texas ratio” takes the amount of a bank’s non-performing assets and delinquent loans and divides this number by the bank’s tangible capital equity plus its loan loss reserve. A result of over 100 is a sign the bank can be in trouble.)

Without getting too much deeper into this story, the bottom line is when will the global debt problem go away? Whether it is Italy’s banking crisis or just looking at the global debt clock sitting at almost 59 trillion dollars, there seems to be no end in sight.

After hearing about the constant issues facing the global investor one might think that an investment in physical precious metals is a wise idea to help balance portfolios.

Have a wonderful Friday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. 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. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. 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.