U.S. in industrial recession; time to buy gold
Posted on January 4, 2016 by GS Early
Recently, U.S. Steel (NYSE:X) CEO Mario Longhi made the rounds of the financial shows and upped the ante on his concerns regarding the U.S. industrial metals industry. This sector has been the backbone of the U.S. economy for decades. If it’s sick, the whole economy is sick.
Longhi runs one of the largest steel companies in the United States, and the fact is his troubles are a bellwether. Simply put, U.S. industrial strength is withering. U.S. Steel’s stock dropped 37 percent in November alone and 70 percent for the year.
With all the great economic news we keep hearing, what’s really happening here?
Longhi’s long-held concern has been that the Chinese are dumping steel on the global market, which not only hurts U.S. Steel domestically but makes it very difficult to compete abroad, especially when many economies are struggling.
Longhi isn’t backing down from that assertion, but now he has voiced an even bigger concern for the United States. He’s convinced that the U.S. is in an industrial recession. And it’s not just a problem for U.S. Steel; it’s about the U.S. industrial base as a whole. For example, aluminum giant ALCOA (NYSE:AA) is off 40 percent.
And these are simply representative of major U.S. industrial metals firms. Other firms around the globe are in similar, if not worse, shape.
This is the story at the margins that no one really looks at. Yes, unemployment is an important indicator of nation’s economic health. But aren’t manufacturing and production crucial as well?
The Federal Reserve raised rates last month.
It did so in the face of mixed signals from the economy. But mainly it did so to keep its credibility intact. The media has been pushing the story that the U.S. economy is recovering. The Obama administration is pushing the same view, since we’re entering an election year. The Fed needed to raise rates to prove it’s true. Had it hesitated, the markets would’ve acted on the whispers that the emperor has no clothes (the U.S. has no recovery).
The other uncomfortable fact the institutional players don’t want to face is that the global economy has been taken over by central bankers. The markets are no longer free; they are manipulated by central banks, and the financial services companies have learned to game the system the central bankers have put in place. And they’re all making at very well while the “broad” economy flounders.
What’s more, because of central bank control, the U.S. dollar has become the most powerful currency on the planet. It is the most stable of all the currencies out there at this point. And it has been the global port in the storm for years.
By raising rates — and bear in mind, most industrialized nations continue to lower rates — the dollar is going to end up a target of traders. It could very well start a major repositioning in foreign exchange markets.
Given the weakness in the U.S. energy, industrial and manufacturing sectors, any significant overreaction to the dollar may well send the U.S. into a recession by the end of the first quarter of 2016.
So as this chaos unfolds, where’s the best place to profit as well as protect your assets? Gold and silver.
In the turmoil that is about occur, investors will look to gold for some stability until this all shakes out. Silver generally tracks gold over the long term and can be a good alternative. Just bear in mind that silver is also an industrial metal (it is used to make large-scale items beyond jewelry or coins, like hospital supplies, solar panels and electronics) and may have more volatility because of the sad state of the global economy.
The thing is gold and silver are so beaten down that as the Fed moves and the world’s markets react, gold and silver take their place as historic stores of value, at least until the volatility settles. That could send them up significantly from their current levels.
Poster Comment:
Recession is upon us. Do what you need to do now to prepare for the coming depression.