The economic news is becoming more dismal every day. This morning’s jobs report showed that no new jobs were created last month. Unemployment remained at 9.1% because the government only counts the people who are actively looking for work. When jobs are not being created many stop their search. All this just before the Labor Day Holiday – enjoy your weekend!
The overall data suggests that the economy is stalling. News from Europe is actually much worse than it is over here. Germany is slowing and Greece may be done with austerity as their leaders have had enough with their economy contracting over 5% this year.
The bond market is rallying and Pimco’s Bill Gross capitulated early this week stating that he should have owned more U.S. Treasury Bonds. The Fed is doing battle internally as the recently released minutes of the last FOMC meeting demonstrated. Some voting members called for immediate action to restart the bond repurchase program (QE3), while others felt that even the promise to keep interest rates low until mid-2013 was too aggressive.
The fact that the first two rounds of quantitative easing did not help the "real" economy is beside the point. The Fed’s job is to protect the banking system and apparently the stock market. The Fed seems likely to use today’s weak jobs report as a reason to launch another round of easing. At least initially the bullish crowd will be happy.
The Fed appears to be running out of tools to battle today’s issues. Europe is a powder keg with potentially dangerous results coming from the mix of bad economic news and debt problems. Avoiding too much stock exposure, at least temporarily, is most likely a good idea. September and October have a history of being rather cruel to investors.
The prospects for more money printing operations coming from our Fed increases the chance for gold to continue its climb to new all time highs. Many feel it is too late to join the gold bandwagon, but one look at the current economy and the Fed’s most likely response to it and investors have to ask – what is the Fed going to do? Nothing? Highly unlikely.
Helicopter Ben (as his nickname goes from an article he wrote years ago) has been and will remain true to his moniker. Dollar devaluation in an attempt to create inflation is his goal. Gold will likely continue to rise in such an environment.
The SPDR Gold Trust (NYSEARCA:GLD) is a good way to invest in today’s volatile environment. Fear begs for safety. Closing at $183.23 today GLD could cross $200 in short order. Use $165.75 as protection should things turn around for the economy.
Disclosure: I am long GLD.