AMERICA: MARKETS HIGH AND FLYING

U.S. equities hit new highs this week. 

While the biggest of U.S. companies have reduced spending on equipment and other capitalist investments, the cheap money flow into the equity markets keeps pushing the overvalued stocks higher.

According to Atlanta Federal Reserve reports, one in five manufacturers cut spending in the first half of 2019. In fact, the Organization for Economic Co-operation and Development (OECD) said that companies are not reinvesting in machinery, buildings, and software, which could cause the “sluggish performance” of these economies to become “entrenched.”

While businesses blame some of the cutback on trade wars, it’s anathema considering how high equities keep flying, and how much money they’re investing in the markets. If the business sector were overly concerned about slowing global growth, funds would not be flowing into equities at their current pace.

And it is beyond irresponsible and reckless for the business media to also claim that rising consumer concerns are holding back retail sales. The average consumer, or even the informed ones, know little or could care less about trade war details. 

It has nothing to do with policy. If consumers have the money, they’ll spend it; if they don’t, they won’t. 

The same holds true for the equity markets: the more cheap money gamblers get, the more they bet. Just today, the Federal Reserve Bank of New York pumped $92.7 billion into the financial system.

TREND FORECAST: With markets continuing to hit new highs, while consumer confidence dipped for the fourth straight month, President John Williams of the Federal Reserve Bank of New York said, “The U.S. economy is in a very good place… I think we have monetary policy in the right place. The key thing is we’re not locked into any specific decision at policy meetings in the months ahead.” 

We maintain our forecast that as the global economy continues to slow, so, too, will America’s. While we do not forecast a rate cut following the Fed’s upcoming December 2019 meetings, we do forecast further cuts from to zero to negative percent before Election Day 2020.

As we go to press, gold is at the critical $1,450 range per ounce. Should it weaken below that range, we maintain that its bottom will be $1,390 per ounce.