Stagnation rules the world’s economy

In this question-and-answer session, Trends Journal Publisher Gerald Celente fields a series of questions covering emerging and stagnant economic trends. The questions are designed to reflect the dominant trend lines fueling economic realities across the globe that directly affect your ability to survive the uncertainty and seize opportunities to thrive.

What do you make of the flat jobs reports we see each month in the U.S.? Is this the new norm?

In the absence of a major equity market correction, which is probable, we will continue to see respectable, but not strong, job growth. Look at the latest numbers. In March, 192,000 jobs were created, which was close to Wall Street’s expectation of 200,000 jobs. What was the reaction? The Nasdaq dove 2.5 percent and the Dow fell 150 points. If there really was a strong post-recession recovery, about 300,000 jobs per month would be created; we need 150,000 new jobs per month just to keep up with population growth. And when you look behind the numbers, you find the largest percentage of new jobs is in low-paying, temporary work, business service and health care sectors.

It took more than six years to finally gain back the 8.8 million jobs lost since the Great Recession began. Since then, we lost over two million higher paying manufacturing jobs while creating nearly two million in health care. Two million middle-class wages have been replaced with two million lower class wages.

You have been consistent with a grim forecast for youth employment. Are you still of that mindset?

What will change it? Where are they going to find work? Jobs are scarce and the economy is weak. In 2009, President Obama assured us that his economic policies would produce 4.2 percent growth in 2013. Instead, there was a meager 1.9 percent growth rate.

Look at the United States trade deficit. It rose from $39.28 billion in January to $42 billion in February. It’s simple math: the more we buy from somewhere else, the less we make at home. The less we make, the fewer the jobs. The fewer the jobs, the higher the unemployment rate. It’s all tied together.

For 18-29 year olds, the effective (U-6) unemployment rate, which adjusts for labor force participation by including those who have given up looking for work, is at 15.5 percent. Given the economic fundamentals, we forecast long term unemployment will keep growing.

The jobless rate of Americans ages 25-34 who have only completed high school is at 10.6 percent. And what’s making it even more difficult for that group is that college grads are competing for low-paying jobs. Forty-four percent of Americans aged 22-27 with a bachelors degree or higher have jobs that don’t require a college education. For households headed by someone 40-years-old or younger, wealth adjusted for inflation remains 30 percent below 2007 levels, according to the Federal Reserve Bank of St. Louis. Some 70 percent of our GDP is consumer driven. Until America becomes a more self-sustaining economy, unemployment—youth or otherwise—will trend from bad to worse.

Are global markets weathering political incompetence, global uprisings and stagnant economies better than expected? If so, what does that mean? Why haven’t markets bottomed out?

Global markets are weathering economic storms for one reason and one reason only. Cheap money! And lots of it! Since the Panic of ’08, global debt has soared more than 40 percent, to $100 trillion, by governments that have essentially “borrowed” their economies out of recession. And, with interest rates at record lows, venture capitalists, hedge funds, private equity groups and assorted high stakes speculators have gone on a cheap money gambling binge. Considering the high levels of speculation based on the availability of cheap money, rather than on sound economic growth, I believe the markets will crash when one or more of the big speculators crash.

What investment areas still look promising to you?

Two years ago, when mortgage rates were at record lows, I invested in pre-Revolutionary War stone buildings in Colonial Kingston. But now, with so much geopolitical and economic uncertainty, for me, only gold shines.

Is gold, so far in 2014, trending as you expected?

Yes. The downside risk, as I see it, is around $1,100. On the upside, when gold breaks strongly above $1,475, I forecast it will be the beginning of the next Gold Bull Run. For me, gold is the ultimate safe haven investment. And in a world of dramatic uncertainty, to me, the down side risk is small compared to the upside potential.

What is your forecast for both residential and commercial real estate growth for the rest of 2014?

Plain and simple, this has been an interest rate recovery. When the rates go up, real estate goes down. And even with mortgage rates at their current levels, the best of the real estate rebound, I believe, is over.

What future are you seeing for bitcoin?

Bitcoin reminds me a lot of the 1990s “ Bubble” days. What a show that was. I remember watching CNBC, reading the financial press and tuning into the network morning “news” shows where high-school-age whiz kids, accompanied by their parents, touted companies with no business plans that were selling nothing and making nothing. None of it made sense to me. What was I missing? In the end, not much.

In October 1999, I accurately predicted that bubble would burst by the end the second quarter of 2000. (See Bust, Trends Journal, Fall, 1999). I feel much the same way about bitcoin. It’s a digital currency backed by nothing and it is difficult for me to grasp its operating principles and intrinsic value. We saw some proof of that in February when Mt. Gox, the world’s leading bitcoin exchange, vaporized and 850,000 bitcoins belonging to customers evaporated.

However, I do believe there is a future for digital currencies, especially for investment firms and speculators who play it as a gamble. And it has gained some legitimacy following the recent IRS ruling that will treat bitcoin and other virtual currencies like property, such as stocks, and not as currency. That means that using bitcoins in retail transactions would be a taxable “event.” This is just the beginning. The Securities and Exchange Commission and other agencies are still studying whether bitcoin should be regulated. Thus, each country and various government agencies will be issuing decrees and setting rules that will affect digital currencies.

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