The State of The Economy – Podcast 9.6.13

The End of the Recovery

JM Bullion

Podcast Summary

Ryan discusses the the Syrian situation and its impact on interest rates. Ryan reviews the ADP payroll numbers and the initial jobless claims and notes that they were not too good but the market thinks they were not bad enough to cause the Fed not to taper its quantitative easing program. Ryan thinks that the Fed has no intention of tapering its QE program.

Initial Jobless Claims Down- Fewer People Left to Fire!
Louis notes that the ADP report was not spectacular and that the initial jobless claims while lower is not a sign of an improving labor market but rather a reflection that the labor participation rate is lower and therefore there are fewer people in the labor force to fire. Louis also notes that companies have been down sizing for years and have also moved a lot of employees to part time work.

The End of the Recovery and a Stock Market Crash?
Louis notes that the media is touting the recent job reports as “good economic data”. Louis disagrees and claims worse is to come, citing Syrian situation is problematic whether there are bombs dropped or not, pending Obama care, rising interest rates without a taper, rising oil prices and declining exports. Louis says the economy is not in a recovery and what is ahead of us is worse and claims the “recovery” is over and predicts a stock market crash in the next couple of months. Louis notes rates have soared with only talk of taper.

To Taper or Not to Taper
Louis notes that Ryan thinks the Fed won’t taper at all. Louis thinks that the Fed will try a small taper in September and then use some excuse like Syria to get back to printing. Louis notes that the Fed is still spending $85 Billion and the rates are rising.

Ryan notes that in order to reverse rates from rising would require not just a continuation of QE as is but an admission that more is needed, coupled with an increase in QE.

What Direction is The Real Estate Market Heading?
Louis notes that home prices can’t rise higher with rising interest rates and stagnant wages and fewer people working. Louis notes that housing should not drive the economy and that housing itself can’t drive the housing market with higher prices.

Louis notes that as interest rates rise home prices will drop but there will be a lag. Ryan notes that there is no bright spot in the economy other than real estate. Louis adds the auto market is also doing well due to the artificial boosting of sales via low interest rates.

Louis notes that this time is different than the last housing bubble in the mid 2000’s in that the Fed spent $3 trillion this time to boost the housing market/economy and really did not gain much other than a housing bubblet that he believes has already burst and that to keep it alive will require even more money printing.

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Gold and Silver
Louis and Ryan review the non farm jobs report as it comes out. Louis notes few people are getting jobs and more people are leaving the labor force. Louis discusses the price moves in gold and silver.

Louis noted that the fed’s taper talk cost them a point on the ten year. Louis, notes however, the Fed had to talk tapering lest the markets began to think that QE was a permanent feature of the economy.

Louis notes that once rate go higher there is no money for consumers to spend and spending is important to the US economy. Louis discusses the smash down of the prices of gold and silver.

Syria and its Impact on the Fed and the Economy
Ryan notes that the Fed will need at some point to reverse their position and increase QE.
Louis notes that Syria could easily go from a short and relatively inexpensive operation to a long and expensive one.

Louis notes that a population normally supports the President at the beginning of a war then usually grows war weary. Louis notes in this case the population appears to be war weary before it starts.

Louis notes that it seems that war with Syria is inevitable whether the congress authorizes it or not. Louis notes this sets the stage for the debt ceiling negotiations and the many deals that might be being struck now between congress.

Louis notes that Syria is some sort of necessary expenditure and seems odd that the US is telegraphing its intention of what it might do and how it might do it.

Louis notes that the President will be weakened if he is rebuked on Syria and will emboldened Congress on the debt ceiling and notes he will be weakened if he steps back and forgoes his plan to bomb Syria.

Louis notes that if the bombing starts during the days of the Fed September meeting, the Fed may forgo tapering.

Louis also notes that the demand for treasuries might be increased and rates head down if the US bombs Syria. This would achieve what QE might do.

Louis discusses the ludicrous position that war is good for an economy.

Louis notes that the Fed has a tough choice in wording its statement after its September meeting-they can not say they are tapering because the economy is getting better, they can’t say nothing and just taper and they can’t say they are tapering but might increase purchases. No matter what they do or say their credibility is on the line and the markets will react.

Fed Policy and The Impact on the Dollar
Louis notes that the dollar is support by the US military might. Louis discusses scenarios where the world might lose confidence in the dollar.

Louis notes that the Fed will have a hard time bringing back QE because they already spent $3 trillion without any real positive impact and people will ask where is the recovery and how will more QE help?

Dual Dilemmas-Obama’s and The Fed’s

Louis and Ryan discuss Obama’s dilemma in campaigning as a peace candidate and Nobel prize winner while advocating war in Syria.

Louis notes the Fed’s dilemma:the loss of confidence because they keep printing or the lose confidence because they stop printing.

Louis claims there is inflation because housing food, and energy are up and people are making less money.

Ryan and Louis discuss war as a distraction to economic issues.

Do People Still Aspire to Home Ownership?
Ryan and Louis discuss a recent joint center of housing studies at Harvard whether home ownership was still part of the American Dream.

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Further Reading
The Recovery has Reversed Course-Welcome to the Revocery

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