Statistically, the US economy looks
like @#$% right now, but I guess it could be worse. At least we’re not trapped
in our homes hiding from colossal dust storms, while the economy tanks at an
exponential rate, forcing our country into an economic depression.("Dirty Thirties") Still, it
looks pretty grim right now and if you were expecting improvement in the near
future, well, all I can say is “don’t hold your breath.”
Instead
of writing a 5 page report on the economy, I’m just going to give a quick
summary on the economy. Unemployment rate is 8.1% which is still very high
compared to America’s normal rate during healthy economic conditions. The industrial/manufacturing industry is the weakest sector right now and the Industrial Production report, that was released earlier today, was well below the expected consensus. The
severe decrease in production is a result of diminishing import/export orders and
international trade. Inflation is on the rise and energy prices are soaring.
Retail sales was released today, showing a significant decrease month to month
as consumers (you and me) are shoveling out more money for gas and food.
Refineries are operating at lower capacities pushing up gas prices and also accumulating
excess crude inventory.
The big
news for this week was Ben Bernanke’s announcement at the FMOC meeting. The Fed
plans to invest $40 Billion dollars (a month!) into mortgage back securities.
The Fed and Bernanke’s main priority right now is driving down the unemployment
rate between 7.6% – 7.8% in 2013. The purchasing of mortgage back securities is
an attempt to ease large corporation debt which in turn will help stimulate
economic growth. The economic growth will consequently lead to corporations pursuing
a larger workforce as business picks up. As they begin hiring more and more
people the unemployment rate goes down.
When
Bernanke released this news on Thursday the dollar was hammered in the Forex
market. Why did the dollar get hammered after this announcement? I'm not too savvy with monetary policy, but I believe that Bernanke's concern to stimulate the labor market and drive economic growth has forced him to keep the accessibility of money wide open. The Fed controls the money supply by the Fed Fund Rate. The Fed Fund Rate is sitting at 0.25% which increases money supply. Additionally, short-term loans will be made from the Fed instead other banks, pumping more money into the system. Supply exceeds demand, crippling the power of the dollar.
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| Chart of Ticker: GLD |
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| The channel that ticker: USO is running in |
Do you
want to know what the silver lining is? I know exactly where to make money at
in this situation. Three words GOLD, GOLD, and GOLD! (Ticker: GLD) I actually
entered gold Thursday afternoon not only because of the inflationary cycle that
is about to come crashing down upon us, but also because of GLD’s chart technicals.
GLD chart is displaying some serious entry signals that should not be ignored.
I’m also in health care (Ticker: XLV) and been holding that position for the
last 3 or 4 weeks. Both GLD and XLV have long term growth potential. Oil is
also attractive (Ticker: USO) but not at its current price. USO has been
running in a channel since 2009. I actually entered USO when it was around the
$35 level, and the price is somewhat predictable. The channel runs from $30 - $40
and price stalls at right about $35, just long enough for everyone to jump in
for the ride up to $40. Everyone freaks out at $40 and starts selling again. If
everything works out I’m looking to unload the option around $39 – $39.50.
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