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Trade War Fears Spread to Tech and Dow Sheds 328 Points – Egan

Trade War Fears Spread to Tech and Dow Sheds 328 Points – Egan

Release Date:  Friday, June 29, 2018

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Gold and Silver Prices

Gold closed higher on Friday and ended its four-day losing streak as the dollar retreated from recent highs amid a rising euro. Uncertainty over global growth and trade war tensions have intensified which are historical lifts for gold as the traditional safe haven asset. 

 “’Gold is finding support from the weak U.S. dollar and firm euro…and is at least recouping the losses it incurred yesterday,’ Commerzbank said in a note.

 “’At the end of the month and end of the quarter, people try to buy gold to boost it,’ added Michael Matousek, head trader at U.S. Global Investors.

 “The euro increased after European Union leaders reached an agreement on migration. A stronger euro potentially boosts gold demand by making dollar-priced bullion cheaper for European investors.” (PRECIOUS-“Gold up from 6-month lows on bargain hunting, weaker dollar,” Renita D. Young and Eric Onstad, Reuters, 06.29.18.)

Gold ended the week down $16.50, closing at $1,252.40. Silver ended the week down $0.33, closing at $16.09.

Trade war fears spread to tech and Dow sheds 328 points – Egan

The tech industry is now starting to worry about possible trade war with China and the European Union.

Wall Street's trade war anxiety is spreading to tech.

“Tech stocks suffered their worst day in more than two months on Monday after reports that President Donald Trump plans to crack down on Chinese investment in major technologies in the United States.

“The Dow shed 328 points, or 1.3%, and was down almost 500 points at one point.

“’The biggest tax involved with tariffs is uncertainty. Everybody freezes,’ said David Kelly, chief global strategist at JPMorgan Funds.

“Kelly said that the United States is now working on ‘trade conflicts on multiple fronts,’ and failure to reach resolutions could lead to ‘constant conflict for potentially years to come.’

“Until recently, the tech sector had been mostly spared from the trade worries on Wall Street. The Nasdaq hit a record high as recently as last week.

“The tech sell-off followed reports that Trump plans to restrict Chinese investment in ‘industrially significant technology.’

“A person familiar with the plans told CNN on Monday that the measures would include rules that would bar firms with at least 25% Chinese ownership from buying companies involved in technology deemed significant by the White House.

“…investors fear that Trump's showdown on trade with China and other nations could derail the resurgent US economy by denting business confidence.

“Bank of America warned in a report on Friday that supply chain disruptions and waning confidence could create a "trade shock" that leads to an "outright recession." While the firm said the odds of a "full blown trade war" are low, the risks are "rising."

“Federal Reserve Chairman Jerome Powell said last week that the central bank is hearing for the first time from businesses about postponed investment, hiring and decision making because of trade worries. ‘That's a new thing,’ Powell said.

“Harley-Davidson (HOG) provided concrete evidence of the fallout from Trump's trade agenda. The motorcycle maker told shareholders it could lose as much as $100 million a year because of retaliatory tariffs from the European Union. (“Trade war fears spread to tech and Dow sheds 328 points,” Matt Egan, CNN, 06.25.18.)

U.S. Debt On Track To Grow To ‘Highest Level In U.S. History By Far’ Says CBO – Goodkind

If laws remain the same, the national debt and its interest will not leave room for important discretionary programs and will also cause issues with national security.

America’s growing budget deficit will increase debt to the highest level in U.S. history by far, according to the Congressional Budget Office 2018 long-term budget outlook.

“If current laws remain the same, U.S. debt is on track to exceed the size of the economy by 2031. By 2048, federal debt will double to 152 percent of the economy. ‘The prospect of large and growing debt poses substantial risks for the nation and presents policymakers with significant challenges,’ wrote CBO director Keith Hall in a statement.

“As the American population ages, Social Security and Medicare spending will increase significantly, explained the report. Interest payments on outstanding debt will also become a large source of spending.

“’By 2048, as interest rates rise from their currently low levels and as debt accumulates, the federal government’s net interest costs are projected to more than double as a percentage of GDP and to reach record levels,’ wrote Hall. ‘Those costs would equal spending for Social Security, currently the largest federal program, by 2048.’

Increased debt and interest payments crowd out funding for discretionary programs like education, infrastructure, and science research and development. Growing interest also works to lower incomes by increasing inflation.

“National security issues arise as interest payments grow. As unsustainable debt levels weaken America's reputation abroad, defense spending is also crowded out by interest costs. The national debt is ‘the greatest threat to our national security,’ according to former chairman of the Joint Chiefs of Staff Mike Mullen.

“National Intelligence Director Dan Coats said in February that he was ‘concerned that our increasing, fractious political process, particularly with respect to federal spending, is threatening our ability to properly defend our nation.’

“Trump’s trade war with China, Mexico, Canada and Europe is also contributing to a potential decline in the economy. ‘Our calculations suggest that a major trade war would lead to a significant reduction in growth,’ wrote Bank of America Merrill Lynch’s economist Ethan Harris in a research note. ‘A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.’

“The United States is currently more than $20 trillion in debt.” (“U.S. Debt On Track To Grow To ‘Highest Level In U.S. History By Far’ Says CBO,” Nicole Goodkind, Newsweek, 06.26.18.)

This Is Why Silver Prices Could Hit $30-$35 an Ounce Soon – Zulfiqar

The great difference between the silver supply and existing demand can have prices go up to $30-$35 an ounce and as high as $50 an ounce.

Massive Supply and Demand Disparity Calls for Soaring Silver Prices

“If you are looking for the next big trade, then don’t overlook silver prices. The gray precious metal could be selling for a massive discount and presenting the opportunity of a lifetime.

“Understand that the fundamentals of the silver market are improving in favor of the bulls, and they suggest that the silver price could surge.

“There are supply issues in the silver market. Production is in a slump. Consider U.S. silver production.

“In the first three months, silver mine production amounted to 217,000 kilograms. (Source: “Silver In March 2018,” U.S. Geological Survey, last accessed June 26, 2018.)

“In the same period a year ago, silver mine production was 274,000 kilograms.

“Simple math: silver production declined by about 21% year-over-year. No matter how you look at it, this is an outright collapse in production.

“Other silver-producing regions are reporting declines as well.

“in Canada, in the first four months of 2018, silver production amounted to 125,799 kilograms—about three percent lower than the same period a year ago. (Source: “Production of Silver,” Natural Resources Canada, last accessed June 26, 2018.)

“But don’t just get fixated on the U.S. and Canada’s silver production. This phenomenon prevails on a global level.

“In 2015, global silver mine output was 895.1 million ounces. In 2017, mine production dropped to 852.1 million ounces. This represents a decline of close to five percent. (Source: “World Silver Survey 2018,” The Silver Institute, last accessed June 26, 2018.)

“Going forward, you can expect silver production to decline further.

“At the current silver prices, it’s very difficult for a silver miner to ramp up production. Their costs are way too high and they haven’t spent much on exploration either.

Silver Demand Side Remains Strong, Just Look at India

“As for demand, it’s solid, to say the least.

Look at India. The country is building up an appetite for silver and it shouldn’t be ignored.

“In May, the country imported $445.02 million worth of silver. (Source: “Quick Estimates For Selected Major Commodities For May 2018,” India Ministry of Commerce and Industry, last accessed June 26, 2018.)…In fact, it wouldn’t be wrong to say that Indian consumers’ hunger for silver is much more than their hunger gold.

“Also, keep in mind that silver isn’t just a precious metal. It’s used in various industries as well.

“For instance, you really can’t have solar energy without silver. And demand for solar panels around the world is increasing. The “iPhone” contains several grams of silver and so do other cell phones.

Silver Prices Outlook: A Rapid Move to the Upside Could Be Ahead

“Dear reader, I have said several times before in these pages and repeat myself now: What has happened to the silver market in the past few years has been a blessing in disguise.

“The silver market has moved immensely in favor of the bulls, but the silver prices are not reflecting this just yet. There’s a massive supply and demand disparity, which calls for a rapid move to the upside.

“I will end with this: The longer the silver market remains ignored, the bigger the move we will see in silver prices. I truly believe conditions are ripe for $30.00–$35.00-an-ounce silver prices sooner than later.

“If silver prices are able to break above those levels, don’t be shocked to see $50.00-an-ounce silver.” (“This Is Why Silver Prices Could Hit $30-$35 an Ounce Soon,” Moe Zulfiqar, Lombardi letter, 06.28.18.)

Kashkari Says Fed Confused About What’s Next After Neutral Rates – Boesler and Weisenthal

Minneapolis Fed President, Kashkari, feels comfortable moving to a neutral rate to see how inflation evolves.

“Federal Reserve officials are trying to figure out whether they will need to raise interest rates high enough to slow U.S. economic growth in the coming years, or if they can stop before the higher borrowing costs start to bite, Minneapolis Fed President Neel Kashkari said.

“The debate about whether the current level of U.S. unemployment might be too low to keep inflation stable and therefore necessitates tight monetary policy is ‘a very honest assessment of the confusion’ among central bankers at the moment, Kashkari said in an interview airing Thursday on Bloomberg Television.

“’I would be comfortable with us moving to a neutral rate -- not stimulating the economy, but not also constraining the economy -- and once we get to neutral, let’s just wait and see how inflation evolves,’ Kashkari said.

“…The idea is that when the unemployment rate falls below its so-called natural rate, which can’t be observed directly and therefore must be estimated, inflation will accelerate until the unemployment rate goes back up to the natural rate.

“It’s the central bank’s job to make the unemployment rate go back up to stabilize inflation if necessary, by raising interest rates above the so-called neutral interest rate, which also must be estimated. The uncertainty -- which has arisen because unemployment has continued to fall without putting much upward pressure on inflation -- is casting doubt on whether that will be necessary.

“’Once we get to neutral, are we going to go beyond neutral, and does the data -- does the wage growth, does the inflation data -- actually support moving to a contractionary monetary policy?’ Kashkari said. ‘So far, the data does not support that.’

“… The committee raised the trading range for the benchmark federal funds rate after its meeting on June 13, to 1.75 percent to 2 percent. It also published updated projections showing the median participant thought the natural rate of unemployment was 4.5 percent, and the neutral interest rate was between 2.75 percent and 3 percent.

“The U.S. unemployment rate fell to 3.8 percent last month. The projections suggest Fed officials think it will be appropriate to raise interest rates above 3 percent next year, which would halt the decline in unemployment and stabilize inflation at 2.1 percent, slightly above the central bank’s 2 percent target.

No Inflation

“The Fed committee’s estimate of the natural rate of unemployment has been falling in recent years as the jobless rate has declined without stoking inflation. In January 2012, the committee estimated the natural rate was between 5 percent and 6 percent. At the time, the unemployment rate was 8.3 percent.

“Part of the problem, according to Kashkari, is that the estimates may have been too high to begin with, because of how policy makers responded to the 2008-09 recession.

“’In a recession, economists tend to raise the natural rate of unemployment -- they think that people get dislocated, skills are mismatched," he said. "And then, only begrudgingly do they lower it. So one conclusion that I’ve already made is, I don’t think it’s useful, in a recession, to ratchet up the natural rate of unemployment, because we’re so reluctant to then lower it, and we end up being late lowering it in recovery.’” (“Kashkari Says Fed Confused About What’s Next After Neutral Rates,” Matthew Boesler and Joe Weisenthal, Bloomberg, 06.28.18.)