Gold Isn't Glittering, the Economy Is

This week, the Federal Reserve will convene a two-day policy meeting, where it is expected to do a whole lot of nothing, except tell us that we should be prepared for short-term interest rates to rise from the current range of 0 - 0.25 percent. Rates have been at these “emergency” levels since December 2008 and it has been more than nine years (June 29, 2006) since the Fed has increased the Federal Funds rate. At that time the central bank increased rates by 0.25 percent to 5.25 percent. Although the Fed is not likely to act at this meeting, officials must be pleased to see that data are improving. After a rough winter, existing home sales are now up to pre-recession levels and prices are marching higher as well. The new home sales report was below expectations, but through June, sales are still up solidly (+18.1 percent) for 2015 compared to 2014. And although June job creation was a bit below the monthly average seen this year, weekly jobless claims dropped to the lowest level since November 1973…that’s when Tony Orlando and Dawn’s “Tie a Yellow Ribbon Round the Old Oak Tree was topping the charts!

Additionally, the two domestic areas of concern for the first half of the year appear to have abated. The rising US dollar, which acted as a headwind to the manufacturing sector over the first half of this year, seems to have settled into a range; and the rate of decline in mining has eased. Beyond the manufacturing and mining sectors, which together account for less than 15 percent of GDP, the majority of the service sector has shown decent progress in the past four months.

We’ll learn just how well the economy bounced back from a first quarter contraction when second quarter GDP is released on Thursday. Analysts predict that the economy expanded at an annualized rate of 2.5 to 3 percent, though most are also anticipating a more significant pick up for the second half of the year. The government will also release annual revisions to GDP at the same time.

MARKETS: Gold fell for 10 consecutive sessions through mid-week, the longest losing streak in almost 20 years and is now hovering at 5-year lows. The precious metal has come under pressure as the US dollar has strengthened. (Because gold is priced in dollars, it tends to fall when the dollar rises.) So much for the gold bug thesis that global central bank intervention would create runaway inflation: there is little evidence of price increases and as a result, gold is down 40 percent from its 2011 peak.

• DJIA: 17,568 down 2.9% on week, down 1.4% YTD
• S&P 500: 2,079, down 2.2% on week, up 1% YTD
• NASDAQ: 5,088 down 2.3% on week, up 7.4% YTD
• Russell 2000: 1226, down 3.2% on week, up 1.8% YTD
• 10-Year Treasury yield: 2.27% (from 2.35% a week ago)
• September Crude: $48.14, down 6% on week (-9.6% YTD)
• August Gold: $1,085.60, down 4% on week (-8.3% YTD)
• AAA Nat'l avg. for gallon of reg. gas: $2.72 (from $2.76 wk ago, $3.54 a year ago)

THE WEEK AHEAD:

Mon 7/27:

8:30 Durable Goods Orders

10:30 Dallas Fed Survey

Tues 7/28:

Ford, Pfizer, Twitter, Yelp

9:00 Case-Shiller Home Price Index

10:00 Consumer Confidence

FOMC meeting begins

Weds 7/29:

Facebook, General Dynamics

10:00 Pending Home Sales

2:00 FOMC meeting statement released

Thurs 7/30:

Amgen, Conoco Phillips, LinkedIn, Proctor & Gamble, Time Warner Cable

50^th Anniversary of Medicare

8:30 Q2 GDP (1^st estimate)

Fri 7/31:

Chevron, Exxon Mobil

8:30 Employment Cost Index

9:45 Chicago PMI

10:00 Consumer Sentiment

Aunt Jill on the 404: Bitcoin for dummies

“You always seem so happy when you are on CNET's 404!” exclaimed a friend. That’s because hanging out with Jeff Bakalar and Justin Yu is just about the most fun I can have during the workweek. In this episode, Jeff wants to know the real deal about Bitcoin, the unregulated electronic currency and then we field questions from the fabulous 404 fans about index funds; investing in silver; paying taxes for green card holders; and whether it makes sense to be a landlord.

Will slowing growth cause a spring swoon for stocks (again)?

Here we go again. For the past three years, investors sang the blues (“spring can really hang you up the most…”) as global growth fears infected sentiment and U.S. stock indexes tumbled by double digits in 2010, 2011 and 2012. The damage this year has been limited – stocks have dropped just 2.4 percent from the recent highs. But the concern over growth escalated last week, after China reported Q1 GDP of 7.7 percent, below expectations of 8 percent. As if slow growth in China and mediocre corporate earnings were not enough (see market section below), there has been bad news from every trader’s favorite Doctor, Dr. Copper. Copper is widely seen as the only commodity that holds a doctorate in economics, and the one that can most  accurately reflect the state of the global economy, because it is used in everything from pipes to high tech equipment.

Last week, Dr. Copper became eligible for bear market status, settling down 21 percent from its February 2012 high. It stands to reason that if the largest consumer of copper (China) is slowing down, demand for the industrial metal will ebb. But if the Chinese slowdown is temporary, copper and the stock market bears, may turn out to have erred in the diagnosis.

Meanwhile, growth in the U.S. likely picked up in the first quarter. GDP is expected to rise by a robust 3 percent, when the first estimate is reported on Friday. Last year ended on a sour note, as the U.S. economy expanded by just 0.4 percent, but the trend is likely to have reversed in the beginning of 2013. Investors are not likely to savor the results, because they are bracing for Q2, which is expected to be a clunker due to government spending cuts.

Markets: Last week, I pointed out that gold had been tanking, but who knew that the rout would continue so dramatically just a day later? The yellow metal cratered by 9.3 percent on Monday, the largest one-day percentage drop in over three decades. Gold  finished the week down a whopping 7 percent, and off over 25 percent from its August 2011 high print of $1920 an ounce. "Gold Bugs" will remind us that the “safe-haven” surged more than 7 fold from 2001 to 2011. Those same folks will omit that gold fell 52 percent in the 1980’s and by another 29 percent in the 1990’s. Welcome to the world of commodities!

• DJIA: 14,547, down 2.1% on week, up 11% on year
• S&P 500: 1555, down 2.1% on week, up 9% on year
• NASDAQ: 3206, down 2.7% on week, up 6.2% on year
• June Crude Oil: $88.27, down 3.6% on week
• June Gold: $1395.60, down 7% on week
• AAA Nat'l average price for gallon of regular Gas: $3.51

THE WEEK AHEAD: After the worst week of the year for stocks, investors remain on edge. As earnings season continues, bulls will stress that 2/3 of the companies that have reported have beaten forecasts. Meanwhile, the bears contend that only 43 percent beat their revenue numbers. Amid the battle for market direction, keep an eye on Apple, which reports quarterly results on Tuesday after the close. The stock has tumbled nearly 45 percent since its September high of $705 and is down over 26 percent year to date.

Mon 4/22:

Halliburton, Caterpillar, Texas Instruments

10:00 March Existing Homes Sales

Tues 4/23:

Apple, AT&T, DuPont

8:30 March New Home Sales

Weds 4/24:

Boeing, Proctor & Gamble, Ford

8:30 March Durable Goods

Thurs 4/25:

UPS, 3M, Amazon, Starbucks, Exxon Mobil, Altria

8:30 Weekly Claims

Fri 4/26:

Chevron

8:30 Q1 GDP

9:55 U Michigan Sentiment