Gold’s purpose as an investment isn’t to provide you with quick gains. It’s a portfolio diversifier that can reduce dependence on counterparty risk – and right now, the counterparty you need to worry about is the Federal Reserve.
After years of interest rate suppression, inflation has reared its ugly head and now the Fed has to overcorrect in the other direction with stringent monetary policy. As a result, Federal Reserve Chairman Jerome Powell wants to see the U.S. unemployment rate rise, as much of the “sticky” inflation has been in the services sector.
Powell definitely didn’t get what he wanted on Friday, as the unemployment rate actually fell to 3.5% in March. It’s still very close to the lowest unemployment rate since 1969. Additionally, the labor force participation rate rose in March to 62.6%.
Due to fear of the Fed continuing to tighten the screws on the economy, we’re living in a bizarre time when good news is bad news. There wasn’t much fear in March, however, as the stock market powered higher because investors assumed that the central bank would pivot from interest rate hikes to cuts this year.
It’s not reasonable to make that assumption, as Powell specifically said that “rate cuts are not in our base case.” Referring to other FOMC officials, Powell emphasized, “Participants don’t see rate cuts this year. They just don’t.”
Moreover, if the Fed doesn’t observe the unemployment rate rising on its own, don’t be surprised if the central bank forces it to go up. Without an imminent, aggressive Fed pivot, the interest rate hikes that have already been enacted will continue to inhibit borrowing and lending activity; this, in turn, is bound to have a negative impact on business growth and hiring.
Courtesy: U.S. Federal Reserve
This has totally flown under the radar in the mainstream press, but the Federal Reserve Board openly predicts that the unemployment rate will be at 4.6% in December of this year. This isn’t just a prediction, though; it’s a telegraphing of what the Fed will engineer if it doesn’t happen on its own.
Also, notice how the Fed officials expect the unemployment rate to stay at 4.5% or 4.6% through 2024 and 2025, in order to get inflation down to its 2% target. It’s inflation control at any cost, and we can kiss the 3.5% unemployment rate good-bye.
This, really, is the ultimate recession indicator as it comes directly from the central bank that manages monetary policy for the nation. And, as I discussed a couple of weeks ago, history shows that when the unemployment rate bottoms out and then rises, a recession inevitably follows.
To this, I would add what I call the “MacDonald’s indicator” to the growing list of red flags that a recession is imminent. Layoff announcements from the likes of Meta Platforms, Alphabet, Intel, and other technology giants may have given the impression that unemployment will only rise in Silicon Valley, but a recent development shows that this isn’t the case.
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Reportedly, MacDonald’s is implementing company-wide retrenchment that includes hundreds of job cuts and reductions in employees’ compensation packages. Furthermore, the layoffs will impact workers across departments, including marketing and operations.
If MacDonald’s workers aren’t safe, then who is? The age-old wisdom that MacDonald’s is a great business to invest in during times of economic turmoil, and a place where you can always get a job if all else fails, might not be true in the 2020s.
Courtesy: @chigrl, Bloomberg
Another problem that many pundits in the press are ignoring is a primary driver of inflation: energy prices. OPEC just announced petroleum production cuts, so don’t expect the energy component of inflation to ease anytime soon. Meanwhile, U.S. oil producers generally aren’t spending their cash on new drilling projects, so don’t count on domestic production to save the day.
This is exactly why I’m bullish on nuclear power for the remainder of 2023, and really through the end of the decade. Contrary to outdated notions, nuclear energy is clean and offers an alternative power source to nations that don’t want to rely on foreign sources of fossil fuels.
In my opinion, the easiest way to invest in nuclear energy is through shares of uranium mining stocks. Stay tuned for more information on this opportunity, as government-level acceptance of nuclear energy is quickly gaining traction and share prices could easily move higher this year.
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