With crude oil surging 2.3 percent as the Dow moved toward the 18,000 level and gold and silver consolidated recent gains, today James Turk told King World News that what we just witnessed was a huge wakeup call for the world.
James Turk: “Commodities are moving back to center stage, Eric. Last Friday’s unemployment report was a huge wakeup call…
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James Turk continues: “The shocker was how few jobs were created in May. Though signs of a weakening economy have been evident for months, Wall Street is finally starting to get the message that a recession is imminent, if in fact one hasn’t already begun. Consequently, the Federal Reserve is not going to raise interest rates in June, nor do I think will it raise interest rates anytime this year.
As I have been saying for years, the federal government cannot afford to pay a fair rate of interest because its debt load is so high. Higher interest rates would worsen the federal budget deficits. So the Fed will keep interest rates low to lessen the federal government’s debt burden. Nor will the Fed raise rates as the presidential election approaches, particularly with the economy weakening.
But returning to Friday’s report, the interesting thing is what happened in the stock market. Initially the major averages sold off, which is a bit counterintuitive given that low interest rates have propped up stocks for years. But I think what happened is that the stock market sensed as a result of the wakeup call from the low payrolls number reported Friday that a recession is brewing, and a recession is bad for earnings.
With valuations for the major averages already high, stocks were vulnerable. So they fell after the payrolls report. But now the major averages are rebounding. So the question is, are they rebounding because stocks will continue to benefit from low interest rates? Or is it because stocks see rising inflation coming down the road? I think it is the latter.
Because of the general rise in commodity prices, money is moving into the shares of companies involved in commodities. The reason of course is that these shares will do well in an inflationary environment, and the signs of inflation are all around us.
Even by the government’s own calculations, core inflation is running at or above 2% for months. But more importantly, look at what commodity prices themselves are telling us. Crude oil for example is back at $50 a barrel, which is clearly going to have an impact on price.
The big news going forward is that inflation is coming back, and it is happening with a weak economy. That means we are headed for something we haven’t seen since the 1970s – stagflation. That’s a terrible outcome — a stagnant economy with rising inflation. But we know how to prepare for it today. It is the same way people prepared for it in the 1970s. Buy physical gold and silver.” ***Also just released: The Truth About D-Day And The Markets CLICK HERE.
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