Daily Market Report

Wednesday, June 28, 2017

We see the price of gold higher this morning after the Fed Chairwoman’s comments about rich asset valuations and the set back in the President’s health care bill.

Also helping the price of gold this morning are comments from European Central Bank President Mario Draghi who talked about the strength of the Euro Zone which in turn raised the Euro and pushed the dollar index to a new year low at 96.14.

The gold market is looking for a weaker dollar and a pullback in the equity markets before taking its next step up in the price.

Over The Pond

Italy will inject 17 billion Euro into its country’s largest bank rescue ever to clean up two failed banks.

We have been reporting on the Italy Banking Crisis for some time now and just this past Sunday Finance Minister Pier Carlo Padoan called for an emergency meeting with its cabinet members in Rome.

The two banks needing assistance are Banca Popolare Di Vicenza and Vento Banca. The intervention was needed because depositors and savers were at risk. These two banks were located in the two most affluent areas in Italy and their failure would have hurt the local economy there as many small and medium size businesses count on them for support.

The government tried to keep these two banks afloat, but after seeing the impact it would have on the local community they had no choice but to turn the matter over to the Single Resolution Board in Brussels for assistance.

Europe’s banking crisis isn’t confined to just Italy, as just a month ago Spain had to organize an orderly sale of Banco Popular and Banco Santander as a so-called precautionary recapitalization was needed to keep those two institutions afloat.

As I reported in Monday’s “Market Gage,” the Federal Reserve reported our banks here are in great shape after the Dodd / Frank regulation put them on the right track. As an average investor in a global economy, we really have no idea how failed banks over the pond can affect our economy. For the time being, it seems that the European Community is willing to inject cash into whatever institution is in need of help to keep them afloat. The question remains, how long can the EU keep throwing money at Greece and Italy and whoever else needs assistance before the inevitable happens: An EU financial crisis? And that would lead to a financial tsunami that’s capable of reaching our shores.

I guess the EU has adopted our slogan and has put it to the test. These institutions are “Too Big to Fail.”

Now on to Washington

For years Washington has overspent revenues, wasted billions of dollars on questionable programs and gave trillions of dollars to various countries. Now we sit here with uncontrollable debt, runaway entitlement costs and a healthcare plan that can, if you socialize it, consume EVERY SINGLE PENNY the government will take in.

And you want to cut taxes? Come on, even the most talented magician can’t pull this one off.

And I think no one will argue that in the history of this great nation we have NEVER been so politically divided.

Now the federal government wants the Medicaid costs to become a totally state-funded program? If that happens, these costs will have the potential to wipe out every state budget, putting them into potential bankruptcy status.

So how do we fix it?

OK, I’m putting both hands over my ears, one second. Here it is: We have no choice but to raise taxes or cut programs!

You heard that correct.

There is no other option. The slogan we all heard was “drain the swamp.” Well it’s not that easy when the swamp is saturated with toxic substances and now is considered a toxic waste land. It’s going to cost a lot more than expected to turn this swamp into a beautiful park.

The solution is, something needs to be done BEFORE this country is forced into implementing austerity measures, and you can be sure that will be more painful than just raising taxes. All you have to look at Greece to see how popular that was there.

The U.S. will have to use austerity measures to avoid a debt crisis. That happens when creditors become concerned that the U.S. will default on its obligations. That occurs when the Debt to GDP ratio exceeds 90 percent. That means that the U.S. debt is almost as much as the U.S. economy produces in a year. Some economists say if Washington doesn’t get its act together the government will have no choice but to start considering what austerity measures it will have to impose.

Let me move on to just covering some of the austerity measures the government will have to impose if things get out of hand. They include:

Reduce government wages benefits and hours
Privatize all government-owned businesses and temporarily furlough most government employees
Limit the term of employment benefits
Cut many programs for the poor
Extend the eligibility age for retirement and healthcare benefits
Lower or eliminate the minimum wage
Raise income taxes
And much more

These are very serious, life-changing decisions that at all costs need to be averted. Not to mention the potential for civil unrest.

If the austerity measures are put into place you can be sure you won’t see politicians on Capitol Hill holding a sign on a street corner protesting what just happened. They will be on every news channel blaming the other guy for this mess, when they are ALL to blame.

It doesn’t matter what political party you call home. All our lives will be effected one way or another
unless we stop this madness and come together as Americans. This country has a big problem that has to be addressed NOW or it will be too late.

Back to the market

For the ones who are left with some money to invest, where do you think all the money will be headed? Where will the equity market be? I don’t think the Dow will be experiencing a strong bull market in this environment, do you? What product do you think will shine in this environment?

I don’t care if you are not currently a gold bug, but I assure you if this happens you will be.

I’m done.

Have a wonderful Wednesday.

Investing in Precious Metals

Many Investment advisors recommend precious metals as part of a properly diversified portfolio to provide capital appreciation, liquidity, and a hedge against conventional paper assets. Because precious metals are counter-cyclical to paper assets, a diversification into gold, silver, and platinum can therefore reduce the total risk of your overall portfolio and preserve your wealth. History supports the premise that investment in precious metals is the best protection against uncertainties in the future.

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