This week's chart shows U.S. economy gradually sliding into recession. This indicator is the average year-to-year change of about twenty measures. Many are real measures, like tons or units, so some of false impressions created by incorrect price calculations are avoided. Only recently has the collapse of the housing sector been acknowledged as a serious negative on U.S. economy. Many have mistakenly believed Wall Street could "feed" the nation. Then, CAT reported earnings last week, slapping the deluded economic prognosticators awake. Burlington Northern has reported that shipment volumes fell 5% in last quarter. A freight car not carrying corn, is a freight car in a recession. As shown in the chart, the U.S. economy is moving toward stagnation, and will deteriorate further in 2008.
Twiddle Dee and Twiddle Dumb, one at Federal Reserve and other at U.S. Treasury, continue to focus on saving banks from their rather stupid creation of SIVs. Fine if families are thrown out of homes, investment bankers must be rescued. Proper economic response would be to let some of those banks fail! Due to this ineptness, dollar has plummeted and Gold has risen. Much of this has been discounted by currency and Gold markets causing attention to turn to FOMC meeting next week. U.S. dollar likely started a short-term rally on Monday. Without a major negative announcement or more false data such as that released by U.S. department of labor, FOMC may have little justification for a rate cut. As that would be surprise, further short-term strength in U.S. dollar could develop. Investors should be building cash in order to buy Gold when it becomes over sold or moves lower. Then, hold for $1,400+.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html.