By Samuel Bryan, SchiffGold
Media and government officials keep telling us the economy looks great, but a peek behind the curtain tells a different story.
Some people do see the writing on the wall. Peter Schiff has been saying the US may well have already entered a recession. Last month, Jim Grant echoed Peter, saying the US economy likely went into recession in December 2015. And in a recent interview, Rogers Holdings Chairman Jim Rogers said there is a 100% probability the US will be in a downturn within a year:
It’s been seven years, eight years since we had the last recession in the US, and normally, historically we have them every four to seven years for whatever reason—at least we always have. It doesn’t have to happen in four to seven years, but look at the debt, the debt is staggering.”
The debt is indeed staggering, and that’s not the only sign of trouble on the horizon. But by and large, the mainstream just doesn’t get it. Last week, the government revised GDP growth up to 1.0% for the fourth quarter of 2015. It was at 2.0% in Q3. That led to extensive cheerleading.
But once again, mainstream analysts put on rose-colored glasses and it’s blinded them to reality. Digging just beneath the surface, we find a lot of reasons to be less optimistic about future economic prospects.
As economist Bob Murphy pointed out, the GDP numbers aren’t good at all when you put them in context:
Yes, this new estimate of 1.0% real growth in 4q 2015 is better than the original estimate of 0.7% growth, but it is still half of the 3rd quarter growth. For those who rely on these numbers, why are we supposed to be happy that the annualized growth rate fell in half from 3rd to 4th quarter 2015?…Even according to the White House’s own chart (posted above), we can see that the recent announcement is hardly grounds for breaking out the champagne. In the chart above, we added everything in red. Look at how the quarterly 2015 growth figures compare to 2007. Why is all of this good news?”
Then we had this week’s “better than expected” job numbers. Employers added more workers than anticipated last month.
In fact, analysts in several mainstream publications suggested all of this good economic news may well put Federal Reserve rate hikes back on the table. But again, they ignore important underlying data. While the number of jobs rose, wages unexpectedly declined, “dashing hopes that reduced slack in the labor market was starting to benefit all Americans.” Bloomberg went on to point out, “Average hourly earnings dropped, the first monthly decline in more than a year, and workers put in fewer hours.” That means lower productivity.
In related employment news, a headline at CNBC proclaimed “US Layoffs Ease in Feb, Totaling 61,599.” But again, a little context takes the shine right of the headline. All you have to do is read three paragraphs into the story before you hit that uh-oh moment:
Despite the month-to-month fall, downsizing in February was 22% higher than in February 2015. In the January-February period, announced layoffs were 32% higher than during the first two months of 2015.”
This lead us to other troubling signs that the media brushed off while cheeleading jobs and GDP. The US trade deficit expanded to $45.7 billion in January. Exports fell for the fourth straight month. And US factory orders tumbled for the 15th straight month. As ZeroHedge pointed out, in 60 years, the US economy has not suffered a 15-month continuous year-on-year drop in factory orders without being in recession.
Finally, we have what Business Insider called “the clearest sign yet that something is wrong with the US economy:”
Markit Economics’ monthly flash services purchasing manager’s index, a preliminary reading on the sector, fell into contraction for the first time in over two years. The tentative February index was reported Wednesday at 49.8. That’s below 50, the border between expansion and contraction.”
The media and government spokespeople can keep spinning it all they want, but raw data doesn’t lie.
So, what should you do? Jim Rogers said he’s long the US dollar, even while calling it a potential bubble in the making. Bubbles pop. But historically, gold and silver provide a safe haven during times of economic trouble. In fact, that’s exactly why gold continues to climb in what many are now calling a bull market. Investors don’t seem to be buying the economic sales pitch. But they are buying gold and silver.