11/14/13

Speculation this morning reaffirmed rumors that Janet Yellen’s position of near zero interest rates for the foreseeable future. Some saying through 2015, some saying 2017 – one thing is for sure, there will not be abrupt change in Federal Reserve policy.

Gold has reacted positively to the news, taking back some of its losses from early in the week. This news should be extremely bullish for gold due to the high level of inflation that will follow once these policies finally commence, but presently, as CPI is reported atleast, remains low. We believe the true number to be higher than reported. As previously stated, we believe gold will move forward non-linear with lower highs, flattening out in calm periods and eventually push towards lower lows over the next year.

Affirmation of such news should weaken the dollar significantly, but when taken into consideration the super cheap money policies of global currencies the dollar is pegged against, should not substantiate a significant move.

What we’ve been watching for in this round of earnings is strength and guidance of major employers. While jobless claims can blur reality by including part time jobs and the unemployment picture excludes those who have dropped out of the race, we’ve been keeping our eye on what big companies are doing. Some of the nations largest employers have been laying off for the past year or so, which we believe has the potential to accelerate at the time in which things get worse for the economy.

Consider over the last 6-12 months:

Walmart cuts 11,200 jobs from Sam’s clubs locations.

Cisco cuts 4,000 jobs citing slower than expected economic outlook.

Kellog recently announced they’d trim they global workforce by 7%, or 2,170 jobs despite higher than expected earnings.

JP Morgan to cut 19,000 jobs over the next two years, saving 1 billion annually, as less homeowners are underwater on mortgages, hence less employees needed to handle those issues.

Of course, the recent government employee layoffs.

Many of these companies are laying off despite satisfactory, or in some cases, stronger than expected numbers. While these numbers are only a small snapshot of recent activity and not enough to cause any real trouble, we believe weaker than expected performance for the overall economy that will result from a weakening middle class and drop in consumer spending will cause leading companies a need to squeeze more out of their balance sheet and ultimately commence in higher volume layoffs down the road. Just something to watch for.