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The Labor Department reported that inflation in the U.S. remains tame, the consumer price index rising 0.1 percent in May and just 1.4 percent higher on a year-over-year basis.
Though the annual rate of inflation is up from 1.1 percent in April, it is still well below the Federal Reserve’s two percent target and, as such, is likely to play a key role in the policy announcement from the central bank tomorrow.
Someone once said that, in an ideal world, central banking would be boring – they would quietly do their job and both the economy and financial markets would do what they do.
Obviously, we’re far removed from that reality as nothing in the financial world matters this week other than the Fed meeting and, as we near tomorrow’s conclusion of said gathering, Art Cashin provides some insight into how markets see what the Fed may or may not do.
The key takeaway is as follows from the CNBC transcript:
He probability may say something like, “While the fed is happy that we’ve made some progress in one of our targets, which is payrolls and getting people back to work, we really haven’t moved the ball in the inflationary area.” We’re down very low, so, probably no tapering until the proper balance.
MUST READS
Fed Likely to Signal Tapering Move – Financial Times
Treasurys fall on Fed tapering report – MarketWatch
Dollar, shares subdued as Fed keeps markets on edge – Reuters
Obama: Bernanke Stayed at Fed ‘Longer Than He Wanted’ – Bloomberg
Crossed signals over Fed’s stimulus efforts – Bloomberg
Corrupted credit ratings: S&P’s lawsuit and the evidence – voxeu
NYU Creates Student Debt Slaves to Subsidize Summer Homes, Pensions – NC
Old professors won’t retire, young ones lose out – CNN/Money
Seven Important Examples of How Markets Can Fail – Fiscal Times
The Real Story of the Cyprus Debt Crisis (Part 2) – of two minds
Lenders ambush newly solvent borrowers seeking old debts – OC Housing News
The case for official e-money +1 – FT Alphaville
To find out what Tim thinks of today’s news, subscribe to Iacono Research
MARKETS/INVESTING
Oil prices fall toward $97 before US Fed meeting – AP
Gold prices retreat ahead of Fed meeting – Reuters
Five charts to tell if stock buyers are too bullish – MarketWatch
Will the Stock Market Party On? It’s All Up to the Fed. – WSJ
The end of the commodities supercycle is nigh, in Asia – FT
Next bust creeps a little closer – MSN Money
China’s Stock Market Intervention—Expect More – CNBC
JPMorgan: “Fed Stimulus Removal Could Create Tail Event” – Zero Hedge
SocGen says continued ETF selling will drop gold price to $1,200 – Mining.com
The Gold Clock Goes TIC-Tock On SE Asia – Seeking Alpha
How China is Coming to Dominate the Gold Market – BullionVault
ECONOMY/WORLD/HOUSING/BANKING
Mid-June Jobs Weak Before FOMC Meeting – Gallup
High home ownership as a driver of high unemployment – voxeu
Fiscal Headwinds: Is the Other Shoe About to Drop? – San Francisco Fed
Brazil protests spread in Sao Paulo, Brasilia and Rio – BBC
Turkey Detains Protest Suspects, EU Meetings Reported Canceled – Bloomberg
Breaking a Taboo: German-Russian Relations Hit a Deep Chill – Spiegel
Hong Kong investigates HSBC, other banks for inappropriate market conduct – Reuters
Beijing luxury property market rebounds in May – China Daily
The alarming decline of housing affordability in Canada – Globe & Mail
California home prices soar to new highs – Housing Wire
Quantitative easing may be most powerful when it ends – Telegraph
FOMC Meeting Begins – Fed Watch
From this item at the Illinois Policy Institute comes the sobering graphic below depicting how one state has fared over the last year vis-a-vis job creation and public assistance.
According to this story at the Chicago Sun Times, the Illinois economy saw 1.9 percent real growth in gross domestic product last year.
Some back-of-the-napkin calculations based on the data here reveals that food stamps had about as much to do with that growth as did new jobs.
It’s been an interesting year for me regarding my health and medical insurance as routine hernia surgery last month has given me some first hand experience in how the health care industry works (see Bitter Bill: Why Medical Bills Are Killing Us) and, just last week, we got word that our health insurance premiums will soon be going up by almost a third.
On the first subject, I have to say that, having had similar surgery about eight years ago, the medical industry continues to progress in leaps and bounds as the entire process was even smoother than before (and I didn’t pass out this time when they stuck in the IV).
This includes really cool “glue” that has replaced sutures over the incision and even more effective drugs that are used during and after the procedure.
No complaints there.
Once the medical bills started to arrive, it became clear that anyone of moderate means who thinks they can “self insure” is very misguided. Not only are medical costs sky-high, but without an insurance company on your side, you pay about double to most of your care providers.
I was stunned to see the doctor bill indicate $X and the insurance company says pay $X/2.
For some reason, the hospital bill (the biggest of the lot) saw less than a 10 percent reduction – I have no idea whether this is the case across the rest of the country and who’s winning the battle between hospitals and insurance companies as detailed in the Time Magazine article referenced above.
A routine annual exam a couple weeks back revealed that everything’s hunky dory after about two years of “living la vida low carb”. The doc said that what you do in your 50s makes all the difference in how your body is in your 70s. You can either be a 70-year old in a 50-year old’s body or a 70-year old in an 80-year old’s body.
It’s your choice based on the choices you make regarding diet, exercise, etc.
Last week, we got a note from the insurance company informing us that our rates will soon go up by 28 percent. I figured I’d give them a call since there was one minor outstanding issue from my annual checkup and I’d ask about the rate increase. Surprisingly, I got an earful from this insurance company about the impact of the Affordable Care Act on the industry and, not surprisingly, it is now clear who will be paying for all those “free” preventive services mandated by the law.
As you may or may not know, annual checkups are now included at no cost as part of health insurance plans and this comes with colonoscopies, mammograms, and a few other goodies that, if you’re in your 20s or 30s, you could care less about right now.
Anyway, a back-of-the-envelope calculation reveals my wife and I have already gotten about $3,000 worth of these services in the last couple years and, now, the health care industry wants that money back.
This is likely going on all across the country right now as I was told that our insurance company has been paying out 92 percent of the premiums they receive on health care costs. Presumably, this is up from a smaller percentage that allowed for more money to flow to the bottom line and, to no one’s surprise, this isn’t going over very well.
Of course, everything changes in another six months and both insurers and states are still struggling to adapt.
My guess is that things are going to get worse before they get better, money-wise, but the sort of preventive care changes being implemented are surely a positive development.
We still have the best health care in the world – if you can afford it.
[Some excerpts from the latest issue of the Weekend Update at Iacono Research.]
Following another wicked sell-off on Friday, June 7th, gold and silver rebounded last week and they did so as the price of most other asset classes declined. Fresh safe haven demand as a result of rising geopolitical tensions in the Middle East were no doubt a factor as was a weaker U.S. dollar.
Though gold ETF outflows reached their slowest pace in four months and futures market positioning has improved considerably, precious metals remain under pressure from a combination of factors. These include a weak chart set-up for technical traders, rising long-term interest rates, and ongoing efforts by the Indian government and central bank to curb demand by the world’s biggest gold consumer.
For the week, spot gold rose 0.5%, from $1,384.60 an ounce to $1,391.50, and silver jumped 1.8%, from $21.69 an ounce to $22.08. Gold is down 16.9% so far in 2013, nearly 28% below its all-time high of over $1,920 an ounce in 2011, and the silver price is down 27.2% this year, some 55.4% below its record high reached over two years ago.
Precious metals continue to move counter to broad equity markets and, while stocks are outperforming the metals by a very wide margin in 2013, the recent relationship between the two could prove to be very important for investors.
U.S. stocks have now declined three times in the last four weeks while the gold price has risen each time stocks have fallen.
As detailed here earlier in the month and as shown below, stocks and gold have seen a modest positive correlation over the years. But, so far in 2013, the two have an unusually strong inverse relationship.
[To continue reading this article, please visit Seeking Alpha and to access precious
metals commentary that is only shared with subscribers, join Iacono Research.]
By Tim Iacono, Since 2005
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