Obama and Yellen Recovery Narrative Unraveling Fast – Ep. 158

* The dollar index traded below 94 for a good part of the day, but it did manage to close up at 94 even, down just .20
* Gold was up another $19
* Silver really shined brightly today, up .54, just below $16/oz.
* Mining stocks, of course, were on fire; GDX was up just under 6% on the day, GDXJ up just under 7%
* This followed a spectacular day for the mining stocks on Friday
* In fact, even though gold itself was down a couple of bucks, we had a huge up day in the gold stocks
* Between Friday and today, I think this is the biggest two back-to-back gains for gold stocks all year
* The catalyst was the Atlanta Fed Q1 GDP estimate downgrade all the way down to .1
* If you remember, from listening to my podcasts, the very first time the Atlanta Fed came out with its upward revision, with a lot of fanfare, to 2.7%, I said that that was all political and that they would have to walk that back all quarter long, and now they have eliminated the entire estimated gain
* A fair estimate might have been -.1, but President Obama is still saying we have the strongest advanced economy in the world
* I don't know what his definition of "strong" or "advanced" is, but we might have one of the weakest of the advanced economies
* It's just that nobody wants to accept that fact yet
* Here's where it really gets interesting: CNBC was very dismissive of the weak economic numbers
* They are characterizing the weak Q1 as similar to previous years' weak Q1, where the weather pushed back some economic activity to Q2, causing rebounds
* They said the same thing is going to happen this year. No it's not.
* This year is different from last year
* First, let's talk about inventories: February and January Wholesale Trade Inventories have been revised down from +.3 to -.2
* Last year, companies were still building up inventories, believing in the recovery narrative, boosting GDP
* The inventory unwind that I have been talking about for the last year is just beginning
* It started in Q1 of this year, and this inventory sell-down is going to subtract from GDP
* Here's another factor: the weather
* The weather for the last two first quarters was very cold, pushing economic activity to Q2, helping Q2 to rebound
* That's not what happened this year. The first quarter of this year was the warmest in over 120 years
* So obviously there was no economic activity pushed forward due to weather, if anything, the weather might have pulled some activity from Q2 to Q1
* As weak as Q1 was, it might have been weaker if cold weather had suspended some economic activity
* The third difference is the trade deficit, which is rapidly growing this year
* I think the growing trade deficit will continue to put a drag on Q2 GDP
* The inventory liquidation will continue to be a drag on Q2 GDP
* What that means is had the government properly seasonally adjusted Q1 for the unusually warm weather, I think Q1 GDP would be a lot lower
* Q1 will be a contraction, and we are going to fall from there
* If that is true, then we are in a recession
* I think this recession will be longer in duration that the preceding one
* The question is: What is the government going to do about it?
* There was a meeting today between President Obama, Joe Biden and Janet Yellen
* They have to figure out how to throw the economy a lifeline without admitting that it is drowning
* The first thing the Fed can do is signal that they are not going to raise rates - change their forward guidance
* By just not raising the rates, the specter of a hike remains
* The question is what story will they use in order to not damage Obama's recovery narrative and Hillary Clinton's campaign?
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