Is Economic Recovery Really on its Way?

The markets and the economy are not in the clear just yet.

For example, international trade had become increasingly disrupted since the beginning of 2020, well over one year ago, and over the course of the last week, instead of trade moving towards a more functional just-in-time inventory system that markets and economies have become accustomed to, and dependent on, global supply chains have been stressed and strained even more with the events that took place with international ocean-bound shipping in general, and with the Suez Canal specifically. Sure, the container ship Ever Given was re-floated and the canal reopened after almost a week of around-the-clock work, but the ripple effects of the unexpected halt in shipping will take some time to sort out and clear up. That’s the best-case scenario, and that’s assuming there are no more disruptive incidents in international trade.

In other words, one may be looking forward to the economic “recovery”, but all signs point to continued challenges, difficulties, and struggles.

In no particular order, some continuing problems include:

  • Various stages of surges and waves of the coronavirus pandemic around the world

  • Sporadic travel/leisure restrictions and shutdowns from region to region

  • Shortages of raw materials and essential components needed for manufacturing

  • Governments engaged in arguably reckless fiscal policy

  • Central banks engaged in arguably reckless monetary policy

And to think, that’s just the short, generalized list.

Dialing down, depending on the particular industry one happens to have a stake in, the outlook for the markets and the economy are even more uncertain if not downright dire.

For example, in no particular order:

  • Crude oil, coal, and other “dirty” forms of energy, for lack of a better term, are currently duking it out with “green energy”, for lack of a better term.

  • Entertainment and leisure industries are having a slow restart if they are even restarting at all.

  • The CDC’s eviction moratorium extension, haphazard reopenings, capacity limitations at commercial businesses, skyrocketing lumber costs, mortgage defaults, and myriad challenges are wreaking havoc on both the commercial and the residential real estate markets.

  • Increasing if not dysfunctional nationalism is becoming the new normal as nations around the world deal with devastating natural disasters, outbreaks of various unique human, agricultural, and livestock diseases, regional geopolitical conflict, internal domestic strife, or worse.

All things considered, it is hard to have an optimistic financial outlook in the short-term on the markets and the economy when clearly, regionally, nationally, and internationally, so many of the problems seem to be of the “lose-lose” variety. Superficially, governments around the world are all trying to do something to address the various problems, but arguably, the very last thing a broken system needs is even more inefficient and ineffective governmental intervention.

And yet, here we are.

And if we dial it down even more, to the level of the individual, the family, or the company, we see the common theme continues.

Individuals, families, and businesses face an uncertain short-term financial outlook, such as:

  • If the pandemic worsens, will the government force certain businesses to shut down again?

  • What if the government hikes taxes on humble, middle-class families to pay for infrastructure, race-based reparations, or other fiscal spending programs?

  • What if there’s not another round of Economic Impact Payments, or what if a person can’t keep up with the rising prices on food, healthcare, gasoline, housing, and more?

In my opinion, we are nowhere near the road to recovery. We’re still on the path of pain.

It has been a lot of pain for silver traders betting on an epic short squeeze:

Daily Silver Price

One way or another, silver's price performance will in fact be historic, but it's the timing that blows-up trading accounts.

Gold could be putting in a double-bottom:

Daily Gold Price

I have been looking for a double-bottom around where we are right now, but if it turns out not to be a double-bottom, hopefully, for the bulls, it turns into just a spike low.

In part, I hope it's a double bottom in gold because gold & silver have not closed that massive gap:

Paper Gold to Silver Ratio

The most likely scenario is for silver to catch-down to gold, in my opinion, and by the looks of the gold-to-silver ratio chart above, where gold is now on the chart, that would put silver somewhere in the sub-$20 price range.

Palladium has seen some whipsaw action lately:

Daily Palladium Price

Are we establishing a new sideways choppy channel at higher prices?

Platinum is doing battle at its 50-day moving average:

Daily Platinum Price

Are we seeing a pullback in platinum as an industrial commodity, or are we seeing consolidation in platinum as a monetary metal?

Copper's correction continues:

Daily Copper Price

Copper is important to watch in general because Fed Chair Powell and many other influential, mainstream people have said the bump in inflation is a temporary, one-time thing.

I'm surprised we haven't seen more volatility in the crude oil markets:

Daily Crude Oil Price

Between geopolitical conflict in the Middle East, the US oil industry getting a double whammy from natural disasters and the government's interventions, and the ongoing global supply chain disruptions, one would think the price action in crude oil would be a little more volatile than it has been?

Of course, it's peak complacency, eight days a week:

Daily VIX Price

Is it a good thing that there's barely any fear in the markets?

Regardless, this may not be a good thing:

Daily Dow Jones Price

Because if the stock market can only go up, what does that say about our currency?

If the stock market can only go up, it means our currency is becoming more and more worthless:

Daily US Dollar Index ($DXY) Price

 

Therefore, this current strength in the dollar, relatively speaking, of course, should be used wisely, but only if one is willing and able.

It would not be wise, however, to put those dollars to work by scooping up US Treasury:

Daily US 10-Year Note Yield (TNX) Price

Sure, there could be a short-term trade there as it is pretty much a given that the Fed will come in and cap interest rates by brute force, or even pound interest rates lower again, but with so much market rigging and intervention going on as it is, why even bother with what is essentially just a derivative of the US dollar anyway?

The US dollar is, after all, unbacked, debt-based fiat currency dependent on exponential, unsustainable growth, and pretty soon, everybody will be trying to get out.

Most people, however, will not. That's just the way it goes.

Thanks for reading,

Paul Eberhart

← Previous Next →
Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill.