Minutes from the Federal Reserve meeting from three weeks ago were released and the market took them as a sign that QE3 stimulus is coming soon. As a results of expected money printing, prices of Gold, Silver, and Platinum moved higher due to an expectation of inflation. It is important to remember that money printing alone does not cause inflation. We must look at the total money supply and the velocity of money which is the rate that money gets out into the economy. Most of this money printing has given rise to excess reserves at the banks and we are seeing money supply contract due to debt deleveraging from paying down loans and loan defaults which is the same reason that despite massive monetary stimulus we have not yet seen any significant inflation. I expect these ahrd asset prices to rise until the markets realize the inflation is not coming and then they will fall back down.
China continues to slow with a recent manufacturing contraction at 47.8 (less than 50 is contraction). Chinese exports to the US and Europe are slowing down and they cannot make up the difference at home. When the behemoth that is China begins to slow, countries that supply them will also slow such as Canada, Japan, and Canada.
At home, durable goods were higher however when Airplanes were removed, we saw a contraction of 0.4% where there was an expectation of 0.7% gain. Jobless claims moved up to 372,000 for the week. Corporate America has been warning of a slowdown when earnings were reported in July and August and we are now seeing that slowdown. Business and people are starting to hold back on large purchases which signals recession ahead possibly by 1st quarter 2013.
Existing home sales were up and inventory of new homes for sale reached the lowest point on record. This is encouraging as the assumption is that a low supply of new homes will cause construction to ramp up and that will create jobs. I think the issue is that there is still too much of an overhang of existing homes which is why we are not seeing the construction in new homes, so don't hold your breath.