Friday, June 25, 2010

A Growth Slowdown Is not a Recession; Effect on Silver

As the ECRI's economic momentum tool drops to an over one-year low, consumer sentiment improves in classic fashion. Here is ECRI:

A measure of future U.S.economic growth rose slightly in the latest week, but its annualized growth rate continued to fall, indicating the economy is about to slow, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 122.9 in the week ended June 18, up from 122.4 the prior week, originally reported as 122.5.

The index's annualized growth rate fell to minus 6.9 percent from a revised minus 5.8 percent, originally reported as minus 5.7 percent. That was its lowest level since May 22, 2009, when it stood at minus 8.7 percent. "After falling for six weeks, the uptick in the level of the Weekly Leading Index suggests some tentative stabilization, but the continuing decline in its growth rate to a 56-week low underscores the inevitability of the slowdown," said Lakshman Achuthan, managing director of ECRI.

Not so hot. Yet Reuters reports that its survey with the U. of Michigan of consumer sentiment is relatively toppy:

Consumer sentiment rose in June to its highest since January 2008 while reports of job losses were down sharply from a year ago, a survey showed on Friday.

A gauge of current economic conditions also rose to its highest since January 2008, according to the Thomson Reuters/University of Michigan's Surveys of Consumers. . .

While Dr. Achuthan has recently said that ECRI's proprietary Long Leading Indicators are showing there will be no new (double-dip) recession beginning this year, it is unclear if the stock market and public mood are anticipating a significant slowdown in growth, perhaps all the way to the 1% level, which only matches population growth.

Meanwhile, gold is quietly approaching its all-time highs, and silver is poised to set an all-time high on its 150 day smoothed moving average, and is already at an all-time price high for the 200 day sma.

Silver, which is less than 20 times more common in the earth's crust than gold, sells at 65X its price (or so). This is the upper end of its range. Longer-term, silver may be have the better risk-reward ratio, and if the projected growth slowdown does not turn into an actual recession, silver prices can rise in what might be a bit of a stagflationary environment.

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