A POOR GDP AND A SLEW OF BAD DATA BUT THE MARKET CHOSE TO IGNORE THESE

The GDP for 2016 came in weaker than expected at 1.6% for the whole year. In fact it was lower than 2015 (see chart, source: Wolfstreet). So it goes to show that the euphoria was emotionally driven rather than fundamentally driven. The sad thing is that the market ignores this important data, rather deciding on the Consumer Confidence report which notched in higher than expected. As a result, the indices were little changed

Gold and silver recovered on Friday with silver ticking up more than 1.8%, a move which surprised many. Is there a fundamental issue behind the rise? As I have said many times, silver production is falling while demand is rising. On top of that, many of the silver used are never ever recycled and there are news circulating in the internet China and India will be providing solar power to 600M homes and both Germany and China are bidding to start a solar farm in the Chernobyl wastelands. Silver is one of the most important material used in solar farming due to its conductivity properties.

As if there is not enough bad news, Existing Home Sales fell 2.8% MoM, while new Home Sales was 536K vs expectations of 593K, Durable Goods Sales came at -0.4% vs expectations of 2.5% on top of a November figure which was revised lower. The high expectations were driven by the PMI and ISM survey data which exceeded expectations. This goes to show the disconnect between survey data and hard data (see chart, source; Zerohedge). These is an important lesson to focus on hard data vs survey data. The same with the Consumer Confidence. If the confidence level is so high, why is Retail Sales collapsing?

I believe the market is straining to achieve higher and with a slew of data that indicated a deteriorating economy, investors will focus on fundamentals and this could result in a hard crash.

Therefore, I continue to accumulate small quantities on inverse ETFs and gold and silver miners whenever the opportunity prevails.

TRUMP'S AMERICA FIRST POLICY

Watching the inauguration speech, We can surmise the following:

1) Policies will aim to protect America's interests first
2) It will be Buy American and Hire Americans first
3) Repair existing and build new infrastructures

So looks like it will be a policy that is geared towards protectionism rather than globalisation in which case, the tariffs or border taxation becomes real.

Some economists say that a border tax will make the US$ stronger.

If the intention of tariffs is to narrow the trade deficit, a stronger US$ could make imports cheaper but exports could also fall, as US made goods become more expensive. Also a strong US$ will likely impact upon the earnings of major S&P companies of which 50% are derived from foreign earnings.

As I said in previous posts, imposing tariffs on imported goods could drive up inflation in the US as the US cannot possibly manufacture all it conumes.

On infrastructure I still maintain my position as to where is the source of money? From savings by rolling back government agencies? Or more debt? It remains to be seen how this will be played out.

Meanwhile Zerohedge reported that Chinese investors are pulling out of bitcoin and piling into gold backed ETFs in China. Should this become an investment frenzy it could bode well for both gold, silver and related miners.

Since the Fed decision to hike interest rate, gold has been up 6 weeks in a row.

It pays to watch Trump's policies as he starts his tenure in the White House.

ANOTHER HOUSING CRISIS INT HE HORIZON?

Pending home sales fell while new home sales rose in November. While the data seems mixed the following 2 charts will shed some light.

As you can see the number of failed sales has risen dramatically in 2016 vs 2015.

TARIFFS, MINIMUM WAGE AND MANUFACTURERS

There are still a lot of uncertainties regarding Trump's plans but we'll have to wait and see what they are specifically.

The main topic these days seems to be the imposing tariffs on imports to narrow the trade deficit and how it could benefit the US. But I do not see it in that manner.

US manufacturing will still have to rely on imported raw materials and components as the US cannot manufacture everything. Imposing tariffs on components will drive up inflation as the manufacturers in the US who require these components will have to pay a higher price for them and this will be passed to the consumers.

Not only that, the minimum wage of US$15 per hour (applicable to some states) will add on to manufacturing costs.

Manufacturers will also have to contend with rising costs of financing as interest rate increases.

With rising costs, manufacturers would have to look at automation and this could have ill effect on the labour force.

Back to the US consumers, they are simultaneously confronted with rising credit card debt, rising interest payments, rising insurance premiums and healthcare costs, and shrinking disposable income due to slow wage growth vs inflation. How much longer can the consumers continue to support the economy if prices keeps on rising?

Perhaps the latest Retail Sales data can shed some light into this. Retail sales ex-auto and ex-gas were unchanged vs 0.4% rise in expectations. So this goes to show other than autos and gas, consumers spending hardly budged.

And about those auto sales, most are driven by offering subprime auto-loans which are now in danger of falling apart very much like the housing crisis in 2008 as delinquencies rose (see chart below).

Source: Business Insider

Incidentally Consumer Confidence fell in the month of January to 98.1 vs expectations of 98.5.

With 70% of the economy being consumer driven, we could see some tough times ahead in the US economy.

US UNEMPLOYMENT AND LABOUR PARTICIPATION

The jobs number came in at 156,000 jobs below expectations of 175,000 jobs while unemployment ticked up 4.7% from 4.6% prior.

While the data looks disappointing, the major indices surged ahead, with the Dow nearly breaking the 20,000 mark - all because of the 2.9% wage growth which translates to higher disposable income for the average worker when measured against the 1.7% 'official' inflation rate.

The 4.7% unemployment report is actually a farce as 95.1M Americans of employable age remain without a job.

Furthermore, the Labour Participation Rate which remains below 63% vs 67% prior to the global financial crisis.

Here's a chart from Silverdoctors which show why the US could face tremendous headwinds in the near future due to changing demographics in the workforce.

As can be seen from the chart, the current number of workers from the age groups of 16-24, 25-34, 35-44 and 45-54 have all fallen into negative territory when compared tot hat of the year 2000.

This could extol are terrible pressure on Social Security, Medicaid and pension funds in the future due to declining contributions.

What happens wen those in the age groups of 55- 64 and over 65 finally retire?/