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The Fake News Economy

Feb 21, 2020 | Fred Abadi |

The Fake News Economy

Once upon a time, we were told that our economy was healthy, that consumers were doing well, and that everything was good. And once upon a time, that story was true. Today, we hear the same story, but the narrative is false, and the storytellers are finding it harder and harder to find evidence to back up their claims, when there is ample evidence to the contrary.

The narrative of the Fake News Economy is deceptive. Here’s one example of how the media puts our mind at ease. We are hearing now that 2019’s holiday sales were strong, but the numbers show that the growth was in online sales, and that brick-and-mortar stores lost significant market share, resulting in the ever-increasing number of store closures. Overall, retail sales did not grow, but what did grow is the share of online retail in total sales, telling a story of bleakness for retailers that rely on brick-and-mortar storefronts.

That’s just the tip of the iceberg, however, when you consider some of the more important narratives we are being told. The Federal Reserve is continuing its story that the economy is healthy and that we will see sustainable, moderate growth. That’s despite the fact the central bank has printed over $400 billion and injected the huge sum into the “healthy” financial system just recently, proving that its own narrative is false.

In reality, US manufacturing was down last year, retail sales are declining, and household debt—not to speak of corporate and federal debt—is growing at an overwhelming pace. So, what is keeping us going? Debt and adding $60 to $100 billion every month by the Federal Reserve into our “healthy” economy, as if we won’t have to pay off this debt in the future.

The latest chapter in the story about the Fake News Economy is playing out right now. The media is drawing comparisons between coronavirus and SARS and their impact on the economy. Without diminishing the seriousness of SARS, the fact is that it didn’t harm the economy long-term. The narrative for a few weeks was that this will be the case for the coronavirus outbreak too.

The Federal Reserve also joined in co-writing that story. In an interview with CNBC on Friday, St. Louis Fed President James Bullard said that the coronavirus impact on economic growth would be temporary. He is joined by Atlanta Fed President Raphael Bostic, who “[thinks] this is going to be like a short-time hit.”

But the situation is very different today than during SARS, and our central bank is underestimating the impact of the coronavirus. Chief global equity strategist Peter Oppenheimer with Goldman Sachs points out that China’s economy is six times bigger today than during the SARS outbreak, Chinese tourism accounts for 0.4% of global GDP, and missed work days in China equal a two-month unplanned break for the entire US.

The coronavirus is already impacting the economy both in the US and in China. The effects are worse in China, of course, but it’s clear that, due to the significance of the Chinese market and manufacturing to the global economy, any economic turmoil will send ripple effects across the globe. Just look at the graphic below.

Image: a graph showing the value of inbound airfreight from China to the US.

Even the ongoing partial shutdown of the Chinese economy—the second-largest economy in the world—will have severe consequences for US businesses and consumers. And we are already seeing this: Apple, for instance, has announced that the coronavirus outbreak means the company won’t meet its revenue target, an announcement that sent shivers through global markets and boosted the price of gold to its 7-year high of over $1,600.

But the nature of reality is that eventually it overcomes any false narrative. On Monday Feb. 24, the Dow Jones dropped by 3.6% or over 1,000 points—its third-largest daily drop in history—effectively burying the media’s fake news narrative.

The S&P 500 followed suit with a 3.4% drop, and the Nasdaq fell 3.7%. The impact of the coronavirus on the markets continued Tuesday morning with the Dow Jones dropping another 1.2%, the S&P 500 1.1%, and the Nasdaq 1%. At the same time, gold is crawling higher and is now hovering around $1,645. [Article updated Tuesday Feb. 25 at 12 pm.]

When Ray Dalio from Bridgewater Associates (the world’s largest hedge fund) is stating that gold will be THE ASSET of this decade, and when Scott Minerd from Guggenheim Partners (one of the world’s largest investment banks) says that our stock market is a “Ponzi scheme” and that silver will be the asset to look at for 2020, you should take notice and act. False narratives only last so long before they hit the brick wall of reality, and it definitely looks like we are nearing impact.

About Fred Abadi

Image showing Fred Abadi

In his over 14 years in the financial industry, Fred has focused on commodities and precious metals as investment assets. He has penned several articles on topics such as the commodities markets and investing in precious metals for retirement accounts. Fred has helped thousands of clients safe-guard their investments with gold and other precious metals. He has been with Gold Alliance for over two years as a leading Sr. Portfolio Manager.