Economists – what a bunch! So cocksure, and yet so provisional! If they get it right, they say, “I told you so.” If they get it wrong, they say it was never possible to know to begin with. No wonder, during a frustrated moment, President Harry Truman made his famous remark:“Give me a one-handed economist! All my economists say, ‘On one hand…on the other….’”
Personally, I’d like to see economists share a common theme song. My choice would be Sinatra’s signature tune, “My Way.” Just picture Fed Chair Janet Yellen crooning, “Regrets, I’ve had a few…” at next week’s Federal Open Market Committee (FOMC) meeting!
She had a dress rehearsal of sorts when she spoke before the World Affairs Council in Philadelphia on Monday. Instead though, she chose to emphasize how, in economic projections and predictions, nothing is ever certain. At that point she covered all the mandatory political bases so as to set the stage for next week’s announcement of a Fed rate hike – or postponement of same.
While her WAC speech painted an unrealistically rosy picture of the current U.S. economy, and seemed just a bit self-congratulatory with respect to the Fed’s accommodative policy, she did come down to earth for a short time when she discussed the global economy. She acknowledged a United Kingdom vote to exit the European Union could have “significant economic repercussions.” She mentioned too that China faces some serious economic challenges.
For all of her political correctness, Janet Yellen’s anxiety about the global economy is very noticeable—and a number of economists share her concerns. The World Bank has again downgraded its forecast for the global economy this year. In much more stark language than Yellen’s, World Bank economist Ayhan Kose, who worked on the forecast, announced, “The global economy is fragile,” and “[g]rowth is weak.”
The World Bank expects the U.S. economy to grow only 1.9% this year, as opposed to 2.4% last year. What’s more, the Bank anticipates developing and emerging market economies as a group to grow 3.5% this year, down from the 4.1% it forecast for January.
The International Monetary Fund (IMF) has also lowered its prediction for global economic growth. While their numbers differ slightly from those of the World Bank, the two organizations cite the same causes of a stagnating world economy. Developing economies and emerging markets face strong headwinds. And China is still struggling to get its economic house in order after its repeated devaluations of the yuan.
Finally, those of you concerned about your retirement funds should be aware the IMF stresses, as do most economists, “renewed global risk aversion.” As one hovering (more or less) on the shady side of fifty, you bet I’m risk-averse. After the disastrous damage to our retirement accounts in the Great Recession, from which we all haven’t and likely can’t fully recover, risk-phobic is more like it. That’s why, to retirees and soon-to-be retirees, as well as experienced investors and traders, the words “renewed global risk aversion” are a natural invitation to a move into physical gold. The year’s best performing asset class by far – physical gold is where cautious investors flock to avoid risk and protect their paper assets. Although the price backed down a bit while Yellen and company kept insisting a rate hike was imminent, with her crash back to reality, and experts worldwide admitting the true outlook for our future, you’d be wise to move before gold moves back up to $1,300 and beyond.