First it was the loudly broadcast convening of the Working Group on Financial Markets – aka “the Plunge Protection Team” – by the PPT’s el Jefe, Steven Mnuchin. This was followed the “mouse that roared” speech from Fed head, Jerome Powell, hinting that the Fed would moon-walk away from rate hikes.
Today was trial Hindenburg launched by the Wall St Journal suggesting that the Fed was considering curtailing the the FOMC’s balance sheet Weight Watchers program. The terminology used to describe the Fed’s actions is Orwellian vernacular. “Reserve levels” – as in, “leaving more reserves on the Fed’s balance sheet” – sounds mundane. In plain-speak, this is simply the amount of money the Fed printed and will leave in the financial system or risk crashing the stock market.
I suggested in the January 13th issue of my Short Seller’s Journal that the Fed would likely halt QT: “The economy is headed toward a severe recession. I’m certain the key officials at the Fed and White House are aware of this (perhaps not Trump but some of his advisors). I suspect that the Fed’s monetary policy will be reversed in 2019. They’ll first announce halting QT. That should be bad news because of the implications but the hedge fund algos and retail day-trader zombies will buy that announcement. We will sell into that spike.”
Little did I realize when I wrote that two weeks ago that the assertion would be validated just two weeks later. When this fails to re-stimulate economic activity, the Fed will eventually resume printing money. Ultimately the market will figure out that it’s a very bad thing that the only thing holding up the stock market is the Fed.
The policy reversal by the Fed reflects panic at the Fed. Nothing reflects “Fed Panic” better than the price of gold:
There never was any reason to believe that this degree of extreme monetary expansion could ever be unwound without severe repercussions. Conversely, it’s quite easy to believe that the idiots who got us here, would think otherwise.
I suspect most believe that the usual playbook, which has been so successful since 1987, will again result in big market gains. I have a feeling this time will be different – largely because global debt has reached it’s limit, and any attempt to expand it further (which they will most certainly do) will destroy the currency. So nominal market prices might rise but you’ll need a wheelbarrow of cash to buy a dozen eggs.
I want to congratulate you on your site’s content, Dave. It’s one of the few sensible financial sites left worth reading – no hype and no bullshit.
It is worth remembering that the collapse of the Dollar has been predicted in various degrees of intensity since the closure of the gold window by Nixon in 1971. So far, all experts have been proven wrong. The Dollar has indeed shown an amazing resilience during the past 50 years. Nobody offers an explanation why this resilience persists.
That’s a peculiar straw man.
It is frequently pointed out that the Dollar has benefitted greatly from:
a) the petrodollar connection with Saudi
b) the U.S. military, and its ability to “discourage” countries seeking to circumvent the dollar (e.g. Libya, Iraq, etc.)
It depends on how you define collapse. If as a measure you use the DXY that includes other devaluing fiat currencies, or the suppressed Crimex paper gold price, you have been fooled into believing that USD has more or less retained its value. If, however, you look at real price inflation provided by independent sources like Shadowstats rather than the official government figures, or the real purchasing power of the median wage, you will probably find that inflation has been running at 9% or higher since 1971. A sudden collapse it is not, but a continuous and severe erosion of purchasing power that has pretty much the same result.
How about a combination of the dollar being the cleanest shirt in the hamper, and backed my the military industrial complex.
Yes, very true. I wasn’t being specific to the dollar, however. It just isn’t the Fed but rather a global banking cartel, of which they are the lead sled dog. When the Fed expands, they all expand, so like relativity, absolute debasement is disguised.
Also, although this might seem to be a linearly progressing system of global growth and monetary expansion, it isn’t. Up to the last decade it certainly behaved like it, and you would think it can go on forever. Of course, monetary expansion needs collateral, and one of the tricks of the cartel is inflating asset values across the board, and suppressing commodities and interest rates through use of derivatives. it also helps to doctor official statistics to hide what is truly happening.
But in my opinion (because there is nothing certain, here), I think they’ve run the course. This time we are dealing with a global, systemic failure, where there is very little left to goose other than another round of massive monetary expansion. Yes, assets might inflate again, but if income is declining via a global recession, the debt remains and even increases. It be will be the albatross to service. If this happens, the excess pressure valve, all things equal, should be the currencies.
I do believe I’d put this latest WSJ “news” in the category of “jawboning”, just as Jerome’s “patience” comments were “jawboning”. Proof is in the puddin’. As long as QT continues, and a March rate increase takes place, we’ll know this “talk” was just jawboning.
In response to your comments, RT Rider, an alternative explanation for the US FED tightening, could be a global coordinated crashing of the markets, to pave the way for a new global currency to replace the US Dollar as the global reserve currency. Makes sense as the only way to clear the system of debt – to allow a global crash as in the 30’s. Replace with a new global currency, with control in the hands of those global elite who are behind the scenes and controlling all of the Central Banks.
The USD has been King Dollar since the closure of the gold window by Nixon in 1971 due to the petrodollar and U.S. having the world’s biggest economy. All other fiat currencies in the world are garbage too.
The morons that sell stocks are the same morons that then go into and buy U.S. Bonds for perceived safety.
It’s going to take both a market crash sell-off in stocks and a huge sell off in U.S. Bonds to propel the rocket shot in PMs. A global economic depression can cause this to happen as companies announce their massive earnings misses quarter to quarter. Then the Fed comes back with all-in QE and rate cuts which destroys the USD……then no rush like a gold rush.