The Dow futures have plunged 900 as gold soars $40 and silver prepares for a major breakout on news of the spread of the Coronavirus.
Gold Soaring Along With Bonds As Stocks Plunge
February 24 (King World News) – Peter Boockvar: Spring time can’t come soon enough to put a test to ending this virus or at least slowing it down in its spread. As for markets, the buy on the dip mentality is about to be tested again but let’s be honest people, the buy the dip over the past few weeks was quite amazing and reflecting a lot of self confidence in light of a continued fall in bond yields and with no signs whatsoever that the virus was anywhere close to being contained.
I believe part of this mentality and its persistence is the continued widespread belief that whatever challenges come our way, central bank easing will save the day. I have to opine again that please don’t rely on it anymore with rates already so low and so much ammunition already expended. Also, I hear it all the time the argument that the average P/E ratio should be higher because rates are so low. It makes perfect sense if all else is equal but a large reason for the very low rates is because economic activity, earnings and cash flow growth are slow and slowing further. That is a major offset to the low rate argument. Just look at the Nikkei over the past 30 years in light of very low rates and all that QE.
And with respect to central bankers, listening to them certainly doesn’t engender any confidence. Listening to Lael Brainard on Friday talk about wanting to drive inflation higher, implementing yield curve control and acting bold quickly made me feel like I’m listening to a member of the Bank of Japan. With all due respect to Brainard, these are strategies that are tired and have failed, just look around. And is the “persistent undershooting of the inflation target, and the risk to inflation expectations” really a bad thing when 40% of the US population may need to use credit to cover an expense of more than $400?
Bank of Japan Governor Kuroda yesterday said with a straight face that in the face of the economic impact of the virus spread “we will be well-prepared to act when we need to act.” He would sound more credible if he just said “there is nothing we can do” to fight a virus induced economic slowdown.
The investing reaction to hearing Brainard and Kuroda is to own gold and silver (my favorite right now).
Gold Seeing A Major Upside Breakout
Silver Preparing For A Major Upside Breakout
The US 10 yr yield is now testing its summer of 2016 yield lows right after the UK Brexit vote.
10-Year Yield Set To Break To
New Lows Below 2016 Low
While we can throw out the economic data as long as this virus keeps spreading, I’ll report some anyway. The February German IFO business climate index held in at 96.1 vs 96 in January. The estimate was 95.3. The expectations component rose a touch offsetting a slight drop in the current assessment. IFO said “The German economy seems unaffected by developments surrounding the coronvirus.” At least not yet.
QE-To-Infinity To Be Launched
ALSO RELEASED: Greyerz: World Economy Collapsing – QE-To-Infinity Will Be Launched CLICK HERE TO READ.
KWN has now released the powerful audio interview with Turk discussing what may be a huge surprise in the gold and silver markets next week and what to expect in the short- and medium-term for the metals in 2020, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
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