On the heels of the Fed’s decision to keep interest rates steady with no further rate hikes in 2019, gold rallied as the US dollar weakened.
Fed Failure
By Bill Fleckenstein President Of Fleckenstein Capital
March 20 (King World News) – Last night FedEx dropped a bit of a bomb when it warned that, among other things, world growth was slowing down. Consequently, its stock price fell about 5%. That set the tone for a weaker tape, as the market awaited the FOMC communique, which turned out to be a massive admission of failure, though naturally they didn’t say it that way. Instead, they stated that the economy was slowing, QT would end in September (the dollar amount will be reduced starting in May), there would be no hikes in 2019, and just one in 2020 (don’t bet on that!)…
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They Should Have Kept Their Trap Shut
In other words, post-QE “normalization” was a failure, and that is because QE didn’t do what they expected it to. It just caused inflation of assets and prices, not a self-sustaining recovery that could withstand the reversal of all the policies they had pursued to try to create one in the first place.
In summary, the Fed can only ease, not tighten, because you can never willingly leave QE, NIRP, or ZIRP. Thus, they are trapped and can never unwind their policies, as I (and others) have maintained all along. Now the question is when do people who worship these central planners start to realize that they do not know what they are doing, and in fact are wildly dangerous academics?
To Top It Off?
In the wake of the release, the indices reversed and turned green, led by the Nasdaq, which gained 1% before the rally fizzled, and the market wound up about flat on the day. I tried not to prejudge (or get too excited about) what the market would do today, but a failure around the FOMC meeting was exactly what I was rooting for. Now we need to see if we can get some downside acceleration one day soon. Perhaps we will learn more when we see the reaction to tonight’s earnings (or lack thereof) from Micron.
Away from stocks, and ahead of the FOMC news, green paper was mixed, fixed income was a little higher, and the metals were a little lower. In response to the Fed headlines, green paper was hit hard, bonds screamed upwards, and the metals rallied to close about 0.75% higher.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
Gold To Become Cash Equivalent
Question: Bill, From 29 March, by decision of the BIS, the gold in the portfolio of commercial and business banks becomes “Cash Equivalent”, an asset equivalent to cash and therefore “risk free.” Do you think this will have any impact on the price of gold?
Answer from Fleck: “I think it will at some point, when gold gets really popular, but how much it has so far is hard to guess at.”
Question: Watching the market attempt to suss out what just happened with the Fed – all I see is no more rate rises this year, no comment on QT at all so they’re still going. Guess now we wait to see if the market dips again on no news to test the Fed put. I’m in the basic industrial sector and it hasn’t looked like China’s going to be rescuing the world economy in some time. Tariffs or no, our businesses are depending on export sales for growth and they aren’t ramping.
Answer from Fleck: “The world economy is weak.”
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***KWN has released the powerful KWN audio interview with Gerald Celente and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also just released: European Analyst Warns Gold To Surge As Day Of Reckoning Approaches For Central Banks CLICK HERE TO READ.
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