As we continue to see wild swings in global markets, here is a look at gold, bonds and the Coronavirus, only time in 30 years, plus a trapped and desperate Fed.
Lower Bond Yields, Higher Gold
February 26 (King World News) – Jeff Snyder at Alhambra Partners: Like gold and UST yields, Euro$ futures prices turned around b4 COVID. Lower bond yields, higher gold, lower implied future $ rates. That’s not a pretty picture for ’20. Low rates are *not* stimulus, they are what happens when stimulus isn’t stimulus. (See below).
LOWER BONDS AND HIGHER GOLD:
Not A Pretty Picture For 2020
Gold And Coronavirus
Jeff Snyder at Alhambra Partners: Gold as end-of-world insurance isn’t (just) being used to hedge against the COVID-19 zombie apocalypse. Gold was on its way up weeks before anyone had heard of coronavirus. As Treasury yields were already on their way back down. (See below).
Gold Already Surging Strongly Prior To Coronavirus
Only Time In 30 Years
Jason Goepfert at SentimenTrader: The S&P 500 has gone from an all-time high to a 2-month low in less than a week. The only times in 30 years it has done this were Feb and Jul 2007. Stocks jumped at least 5% at some point over the next few months both times before, you know, tumbling into the abyss…
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Peter Boockvar: In what I’ve heard from some Fed speeches over the past week I do believe they are seemingly taking the right approach in their messaging that they will wait to see how this virus impact plays out. After all, a rate cut won’t bring Chinese factories back on line any quicker. And a rate cut won’t get people flying and traveling again until the virus peters out. Either way, the US bond market has already eased for them. The US 10 yr yield at 1.37% has essentially cut rates by 25 bps over the past two weeks for those looking to refi or purchase a home.
Reality Of Lower Rates
Lower rates may ease the cost of buying a car but with car prices at record highs (not hedonically adjusted), it won’t do much. Credit card rates with 3 Fed rate cuts are still near 17% so another rate cut or two won’t help much here. And with respect to a rate cut encouraging more capital spending, the cost of capital clearly hasn’t been a binding constraint on any capital decision for years. Will a rate cut or two ‘ease financial conditions’, aka goose asset prices? Maybe but maybe not. Cleveland Fed President Loretta Mester a few days ago said “You can’t be over-reacting to short term movements in the market” and she expressed at the financial imbalances that cutting rates will do. She mentioned the high valuations of equities, commercial real estate and excessive corporate debt (but all created by Fed policy).
It does seem like the virus spread is slowing in China, assuming any data is believable, with the risk of course shifting elsewhere, particularly parts of Asia, Europe and the fear in the US. While I certainly don’t know, I’ll talk out loud and speculate that while this all started in China, maybe it ends there first because of the dramatic steps they’ve taken to quarantine it.
Not capturing the past two days of sharp market declines but including the selloff last week, Investors Intelligence said Bulls fell to 49.1 from 54.7 and we can assume if it was taken again today that number would be much lower. Bears were barely up, by .3 pts to 19.2 as most of the Bulls went to the Correction side as they rose to a 3 week high at 31.7. Bottom line assume the past two days wiped out a lot of complacency that became embedded in this market.
The drop in the average 30 yr mortgage rate saw purchase applications rise 5.7% w/o/w but after 3 weeks of declines. They are up 10.2% y/o/y on still easy comparisons. Refi’s were little changed w/o/w, down by .8% but still are up a huge 152% y/o/y. Expect to see next week an even lower mortgage rate in response to the plunge in the 10 yr note yield.
Overseas we saw French February consumer confidence that held at near the high in this cycle. After weeks of transit strikes in response to Macron’s plan to overhaul their pension systems, it seems things have gotten back to normal on this front. Hopefully of course the virus spread to Italy doesn’t now inflame the rest of the region.
Despite Pullback, Gold Will Continue Exponential Rise
ALSO RELEASED: Despite Pullback, Gold Will Continue Exponential Rise, Coronavirus And Stock Market Plunge, Plus Gold, Silver And Miner Update CLICK HERE TO READ.
KWN has 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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