What a difference a day makes as Powell speech ignites gold market and stocks.
Powell Speech Ignites Gold Market
November 28 (King World News) – Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The markets are latching on to two words in the Jay Powell speech, “just below” referring to where he thinks the neutral rate is. We know that no one really knows what the neutral rate really is but I “just below” is different then what he said in October when he said “we’re a long way from neutral at this point, probably.”…
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Of course we’re playing a game of semantics since after a December rate hike they will be at a rate of 2.25-2.5% which is technically “just below” a possible 3% neutral rate in their mind.
As the focus of the speech is ‘financial stability’ he did talk about the risks in corporate bond land but doesn’t believe it creates a “systemic threat.” He thinks the valuations of stocks are within historical benchmarks.
Bottom line, assuming a hike next month and that 3% is the rate level the Fed wants to get to, then yes they are ‘just below’ where they want to be, at the modeled out ‘neutral rate’. I think today’s comments take off the table FOR NOW the possibility of them wanting to get above the so called 3% neutral rate (assuming that’s what they think it is) and also what the markets are cheering.
Outside of the rally in stocks, the 2 yr yield is lower by 3 bps, the US dollar is getting hit and gold is up $12.
Also of importance…
In what I believe we’ll hear from many companies in 2019, the CFO of United Technologies yesterday said their focus will now be on deleveraging, not buybacks. I include a chart of 3 month LIBOR and the total business non financial debt to GDP ratio which points to the need for broad corporate deleveraging because the cost of servicing it is going up and cash flows may not be what was thought if the global economy continues to moderate (see chart below).
3 Month LIBOR Continues To Surge
Total Business Debt As % Of GDP Close To New All-Time Highs
As for LIBOR, a reminder that of all the debt on the books of Russell 2000 companies, 40% is floating rate.
***KWN has now released the remarkable audio interview with Dr. Stephen Leeb and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
ALSO JUST RELEASED: MAJOR WARNING FOR THE BEARS: We Haven’t Seen This Since 2002 & 2008 CLICK HERE TO READ.