We’re facing a crisis of confidence today – and it’s one of the most dangerous challenges for the markets.
Market Roundup
Confidence in the outlook for economic growth.
Confidence in the knowledge and foresight of monetary policymakers.
Confidence that we will ever, EVER be able to get back to a normal market … one that government officials aren’t meddling in every other day to try to “fix.”
That’s how I see things in the wake of the latest Fed fiasco. And that’s what it was. A fiasco.
Why do I say that? The Janet Yellen Fed has spent months and months preparing investors for a potential interest rate hike. It has spent months and months talking about the improved economic outlook. Multiple, informal targets (on the unemployment rate, for instance) that Yellen and Ben Bernanke before her identified as triggers for policy normalization have come and gone.
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| Stocks received only a 35-minute bounce after the Fed announcement. |
So it stands to reason that they should have moved this week. Heck, they should have started raising rates more than a year ago. But they didn’t. They caved. And after rallying briefly, the stock market fell apart because of the confidence-killing message that sends out.
It says the Fed itself has no confidence in the economic backdrop.
It says the Fed itself has no confidence that inflation and growth will rebound sometime before the sun burns itself out.
It says the Fed itself has no confidence that foreign QE and rate cuts will work to spur renewed growth.
So it’s only logical for investors to conclude they shouldn’t have any confidence in those forecasts, either!
What does this mean for markets – and your investment strategy? Well, the trading action we’ve seen for the past several weeks proves the thesis I laid out for you a couple of months ago: U.S. and foreign central bankers have lost control of stocks, bonds and currencies.
The shelf life of QE/rate cut-driven rallies has shrunk dramatically — to mere minutes from weeks or months. By my count, the Dow’s spike yesterday afternoon lasted all of 35 minutes.
That is a huge trend change from what we’ve had the last six-plus-years, a paradigm shift of epic proportions. It completely validates my clearly communicated stance of caution laid out before stocks began to tank.
I have suggested that the Dow Industrials “should” be trading much lower than it is. That view is based on fundamental economic data, the signals coming from the credit and currency markets, and the declines we’ve seen in overseas markets. On the first of this month, I outlined “catch down” targets that ranged anywhere from 10,000 on the low end to 14,800 on the high.
| “That is a huge trend change from what we’ve had … a paradigm shift of epic proportions.” |
The crazy market action and hyper-volatility we’ve seen since I provided that (admittedly wide) range only further confirms that downside risk is immense. That’s why I just issued yet another timely Flash Alert to my Safe Money subscribers with two additional, urgent, precautionary moves to make.
(Editor’s Note: If you’re not getting these time-sensitive alerts, click here.)
Let me leave you with one last thought: If there’s one thing I’ve learned in all my years of analyzing and trading the markets, it’s that confidence is a precious commodity. Once you lose it, it can be the biggest market killer of all. And it looks to me like that’s precisely what central bankers no longer have.
What about your thoughts on the Fed here? The post-Fed market action? The next major level to watch on the Dow? Or anything else? Please do share them with me and your fellow investors at the Money and Markets website.
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The Fed-led volatility of the past 24 hours shows no sign of letting up. Many of you weighed in on why the Fed froze in the face of higher volatility, and what that signals about the economy and the outlook for markets here.
Reader Dr. Donnie S. said: “You asked: ‘What is the Fed so afraid of?’ Insolvency might be the correct answer. Pssst … Don’t tell anyone okay?”
Reader Al H. added: “You gotta know when to hold them … know when to fold them … know when to walk away … know when to run. The Fed is clueless and the elephant in the room, the Wall Street bankers, are laughing all the way home. Very soon, the derivatives bubble created by the Fed’s monopoly money will burst, wiping out our money supply. What follows next is chaos.”
Finally, Reader Joan said: “The Fed has become simply a political arm of Congress and the White House. All of this crap today is just silly meaningless chatter. The Fed keeps rates at zero simply to facilitate the crazed spending of politicians.
“If they were to let rates ‘normalize,’ the costs of servicing our debt would be so overwhelming as to leave little or no money for defense, entitlements, etc. The end of free stuff. The printing presses could not work fast enough. Disaster of unimaginable proportions would soon ensue. In any event, global forces will soon make the Fed actions meaningless.”
As for what Fed policy means for stocks, Reader Steven suggested it’s less important than earnings – which he believes are poised to shrink from here. His take:
“I would say the market is ignoring the central bankers and their dance around interest rates, and is focusing instead upon earnings. After all, that is why you invest. You exchange cash now for income in the future. The increase in the risk or the decrease in the income will reduce the value of the investment.
“As the Q3 earnings reports come in showing reduced levels of income and failure to meet analysts’ expectations, (as part of the long-term trend we have been watching during Q2) we will see further corrections in the values of corporate equities to levels that should be more supportable in the long run.”
I appreciate everyone’s input, and I pretty much agree with what you said. We’re starting to hear earnings warnings from several leading companies, and we’re seeing more and more chaos behind the scenes in currency and credit markets. That points to more trouble ahead for stocks – a key reason why I continue to urge caution and defensive strategies here.
Didn’t weigh in yet? Then be sure you take advantage of the Money and Markets website to do so this weekend.
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Easy money isn’t helping the real economy much … but it is creating some killer paydays for Wall Street bankers! That’s because it’s making it cheap and easy for companies to buy and merge with each other. We’ve seen $1.2 trillion in mega-deals, or those worth at least $10 billion, so far this year. That just surpassed the record high set in 1999, which of course marked a major stock market top..
Add another earnings warning to the heap, this time from software maker Adobe Systems (ADBE). The company forecast weaker-than-expected earnings and revenue for the quarter ending in November, a potential warning sign for other sellers of software who focus on corporate clients.
Energy producer defaults are rising, with Samson Resources filing for bankruptcy earlier this week and default rates hitting their highest level since 1999. The decline in the price of energy-related junk bonds has driven their average yield to 11% from 5.9% a year ago. I still see value in select names, but the pressure hasn’t eased up on the sector yet.
Maybe this is a novel solution to the problem of bankers breaking rules. Throw them in a ring with regulators and let them box it out! Apparently, in Hong Kong, this is a thing – “Hedge Fund Fight Nite.” Bankers and financiers duke it out in a ring for charity, while simultaneous auctions raise even more money.
Are you worried about corporate earnings warnings in the coming weeks? What about energy defaults? And how about this global boom in M&A – is it positive for stocks or a sign that thing have gotten so nuts, the bubble is going to burst?
Here’s the link where you can share your thoughts. I’d love to hear them over the weekend.
Until next time,
Mike Larson
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Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Mike: Do you think there is the possibility of a much larger reason for the status quo on interest rates? I recall recently the IMF looking to the Fed to bear in mind the QE operation going on in Europe, when considering a rate hike. I also recall the IMF visiting China, at or about the same time, at which time they DELAYED making a decision on the yuan becoming a reserve currency. Sometimes things are never quite what they appear to be.
Regards,
John Kemp
John,
Agreed. Question is after going through all the bosses bosses, at the very end do you find benevolence or evil?
IMF will be the Reserve Currency before much longer. That’s what is really going on.
As Mike says, “It’s all about Confidence”.
The World has lost Confidence in the Dollar, but the charade will last until the next crisis.
It’s coming, and the IMF is already setting up for it.
Once all currencies are set to SDR’s, it will eventually ‘evolve’ into a One World Currency.
That’s the Plan anyway.
They say everyone gets 15 minutes of fame, I believe that Janet is trying to stretch hers to 20. When they increase interest rates her input goes to page 16 (just above the obits). And we will forget who she is.
I wondering where this came from Mike? “Well, the trading action we’ve seen for the past several weeks proves the thesis I laid out for you a couple of months ago: U.S. and foreign central bankers have lost control of stocks, bonds and currencies.â€
And back on September 10 you penned: “The news overseas is getting so bad, and the forces tugging at markets are getting so severe, policymakers are no longer able to control them.â€
What the heck Mike… What business does any government, central bank, or policymaker of any country have attempting to control the pricing of stocks and bonds?
NONE…!
Seems to me we want a stock market with individual stocks values which should be able to move freely up and or down based on investors willingness to invest or divest in certain business or commodities, and that the value of any stock or bond be unrestricted to move up or down or not at all, and be completely free of any influence from any government or central bank.
Otherwise why don’t we simply let the central banks dictate how much we can profit or lose by government fiat every day?
Maybe a lottery would be better… The central bankers could decide on Fridays every week the buy and sell prices of oil for instance for the following week.
We need to get the damn government and policy makers out of our lives…
I agree, Dr. Don. Government should set up rules to protect investors from fraud and theft, then let the markets take care of themselves. The politicians need to give up the idea they are qualified to rule every facet of our lives. Why should any government entity, including the Fed, which is now quasi government, have anything to do with interest rates? That should be the privilege and function of a free market.
All well and fine until say inflation gets out of control and all the “free-marketers” start screaming for central bankers to get things under control (by raising interest rates), or the opposite action when recessionary deflation hits. And without central bank involvement, FX transactions would lose the necessary liquidity.
I am beginning to think the Fed is getting gun shy. They are in a damned if you do and damned if you don’t spot. A question is as the banks may be sitting on a big bunch of money they are borrowing for free, would a rate hike move the banks to start to loan that money. With a zero interest rate how do you push the economy by a lower rate? Do you pay people to borrow money? If you buy a new car with a zero interest rate loan do they pay you twenty or thirty or fifty dollars every time you make a payment? Or a house, pay you every month over a thirty year loan? Who wants to go on a spending spree under those terms? At some point the Fed will have to start raising the interest rate and I think they need to stop expecting this country to carry other countries on our backs, one of their excuses is the state of the World’s economy, but we need to do what is best for this country. China didn’t consider the effect on their massive currency devaluation on anybody but themselves. The FED needs to adopt the same attitude.
Ted, your logic is confused. If you’re a bank with “free” money sitting in a Fed account earning a little interest, and now they raised the amount of interest you’ll get, would that make you loan it out? I think not. What makes you loan it is (a) you’re going to have to pay the Fed to store it (that’s negative interest rates) or (b) the amount you’ll earn by loaning it is significantly more (to make up for increased risk) than what you get for just storing it (this is net interest margin–NIM).
I believe some nations already have inverse interest, where they charge you to hold your money in their banks or bonds. Carry that idea on: why not pay you interest to buy things. That should really stimulate the a country’s economy. Oops, maybe I should have kept my idea to myself. Some fool politician might try to make it happen. HaHa.
The Fed appeared to indicate that the messy situation in China could be a concern for our financial decisions and thus no changes, even a minor rate hike, would be forthcoming (yes, what happens in China now controls our Fed it seems). At the same time, we have Obama letting Iran and Russia run our foreign affairs in other areas. And Obama wants 18 more months of very loose money to boot….keep stoking the bonfire!! Last but not least, we have pressure from the bankers to keep their big profit streams coming…….no rate raises are wanted by them for sure!! Of course all of this damns the small mom and pop bank account investors. Obviously Obama and Yellen don’t care about mom and pop……..Obama and Yellen have THEIR own interests to tend to.
I don’t know if its China or Russia or Iran that is in charge here…..or maybe it is a troika…….but it sure does not seem to be the USA.
Can you say…..suzerainty?
How about what my grandmother use to say… “Tommyrot”?
Oversimplified nonsense. Bankers only care about net interest margin, which is the difference between what they earn on loaned money and what they pay to borrow same. There is concern that yields may flatten with higher short term interest rates (Fed controlled), if people pile into longer term bonds, thereby cutting interest rates on longer dated maturities. As for problems in China and other foreign nations, the concern is that raising our interest rates will strengthen the dollar, thereby making it more difficult for our multinational corporations to make money on their exports. As for the agreement with Iran, support for Israel, Russian intervention in Syria, Iranian efforts to combat ISIS, aborted fetuses and Planned Parenthood, gay marriage, etc., etc., these are interesting conservative talking points, but not part of the Fed rate decision, which is what is being discussed here. Try to stay on point.
mike wonder if central banker around the world know exactly what they are doing and it is doing exactly what they want .look @ brazil they now own all the resources on debt defaults now and coming . how else can the world all come apart @ the same time . any body ever hear about one world currency one one gov. how else can we have leader with all records sealed. hay I could be wrong think about it
At the risk of being labeled a conspiracy nut, I offer the following. Borrowing from the “follow the money” logic, which is attributable to people that are driven by money, I suggest that the feds behavior have been orchestrated by the Whitehouse, in an effort to hurt people (primarily older white people) from being able to augment their income through interest, and dividend bearing vehicles. In this instance it’s not about following the money, it’s about following who is on the most hated list.
All that said, it’s beyond anyone’s logic why the fed did not begin raising rates long ago. You could point to the need to reload the quiver for future economy turmoil, or fear of what our debt burden will destroy our economy if rates rise, or a whole slew of lesser possibilities, but it all comes down to a private agenda being executed out of the Whitehouse, and, that agenda is to punish America/Americans for our history in Obama’s (twisted mind). We must be cut down to size, wealth taken away/redistributed, or squandered on worthless/unproven leftist ideas/notions/theories.
If I’m right, or even partially right, and one combines these notions with Larry Edelson’s convergence of events, we are in for the worst run in our history, as is the world. Is this the foundation for instituting world government as the solution to this tsunami of negative events. I contend that anything is possible, sadly.
Could this be Glenn Beck’s Cloward-Pivens strategy playing out? Jim
Everything Yellen said in her news conference was very political. She repeatedly told us everything was fine and then didn’t raise rates. The Fed may now be driven by politics like everything else in our country. That may be Obama’s gift that keeps on giving. The candidate drawing the big crowds is Bernie Sanders. He simply promises to give us everything for free. There is no possibility of paying for all the free stuff unless interest rates remain at zero. Keynes on steroids! As impossible as it sounds, it appears to be working. Jim
If the employment and other economic data were as good as she indicates a rate increase would be expected. However, if she understands that the data has been manipulated to portray a rosier picture to save an administration’s image and dogma, and she certainly must, she must continue to manipulate interest rates. I guess she is as subject to political pressure as the rest of our government.
It is amusing that Michael Clancy, suggesting liberal political manipulation by the Whitehouse (sic), wants the Fed to raise rates so they can lower them again in response to “future economic turmoil”, whereas the devoted arch-conservative Dr. Donnie Smith wants markets “free from any intervention by governments or central banks”. Mr. Clancy is convinced the Fed is all about punishing older white folks. I’m an older white person. To me, policy must be balanced in favor of younger people just starting out so they can get jobs and buy homes and things to put in those homes, including children, not to mention paying off school debt. And keeping interest rates low fosters those goals.
A little empathy please. The common thread in most of the posts is anger and betrayal. Searching for an answer is perfectly normal. A zero interest rate is an emergency measure and we have been in emergency mode for six years now. That we have accepted this as normal borders on collective insanity. Somebody has screwed our financial system so badly that you and I cannot possibly live off CD and Money Market income like our parents did. It’s extremely naive to think the government does what it does to help young people. The Feds are in a straight jacket of their own making with no real idea what they are going to do next. That’s why they did nothing. A healthy financial system would allow young and old alike to do what they need to do. The workers and savers, as well as the young, have been betrayed. What I don’t know is whether it is intentional or the result of gross incompetence. Jim
Jim, your own anger at what the politicians, bankers and economy experts? have done to us shows through in your comment – and rightly so. I agree. Intentional or gross incompetence? Maybe a little of both.
2015. The Market is up over 100% since the financial crisis, the minimum wage is what? Zero in the past 9 years I believe. We have re-defined how we measure unemployment, what is by the “old” standard? Well into double digits. Are we having fun yet? Yes, the myth of “FREE TRADE” with lack of import tariffs have certainly redefined the U.S.A. A new Toyota Camry has more American content that any Ford, Chevy, or Chrysler… how did THAT happen? Confidence in what? The dollar backed by ‘air’? My neighbor, maybe.
My elected officials? Hell No. Then we have Obummer trying to sell a NEW and improved trade agreement. Scotty, Beam down some confidence, please.
Oops… Scotty, make that common sense please…!
Seems right now the safest stock to buy is what’s needed for filling your pantry. A financial crisis can play hob with the JIT inventory practices at all levels of the food industry. Ditto for the high debt practices that play a major role in all levels of our culture.
From just an ordinary person of modest means, it seems like it’s time to bail for awhile. I
sold some mutual funds, and put my 89 year old mother’s money into something safer for awhile. These low rates are murder on the elderly’s savings, but no percent growth is still better than a 20% or more decline in the stock market.
What were you doing with your 89 year old mother’s money NOT in something safe previously? Sounds like the problem is your money management skills.
Here in the UK just got back from the pub, nice evening a few pints and listening to the chatter in the pub It struck me that most of the people there, did not have a clue that a huge
change is coming, the majority in the pub are over 55 most have been made redundant, and rely on their pensions, most have nearly finished their mortgages and are handing out £40,000 plus to get their kids on the housing market, What are they going to do when their pensions turn to worthless, the kids get made redundant, and the over hyped housing market in the UK crashes and burns, This scenario has started in other country’s so every one get in line to take the medicine that is long overdue, As sad as it will be I have told my kids to hang fire on getting a mortgage and wait for a year, then if they still have a job, pick up a place at the right price not the hyper prices that is the trend in the UK at the moment, The next 18 months are going to be ugly and unfair for a lot of hardworking people so brace yourself and hang on the storm has just begun.
How about if our congress would have supported rebuilding our nations infrastructure and our leaders of our companies had increased salaries of those working for them instead of feathering their and our nests by by backs and dividen increases. What a fantastic economy we would have.
I agree that our infrastructure is falling apart and needs repair and improvement, but how would all that be paid for? More debt? We can never rationally pay for the debt we have now. It will inevitably be sloughed off at some point, and what happens then? The economy collapses, and government becomes a dictatorship of some sort to deal with the unrest; or it also collapses, and the country breaks up into a bunch of battling little entities. It won’t be pretty, either way.
Ditto when the bridges start falling down and the roads are all broken up and the railroads have more crashes and airplanes have safety problems with substandard airports. You get what you pay for.
The Fed should have gone ahead with a small interest rise. It would have created some confidence in people’s minds. Now people wonder what the gurus know that we don’t . They know that, while some areas of the economy have begun to show some growth, many areas are still lagging. Higher rates could well prevent these areas from recovering.
Recessions are triggered by too much non-productive debt. So why does the
Fed and our government try to promote more borrowing to cure our debt problem? All we have to show for the last seven years is eight trillion more of non-productive debt. Most families are up to their ears in debt so they are unable to borrow more. Keynesian economics is a poison that Kennedy’s Harvard Dream Team introduced to the federal government in 1960 and we’re not going to recover without a fundamental change away from Keynesian deficit spending and go to supply side economics.
Mike,
I think you are missing the point. This is not the about strength of markets or the economy. It is about the brutal impact on the Federal deficit if the Treasury has to pay higher rates. As “The leper with the most fingers,” Treasuries continue to draw capital from the rest of a very uncertain world, keeping the bond vigilantes quiet. The zero returns received by savers who have no options is another gift of money to bond markets and effectively a tax on savers, helping reduce the deficit. Yellen continues to pay back the politicians who put her in place.
Hello Mike,
Have started again playing inverse volitility ETF’s recently at first news that China has begun to cash in their American treasuries. I believe most talking heads on the tube are missing the point that $40 billion is being drained monthly from the war chest and the facade can no longer hold up. Ms. Yellen cannot raise rates anytime soon as it is under the thumbscrews of Chinese and the international community– so much for your American sovereignty!
I have to wonder why the populus has not awakened to what is going down and started to lobby their polititions,
A Market or financial system that actually does not operate on real existing money but on money that “may be acquired” later if things keep on going “up” should never ever be something that the economic stability of ANY country is based upon. First, it is a system open to fraud very easily etc. I will leave that where it is for now. The markets are too unstable and easily manipulated and should have to operate on the present years earnings, period, if at all. Where are all the wise “leaders” who have no courage to take this thing apart. We are very ignorant at best and willingly blind at worst.
Ken. Another things that would stabilize things a lot is that all countries in the world have the same dollar. Get rid of the forex. Why should people who can manipulate money standards be allowed to continue to make money ON MONEY. It is manipulate again, all the time. Just look at how different gold etc. is when the U.S. market is closed and Europe is open, and then all of a sudden, it moves quickly at the U.S. open or shortly after, pretty well like any well oiled clock. WAKE UP people. Do not let the well off think they are brighter than you.
Hi Ken. Your “idea” of a single world currency is undergoing an experimental trial in Europe–where it’s called the Euro. As you certainly know, the jury is still out, but the recent and ongoing Greek turmoil appears to suggest that monetary singularity is difficult, perhaps impossible, without fiscal singularity (and that requires political union). To bring the issue home to the U.S., there is a good reason states must operate on balanced budgets, and be subservient to the Federal government. Apart from anything else, our single US currency would otherwise likely fail.
The talk is all about trends and the next moment. The reality is that the finest years for the U.S. And Canada were in low interest rate times.
I have been watching the analysis and the comments for at least the last 2 years.
The reality is you are watching pixels not the picture. Low interest rates are they key to the future. I own a small business, the country was built with small business. Low interest rates are not a sin in fact they maybe a saviour.
We’re all on the right track here. The reality is the bankers want the Fed to crap out as an excuse to bring in and impose a one world currency as the rescue. They have been manipulating all of us th this mainly through media control and influencing government policy for 50 years or more, certainly since Kennedy. Several generations now have been made promises and suckered into voting for them and to pay later.
Similarily the public have been encouraged to outconsume income with debt.
The cumlative unsustainable liabilities of this are coming to roost. The consumer and governments have become debt slaves without any real alternative other than to take on even more debt.
When the inevitable collapse of this debt bubble occurs internationally the “only” real solution proposed will be one world currency. This will create a massive need for the excercise of greater control over national governments and all debtors. Democracy will have to be effectively neutralized to local trivialities, national policies and laws will be subservient to the world currency regime. This will give bankers even greater power, control and profits. This is the often publicly stated and long term goal of the likes of the Rockefellers, Bush family, and Rothschilds, etc. All of whom have been on record at various times for saying so and to be waiting for the right crises in which to do so.
Its important to note that they care little about fairness or who gets hurt in the interim or long term.
Evidence for your claims? The Roman Empire will rise again and the Emperor control everything? Maybe not. Too much Larry Edelson?
Bankers would doubtless like a World Currency. It would make things much simpler for them – no changing rates of exchange to worry about. On the other hand no chances to use them for a quick profit. The Euro has been an experiment in that direction, but shows some signs of breaking down. Maybe the sample region is too small. I would add one thing to Harold’s last statement: bankers don’t care who gets hurt, as long as it is not them.
I just had a frightening awareness. Politicians have been depending on their ability to inflate away the high national debts they have been raising in nearly all nations. Although our costs of living have been rising in areas such as food, housing, health and education, the overall trend recently has been more Deflationary than Inflationary. The official cost of living is up only .2% (2 tenths of a percent) and has been down by some measures. What will the politicians do if they cannot inflate away the debts they have given us? They will do SOMETHING – count on it. Will it be less harmful than what they’ve already done? I’m afraid the answer is pretty obvious.
“Delerium Tremens” is now afflicting all of the debtacolhics worldwide even with the Fed’s and other QE purveyors punch bowls overflowing with debtalcohl. But it is obviously Marxian heresy to suggest that perhaps fiscal policy in the form of income redistribution to alleviate the worsening economic shock of too much income going to too few particpants in the worlds’ economies is the only remedy. Rebalancing the earned income flow to the worker producers of tangible wealth so they could fully particpate with earned income instead of ever increasing claims against their future income, the debt service of which is now slowly suffocating them, is the only sound solution. Massive defaults and bankruptcies are the other, with its consequences of economic chaos, political disorder, and violence.
One thing to remember, George, is that relatively few workers actually produce the commodities that are the basis for everything. A lot more work in industries that manipulate those commodities to produce “goods”. The majority of people work in service “industries” that sell those goods or move the proceeds around for various purposes. Those service workers actually produce nothing except service, vital though it may be for life and comfort, and depend on the real producers for their function. Yet, especially at higher levels, they control things and receive the greater compensation. Right or wrong, that is how it is. Redistribute wealth at your own risk.
There were compelling arguments for Yellen to raise and to stand pat. But history, inevitably, will make the final determination if the Committee made the right decision. So, now that the Fed’s edict is fait accompli, where do we go from here?
Here’s a hint, what’s the world’s ultimate currency…….gold! Most in the investment community would vehemently disagree with me, but they talk in double-speak when asked to name a fiat currency that holds its value as well or better than gold. Because they can’t.
You see, gold has no debt attached to it and therefore is beholden to no one or no thing. Today’s fiat currencies are heavily debt-laden and they’re each racing the other to the bottom in order to boost exports and increase inflation to ward off deflation. But ultimately, these plans don’t end very well. So perhaps you may want to consider buying gold and silver through coins, bars and select quality mining stocks.
Hey Mike, where do you stand on buying gold and silver instruments now? And will you be doing a write up on this subject any time soon? Have a good weekend!
Gold was fairly recently under $300 an ounce and above $1900 a few years ago. That’s a lot of volatility for something that’s supposed to be stable and dependable. I very much like the concepts behind owning gold and silver. I’m just not sure it provides any real protection anymore. It’s a relatively small market that can be manipulated by the big players. I have some Goldcorp, but it certainly hasn’t done much for me lately. Jim
As you say, Jim, gold is a small market, and easy to manipulate. Those big spikes we often see when the NY market opens, speak to me of gross manipulation. (Kitco gold chart). And because NO fiat currency is gold based anymore, it has become basically just a commodity, hard to destroy, but with few uses beyond looking pretty. However, because it was the traditional store of value, it retains that image much better than scraps of paper or electronic bits that can be easily changed or wiped out. It might just be a good idea to have some in case of emergency – or a deliberate government (that is, political) action.
Hey Chuck — true, the world’s debt-based fiat currencies have technically pigeon-holed gold as a commodity, much to their pending peril. Simply put, after Brenton Woods was taken to the woodshed, the world has not had an “official” debt-free benchmark to keep central bankers in check. Instead the CBs use debt-to-GDP. So we now use debt as barometer of a nation’s fiscal health vis a vis other nations. Well, that’s a recipe for disaster if I ever heard one. Once this race-to-bottom in the currency wars has finally exhausted itself, gold will once again regain its status as the world’s true reserve currency imo.
To address your point of “gross manipulation” relating to “those big spikes we often see when the NY market opens”, you also have to consider that in many cases this can be directly attributable to up or down gaps created by overnite trading vis a vis the previous day’s comex close. Have a good weekend!
Wouldn’t overnight trading occur, and be reflected in overseas markets, Stu? Seems it would. You are certainly correct about using debt-to-GDP as a barometer of fiscal health. And if gold regains status as the true reserve currency, we had better learn Chinese. They have a LOT more than they let on “officially”.
Of course, most likely you wouldn’t have this volatility if Nixon hadn’t taken the greenback off Brenton Woods back in 1971. This unilateral U.S. action has vastly changed the world’s economic landscape ever since.
I see you own some GG. It punched through its 50dma on Friday, before closing just below. Also the parabolicSar just turned positive on Thursday and the macd line crossed into positive for the time in 3 weeks. Bullish signs. Cheers.
There is substantually more to this downtrend than normal. And There are answers, Rather than attempt to pass on information myself I suggest that it be obtained from the experts.
They can be found on the web. Jonathan Cahn, Mark Biltz, Dr. Michael Lake. Sure glad I tapped into their insight and information early.
I sick and tired of the Fed whining about their 2% inflation target. Their legal mandate calls for steady prices. What was the inflation rate when Nixon imposed wage and price controls? I think it was 3%. So 3% inflation was enough to institute wage and price controls, but the Fed now believes 2% or higher inflation would be good for us. They’re nothing more than a bunch of corrupt clowns that exist only to enrich Big Finance at the expense of the rest of the country.
I’m sick a tired of this government created “economy”. It will allow collapse as soon as we try to balance a budget. Society doesn’t value the government created economy enough to pay for it with their spendable dollars.
Is the FED relevant? Mismanagement of current economic and market conditions over yrs would say not. They have been outplayed by world currency markets. This indicates they can no longer justify earning there massive salaries, and so have become irrelevant. Another small budget saving for congress?
Fire them all and sell the building. Let a few banks go bankrupt and people will start watching where they put their money. Money and savings will be a lot stronger and more stable. It’s loose government oversight, getting rid of Glass Steagull, that allows banking to compete against society with derivatives and computerized trading. Banks should be risk evaluators that allow people to invest predominantly in their and their country’s future. Not a speculative nightmare.
The Fed’s ez money policies once again caused mis-allocations of capital that formed into yet another financial Bubble, rather than into economic growth. The cheap money went into stock buy-backs instead of production and employment. Fact is there wasn’t a need for cheap money to begin with because there wasn’t any demand backing up growth. Its time for deflation and economic contraction. The Fed is very afraid of this with all the bubble debt that’s been built up, but in the end, that’s the pain that has to be worked out. Then when the millennial generation is ready to take over and spend, growth will resume. But for now its declining with an ageing global population. Demographics are very strong in economic cycles.
Those stock buybacks on borrowed money that you mention, Jean, reduce shares outstanding, thereby making earnings per share higher. That makes management look better, and gives justification for bigger bonuses. If it raises company debt, so what? HaHa!
Two big elephants are in the room: The greatest monetary policy experiment in the history of the world and unsustainable debt to GDP ratio. We all see them and no one wants to be the last one out of the room. “The Fed Has Your Back” has given us (the market) psychological support. It works until it doesn’t. If you are 45 or younger, keep investing as time is on your side. If you are older than 45, watch your own back!!
Don’t u think that the u.s. quantitative easing caused a future crisis around the world? Rich countries get richer and poor countries get poorer. Even the migrants know where the money is if they want to live in germany.
So how many carry trades are unwinding and are they accounting for 1 or 9 trillions and how long will this take??? If you can’t answer this and trillions of dollars are involved, it stands that the global market is too opaque to even speculate and what the Fed does may be meaningless in the global aspect of it all.
Too confusing for us. Put in a garden and get a hunting license. Food and inflation have been going up just like taxes.
Yea. the market is now too complex ,two many permutations and combinations with bureaucrats and academics experimenting with the markets.
Mass exodus from the Middle East, Europe dithering as to how to respond, lack of leadership in the world and US politicians vying to become US President ,would not put them in charge of the local saloon.
Dont know if anybody can read or analyze the current situation, Think its a period to sit tight and await the next big curve shift. Go back to basics/ Diverse assets in your portfolio, plenty of cash spread across key currencies and turn off the business news channel’s
John
Let me see if I get this, the Fed is owned by member banks and those member banks have close to100 Trillion out on derivatives that the interest rates won’t go up. I would think the interest rates won’t go up until those derivatives are unwound. If the Fed raises rates it wil cause Trillions of dollars of loose for their members. Eat the bankers!
One more time. Obama met with the King of Saud, Putin, and the pope. Sounds like the beginning of a joke. Then mysteriosly the oil market goes way down, Ukraine war, Syria, and Cuba. No discussion on what is discussed at the meetings. OBAMA will be the first billionaire that left office of president. Follow the money. No such thing as blind trusts.
Some say he will either find a way to stay in the White House, or will be the shadow president to whoever he lets be elected. Conspiracy theories? Yes, but there may be something behind them.
You don’t have to torture the Fed decision with disdain and angry epithets.
YOU ARE WrONG!
THE Fed recognizes that it is no longer a U.S.only regulator. We live in an economically globalized world.
Our corporations function in that world; so do our consumers.
The world economy has to be taken into account, especially when the Europeans ask us to not raise the rate right now.
Small aside: I see that officials have now ruled that Bitcoin and other virtual currencies are now commodities, meaning you can buy and sell futures and such in the things. It would also subject them to REGULATION. Sorry, holders.
Mr. Larson,
I would like you to give your opinion on the affects if the Feds raised rates 3 full basis points. I know this will be viewed extreme and housing, stock market, commodities could collapse. I believe the money around the world would flow directly to the U.S.. We would have Trillion’s of dollars to invest here in our Country and the banks would be over flowing with Capitol. Zero percent interest rates or negative interest rates in eight Countries are not fixing the economy so why not do something different and bold?
Thanks,
Tony
Our economic problems are really simple… Regrow the Middle Class and our economic problems go away… If a candidate has no concrete ideas on how to grow the Middle Class, find one that does and is willing to try those ideas…. Incidentally, the reason that the Middle Class grew so much from 1932-1981 was that the majority of Democrats that dominated our government until then believe in Unions. And the growth in wages under the Unions was the number One reason that our economy flourished during that period, which jut also happened to be the period of greatest economic growth in our history…
Unfortunately Jim, that almost uncontrolled growth in wages, often sponsored by the actions of Democratic politicians, is one major reason so many manufacturers moved jobs to China and other cheaper locations. It was either that, or lose business to non union employers here or elsewhere. I’m not defending that, just telling a truth. Republican politicians are just as bad the other way.
Pardon me, Jim, I should have addressed that to Mike S.
Chuck, it was the Republicans that took us to China (Nixon and the One World Organization) where they built factories figuring they’d make a killing using the slave labor… That did not work out so well as the Chinese soon them overtook over…
Not to worry though, as an increasing number of Americans are finally awakening to the truth that manufacturing in China is a threat to our future…
By the way, I wonder what the politicians will do for Mr. Obama’s home state of Illinois. Not only can’t they pay off lottery winners of over $25,000, nor dentists, for work covered for state employees, but they announce they will soon have no legal authority to pay for health care for their 360,000 state workers and their families. They expect to be some $8.5 billion in the hole by years end. Santa Claus, anyone?
Huh? From what I read, the money’s there. Apparently, they can’t agree on a budget
We are obviously facing a deflationary crash. The big question for me is whether government debt markets will find support as money leaves the stock market. Japan, despite incredible national debt, have thus far found support.
It defies logic, for me, that such a basket case, like Japan should have such low interest rates on its debt. It would be great, Mike, if you could delve, into this pivotal question, and give us your views.
I noticed, on Friday, as the dollar rallied, treasuries found support. Should we really be worried about government debt levels or can we keep on printing are way out of the problem.
we hear all these scare stories, about hyperinflation, but will it really materialise?
Reader Joan hit the nail on the head. While the FED does not impact long term rates directly, the increase on long term debt is certain to follow (even if months or years down the road.) Retired savers have been long suffering because of the FED! And many are FED up with zero interest rates and a targeted 2% inflation rate!
I totally agree with Andy J’s first sentence and Reader Joan’s last (quoted) sentence. We will have chaos, and that very soon. My son just lost his financial sector job yesterday — but I don’t think he would have kept it more than a couple of weeks more anyway.
Hi Mike,
I’m a subscriber to your Safe Money Report. I’ve not yet bought the ETFs your recommended – DOG, SEF. With the FED not raising interest rates, do you still recommend that I do?
Thanks,
Ron
Why can I not find any information about what to expect or how to prepare?
I m a 65 yo woman, with no financial wealth to invest.
Carol, one thing to remember about Mike, or any commentator, for that matter, is that they look at a lot of data, then make a judgement call about where they think the markets, or some part of them may head. They may be as confused about it all as we are, but they do have reasons for their opinions. Your best bet may be to follow several commentators, learn as much as you can, then make your own decisions about any investments. But don’t blame Mike or anyone else if you decide wrongly. It is always your decision that counts.
Hey Chuck — I think we’re both on the same wavelength concerning any opening up or down gaps at the comex — yes, of course these gaps would be directly attributable to Far East and European trading before the comex open.
I see you’ve made quite a few relies on the board — you’ve kept the conversation going really well. Just curious — do you work for Mike? Cheers!
Sum it up in one word. Shemitah.
Geez Mike, 10,000 to 14,800, could you give yourself any bigger spread !!!!!!!!!!!!!!!!!