Pre-FOMC Forecast: Stocks Steady, Sell Bonds, Buy Silver And Gold

There's an interesting set-up to today's expected FOMC 25 basis point (0.25%) hike in the federal funds rate.

The Yen has collapsed 19% in the last few months, the $USD is now at a 13-year high and stocks are at one of their most overbought levels in 100 years.

If that last statement about stocks being wildly overvalued doesn't give one pause, consider the situation the last time the Fed raised interest rates. It was a year ago, last December. On the day of the rate increase, December 16, the Dow Industrial Average closed at 17,749.09. The index dipped and dodged for two weeks, re-rallying back to close at 17,720.98, December 29, never quite getting back to previous highs.

But, when the new year dawned, the floodgates opened as sellers emerged from the shadows, many of them likely taking advantage of tax rules on profitable trades, mostly allowing those profits from 2015 to float tax-free until April of 2017 (the future) if sold in 2016. Tricky, allowable, rational and fully legal was this tactic which in effect dropped the Dow by a shade over 11 percent to a closing quote of 15,766.74 on January 20.

That was officially correction territory, and, while the rest of the trading community was wondering if this was going to be a 2008 redux, the Fed and its central banking brethren quietly began undermining market fundamentals (again, surprise!) by surreptitiously buying equities through proxies, particularly, the Bank of Japan, notorious for market meddling in everything from auto parts to currencies to yes, Virginia, stocks.

As it turned out, the trade was a worthwhile one for those central banking and insider trading folks. The Dow is now hurtling headlong towards 20,000, so, depending on which stocks the proxies were buying, they may have profited upwards of 25%.

Is the market rigged, or is it ready to face the awful reality of a federal funds rate at 0.50-0.75% The horror! One is amazed at not only the audacity of the central banking cartel, but also its awesome good fortune on all matters regarding their (your) money.

Getting back to the set-up from last year, the yen was down only 10% from September through December of 2015, about half of its decline this year. Can history repeat, and with even better results? That's one heck of a bet, if one is so inclined. For the rest of us, it looks like sitting on the sidelines for the rest of 2016 might turn out to be a profitable move.

It's of dubious probability that stocks are going to stage any kind of dramatic rally, so, what's the play, and when.

It's not often that Money Daily offers specific investment advice, but, taking a gander at what's happened to gold and silver the past few months (gold dropping from above $1300 to below $1160 and silver dipping from near $20 per ounce to around $17 currently), the opportunity is available to not necessarily make a killing, but to preserve some wealth in precious metals, you know, those things that have been considered money for thousands of years, gold and silver.

Being that Money Daily is more of a silver surfer than a gold bug, the recommendation is for silver at any price below $16.00. The market will not likely tolerate downside below $14.50, and the potential is there for a fabulous move upside, without the prerequisite dip.

So, here's the scenario. Stocks will remain steady or turn upwards for the remainder of December. After all, what's Christmas without a Santa Claus rally? Remember, stocks are wildly overpriced and overdue for some corrective medicine. The dollar should get a good, hard beating, but it probably won't because other major economies are in much worse shape.

It gets more complicated, because a strong dollar makes US goods more expensive overseas, and, if our newly-elected president has his way, imports are going to be heavily taxed, and soon. A trade war is likely to erupt by mid-2017.

Bond yields should benefit from rising interest rates, whereas gold and silver should see further price deterioration.

The wild cards are many, but the obvious one is inflation. If the Fed continues resolutely on course to foment inflation above two percent (impossible, say some, though the PPI came in today with a surprising gain of 0.4% for November, at the same time industrial production dipped 0.4% and capacity utilization also fell, to a six-month low of 75.0%.

While the majority of mainstream idiot economists pay scant attention to the latter two data points, CEOs and real economists take these numbers seriously. How is there going to be inflation when industrial production is slowing or stagnant and utilization is only 75% when the norm for growing economies is closer to 85%? Yet, there it is, with producer prices advancing at an annualized rate of 4.8%. Tomorrow's release of CPI for November will be the final nail in the coffin of controlled destruction economics engineered by the Fed and foreign central bank proxies.

Sorry if there's hardly anything positive in this report, but the era of central bank meddling, manipulating and needling intervention is in need of departure. They've managed to create an economy that benefits only those in the know, at the expense of taxpayers and citizens worldwide. It's like a giant plantation, with a healthy portion of worker paychecks - via taxes, fees, inflation and other theft - as the harvest.

You're being fattened and groomed for the slaughter or shearing, in a world which allows most to gain marginally but not substantially. Those without an escape hatch like a side business or secret gold vault are victims of mediocrity, though most will never notice and hardly ever complain.

So, off we go to FOMC land, with the big announcement (that's sarcasm, friend) fewer than two hours away.

Reiterating the call for silver surfing, WAIT. It's difficult with silver at such bargain levels, but it's almost sure to go lower, especialy if it goes a little higher. The central bankers - who hate competition from other forms of money - simply won't have it, and, since they have complete control over the paper silver market, they'll crush the price. If silver spikes above $19, it's a missed opportunity, but, bonus, your holdings are now worth more of those teeny-weeny Federal Reserve Notes.

The best timing may be the week between Christmas and New Year's Day, when nobody is paying much attention, or within the first three weeks of January. After the inauguration on the 20th, it's possible that markets will experience some serious turmoil, so there may be more time available to stock up on the stuff that powers solar panels and is the best electrical conductor in the universe, besides being the money of gentlemen.

“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.”

-- Norm Franz in his book Money and Wealth in the New Millennium (2001).

More after the market close.

Interest Rates Likely To Be Hiked Wednesday; For Now, Markets Don't Care

Remember how any time the Fed even hinted that they were going to raise interest rates (the fed funds rate, to be exact) the market would throw a hissy fit and drop 3-5% in a matter of days?

Well, that's ancient history, it appears, as the Dow smashes its way toward 20,000 with yet another all-time high, despite the Fed nearly certain to raise the Fed funds rate tomorrow (Wednesday, 2:00 pm).

For now, markets are completely out of control and have been since the election of one Donald J. Trump as president of the United States. If anybody believes his pledge to "make America great again," it sure seems like wizened traders on Wall Street do.

Hang tight. It's almost time to make a major move on silver and/or gold. The logic and reasoning for the buy will be explained right here at Money Daily in tomorrow's post-FOMC post.

Tuesday, Dec. 13, at the Closing Bell:
Dow: 19,911.21, +114.78 (0.58%)
NYSE Composite: 11,236.75, +59.47 (0.53%)
NASDAQ: 5,463.83, +51.29 (0.95%)
S&P 500: 2,271.72, +14.76 (0.65%)

Stocks Continue Surging Into Year-End; Fed Rate Hike Baked In, Unsubstantial

He said, "Call the doctor. I think I'm gonna crash."
"The doctor say he's comin', but you gotta pay him cash."
They went rushin' down that freeway,
messed around and got lost
They didn't care they were just dyin' to get off
--Life in the Fast Lane, Eagles, 1976

Stocks careened higher on Friday, finishing off a week that saw increased investor buying virtually across the board. It was the best week for stocks, especially on the Dow, since the week immediately following the US elections, an odd scenario for analysts and talking media heads who predicted turmoil and collapse if anybody but Hillary Clinton was elected president.

Since the election of Donald Trump, we now know that what emerges from the mouths of Wall Street psychopaths and media slaves is usually incorrect, politically driven and nine times out of ten wrong. What we still don't understand is why the same people are relied upon for their opinions, having been proven completely wrong over and over again, the best examples of this kind of nepotistic following being seen regularly on the financial networks, Bloomberg, Fox, and notoriously, CNBC, which has its own designated cheerleader, Jim Cramer.

How could all of these pundits and overpaid professionals have gotten it so wrong? Easy. The chances of stocks advancing or declining is almost always a 50/50 proposition, but, anybody reading the tea leaves from leftover elections would have known that a Republican president following a lame duck incumbent makes for a major bull market (that's made up, but it's probably true anyhow, and, in the age of "fake news" all one needs is a headline and story, right?).

Maybe people with money think Donald Trump's various positions on trade, immigration, wages, borders and culture will usher in another gilded age of American exceptionalism. For the most part, anybody with half a brain still in working order would welcome such a change. More than likely, following the initial post-election stock surge the rest of the advances have been driven largely by herd behavior.

It should be widely accepted, though it isn't, that stocks are valued extremely high, but the right thing is that bonds have been collapsing over the past five weeks, at the same time stocks have been rising. That's not your run-of-the-mill pair trade, but it is imaginative. As bonds fall, yields rise, making them more attractive as safety plays. In the meantime, with interest rates largely remaining at bargain basement levels, stocks have continued to be the investment de jour.

If there's a cloudy lining inside the silver cloud of stocks, it's that a correction is long overdue. However, bears and shorts have been saying that for the better part of the past four years and it hasn't happened. Instead, we happen to be in the midst of a massive valuation expansion. Whether or not individual stocks are good or bad investments presently does not seem to matter. There's an explosion of cash coming into the market, the same cash that was being hoarded pre-election. Once that money is exploited and exposed, the intensity of the rally should subside, but probably not until the calendar turn to 2017, the attractiveness and continual pimping of the "Santa Claus Rally" expected to be the main driver over the remaining weeks of 2016.

So, if a crash is coming, January's your huckleberry, or, right after the Fed raises the federal funds rate next week, which has evolved from a possibility to a near-certainty. The Fed and their one quarter of one percent hike in overnight lending is more a canard than a reality. Only the monumentally stupid or disconnected will suffer on a small rate increase. It's so tiny that almost nobody will notice. Certainly, it's not the kind of event that will cause a run, a panic, a rout, so the best action for next week is probably inaction.

Crashes and sudden downturns in the market normally come from out of the blue, caused by forces to which nobody (or only a select, ridiculed few) had been paying attention. If there's going to be a turn, the most likely causes are going to come from Japan or China or Europe, possibly even Brazil or another major portion of Latin America. More likely is that after Mr. Trump is inaugurated, US markets stabilize and places such as those mentioned above suffer. Such is the way of the world. There will be winners and losers. If America is going to be "great again" other countries are going to be not so great. The market is economics in motion and the chances for a crash in America are minimal over the short term. Longer term, dependent on too many factors to delineate here, corrections and crashes are bound to occur. The truth of the matter, is that the usually-wrong analysis from Wall Street is actually right on this account: if your time horizon is 20 or more years, crashes and corrections are buying opportunities and nothing more. The world won't end tomorrow or the next day, or the next month or the next year.

Thus, the outlook for stocks remains fairly solid, albeit a bit on the high side right now. Since the election, the Dow is more than 1400 points higher, a gain of nearly eight percent. That's a pretty healthy gain for five weeks and something that should be taken into account whatever investment decision one is making or about to make.

Friday's Closing Quotes:
Dow: 19,756.85, +142.04 (0.72%)
S&P 500: 2,259.53. +13.34 (0.59%)
NASDAQ: 5,444.50, +27.14 (0.50%)
NYSE Composite: 11,191.79, +41.83 (0.38%)

For the Week Ending 12/09/16:
Dow: +586.43 (+3.06%)
S&P 500: +67.58 (+3.08%)
NASDAQ: +188.85 (+3.59%)
NYSE Composite: +353.21 (+3.26%)

December Jobs Report OK; Look For FedRes To Raise Rates

The U.S. economy added 178,000 net new jobs last month while the unemployment rate fell to 4.6%, the lowest since 2007, the Labor Department said Friday.

That's about all one needs to know about what the Fed may do at the next meeting of the FOMC in less than two weeks, December 13 and 14.

The economy seems to have picked up some confidence from the Trump election, and there's the possibility that the Fed may consider more rate hikes at a faster pace if economic conditions continue to improve (it's about time). what the Fed doesn't want to do is slam the door shut on any expansion by raising rates too quickly, but, after eight years of moribund global flim-flammery, it's apparent that the Fed doesn't want to do anything that might draw undue attention to itself.

As the year enters the final month of a very turbulent 2016, the signs are good that the eight years of non-recovery (except for stocks) may be about to usher in a new prosperity and at least a couple of good years for the US economy. While the rest of the world is in somewhat dubious condition, especially Japan and Europe, with their mountains of debt and negative interest rates, the US seems poised to again take the lead in economic matters.

It may take a while and it may take a pullback in stocks, which hasn't happened since '09, but things do seem to be on the improve.

Other than the Dow Industrials, stocks took a bit of a beating this week, ending on a down note as the Friday rally failed to maintain momentum. This could be the beginning of a Wall Street hissy fit over rate hikes. Then again, stocks are close to all-time highs.

Stay tuned and keep that power dry.

Closing Bell, Friday 12/02/16
Dow: 19,170.42, -21.51 (-0.11%)
NASDAQ: 5,255.65, +4.55 (0.09%)
S&P 500: 2,191.95, +0.87 (0.04%)
NYSE Composite: 10,841.64, +12.65 (0.12%)

For the week:
Dow: +18.28 (+0.10%)
NASDAQ: -143.27 (-2.65%)
S&P 500: -21.40 (-0.98%)
NYSE Composite: -38.98 (-0.36%)

Is The Economy Changing? What To Buy Now

Since Donald Trump won the presidential election roughly a month ago, the reaction on Wall Street has been, in a word, enthusiastic.

The investing class is betting that Trump will have a positive impact on corporate bottom lines and all indications are that he will try to slash US corporation tax rates and repatriate corporate money from abroad to pump back into the US economy.

But, it's not at all that simple. Stocks are at record highs already, so, if you're invested in a 401k or other plan at work, sit tight. If you're one of the three dozen or so active individual investors out there still standing after years of mauling and manipulation, you have to notice that p/e ratios are at pretty high atmospheric levels.

Stocks are great if you have the patience and appetite for the ups and downs of active markets, but buying at these levels would seem a bit on the foolhardy side. There's likely to be a pullback if the business cycle still has any tethers to reality. Besides, the FOMC is going to raise interest rates, making bonds, gold and silver and other fixed investments appear more palatable.

Who knows? Banks might actually be offering 4-5% interest on savings in a few years, though it's a dubious call. A return to normalcy in markets and credit would cause the national debt to skyrocket immediately, as in "overnight," and that's not something a president Trump (or any other president for that matter) wants on his historical resume.

So, what's a bargain? As usual, the central banks and their cronies (yes, despite the Donald, there's still plenty of crony capitalism to go around. One is not going to destroy Rome in a day or even one term.) put the kibosh on the precious metals just after the election and they don't seem to be relenting at this point.

The world has changed, but it's probably too early to tell what effects those changes are going to have on businesses or investing or sectors or bonds or anything. Give it a little time, but bear in mind that the FOMC is meeting on the 13th and 14th of December and the odds are very, very good that they're going to hike the federal funds rate another 25 besis points or 0.25%, bringing the effective rate to 0.50-0.75.

Now, there's nothing special about those rates except that they're still historically low. The world is still recovering from the devastation from the crimes of 2008 that were never reconciled. It's unclear whether the Trump administration is going to get tougher on Wall Street shenanigans or allow them free reign, but either way, there's still a price ot be paid for recklessness. The trick is to know when the piper shows up and nobody is that good.

Until then, silver still looks like the bargain of the century, though leaning towards outright purchases of solar panels and the associated technology is still a viable plan.

At the bottom of it all, Americans should be investing in their own businesses. Run from home or a storefront or on a shoestring, we may be entering a time of unfettered capitalism from the ground up.

Go for it.

Closing Prices for Thursday, 12/01/16:
DOW: 19,191.93, +68.35 (0.36%)
NASDAQ: 5,251.11, -72.57 (-1.36%)
S&P 500: 2,191.08, -7.73 (-0.35%)
NYSE Composite: 10,821.85, -16.61 (-0.15%)