Fed To Keep Rates At ZERO Through 2022; Are Gold and Silver Investors Batty?; Implications of Global Madness

If Forex is in your wheelhouse, you've no doubt noticed the recent decline in the US dollar against other major currencies. The Dollar Index has been pretty shaky as of late, but the current trend in the aftermath of the worst of the coronavirus pandemic is lower, with no bottom in sight.

After sinking to 94.89 on the 3rd of March, the dollar leapt back to an interim high of 102.82 on March 20th. Wednesday's quote was 95.96, a decline of nearly seven precent, most of that happening within the last three weeks.

That's not surprising, given that American cities have been beset upon by hordes of protesters, complete with rioters, looters, cop killings, tear gassings, rubber bullet maimings, autonomous zones (Seattle's Capitol Hill is one, recently claimed and occupied by protesters as police vacated the 3rd Precinct) and general lawlessness, making dollar holdings somewhat of a risky bet in the near term and, as dollar dominance recedes, maybe for much longer.

At the conclusion of the Fed's Tuesday and Wednesday's FOMC policy meeting, Chairman Jerome Powell made a definitive statement on interest rates, saying that the overnight federal funds rate would remain at the zero-bound at least until 2022. That kind of central bank sentiment doesn't exactly inspire confidence in the world's reserve currency. It indicates nothing less than a failure of financial system underpinning, a condition that first appeared in 2007, was not adequately addressed and has now become a systemic crisis without hope of positive resolution.

While the Fed still has the monetary muscle to backstop financial assets it does so with counterfeit, a fictional fiat currency without backing that eventually will be worthless. History has shown this to always be the case. Fiat currencies die and a new financial system is erected. Normally, the new system is backed by gold or silver, or a combination of the two. This time is no different than any other. The Federal Reserve and other central banks can continue their charade for only so long. Eventually, income disparity results in runaway inflation and widespread poverty, prompting clamor from the masses, which we are witnessing on a global scale today as an epochal societal revolution.

Such incalculable convulsions encourage escape from the clutches of unfair finances promulgated by central banks. People seek refuge from currencies that are losing value rapidly. Housing, health care, and eventually, food become unaffordable to the vast swath of middle and lower classes. Alternatives are sought. Gold and silver are the most readily available to the public. Silver becomes particularly of interest due to its lower price points. The availability of metallic money becomes a point of contention as people with limited means crowd into the space, which is exactly what's happened since the onset of the coronavirus.

A 10 troy ounce gold bar at Apmex.com is offered for $18,255.90. At Scottsdale Mint, the popular one ounce silver bar dubbed "The One" starts at $25.05 and goes down in price to $23.42 depending on quantity and method of payment. Of course, given that one would be willing to pay a price that carries a premium of seven dollars over spot, one would be out of luck, as "The One" is currently out of stock.

These are just a few examples of what happens when a confluence of events (pandemic, endless fiat currency creation, summer-long protests, high unemployment, rampant inflation) strikes the minds of people with money and assets. They either go with the flow and stay in stocks or look to gold and/or silver for some safety. With bonds yielding little to nothing - sometimes less than that via negative rates - and default risk rising (hello, Argentina!), precious metals offer a reasonable alternative.

Futures and spot prices for the precious metals might as well be cast upon stones for what they fail to deliver in terms of price discovery. Being holdovers from the failing fiat regime, they are being left behind as physical holdings dominate the marketplace. Prices are exploding on eBay and at dealers, as shown in the examples above. Money Daily tracks prices on eBay for one ounce gold and silver coins and bars weekly in it's Weekend Wrap every Sunday.

Other ways to deploy currency are in art, collectibles (comic book prices are through the roof), vintage automobiles, commodity futures, real estate, ad other asset classes, but none of those share the characteristics of precious metals as real money, except possibly cryptocurrencies like Bitcoin.

Wall Street, the Federal Reserve, and the federal government are hanging onto their prized positions of monetary and political authority by their teeth. It's only a matter of time before all of it fails. The nationwide protests are proof that the federal government is losing control of the country in manifest ways. Unrelenting gains in precious metal prices - and the attendant, repeated attempts to contain those gains in the futures markets - is evidence of the Fed's desperation, just as Wall Street's recent snapback rally is a mirage based on easily available fiat currency and nothing else.

It's all tumbling down and there's nothing that can stop it. The demise of the dollar has been an ongoing orgy of dislocation for decades. Trillions of dollars added to the Fed's balance sheet, euros at the ECB, yen at the Bank of Japan, yuan at at PBOC are mere stop-gap measures which do not address the underlying solvency issues. If the stock market crash in March wasn't enough to scare people out of stocks and fiat, the coming wave will surely devastate those who failed to heed the warning. Via the Fed's emergency measures, Wall Street has given investors a golden opportunity to diversify out of stocks. Those who fail to take the opportunity will suffer a heavy economic blow.

At the Close, Wednesday, June 10, 2020:
Dow: 26,989.99, -282.31 (-1.04%)
NASDAQ: 10,020.35, +66.59 (+0.67%)
S&P 500: 3,190.14, -17.04 (-0.53%)
NYSE: 12,449.22, -170.30 (-1.35%)

Dow Closes With Losses; Is This 2007 All Over Again?

The Dow spent the day criss-crossing the unchanged line - 20 times to be exact - before finally capitulating late in the day, closing lower for the third time in four days, the losing sessions outweighing the sole winner by a margin of some 398 points.

Among the various reasons for the recent declines are the usual suspects: trade and tariffs, emerging market weakness, soaring bond yields, and widespread political unrest, not only in the United States, but elsewhere in the world, particularly Europe, where nationalism is on the rise in opposition to hard-line European Union bureaucracy and technocrats.

Italy is the most recent focal point, where the latest government consists of parties warring within themselves, with each other, and with the political apparatus that overarches all things European from Brussels. The Italian government, like most modern nations, is saddled with largely unplayable debt, seeking solutions that preclude involvement from either the ECB or the IMF, a task for only the brave or the foolhardy.

As much as can be said for the political turmoil within the Eurozone, it remains cobbled together by an overtaxed citizenry, ripe for revolt from the constraints upon income and general freedom. As was the case with Greece a few years back, the EU intends imposition of austerity upon the Italians and is facing stiff resistance from the general population and government officials alike.

Political sentiment aside, the canary in the US equity coal mine is the downfall of the treasury market, which has seen rising yields almost on a daily basis since the last FOMC meeting concluded September 26, the well-placed fear that the Fed has reached too far in implementing its own brand of monetary austerity by flooding markets with their own overpriced securities. The resultant condition is the most basic of economics: oversupply causes prices to fall, yields to rise.

Adding to investor skittishness are upcoming third quarter corporate reports, which promise to be a bagful of not-well-hidden disappointment, given the strength of the dollar versus other currencies and corporate struggles to balance their domestic books with those outside the US. Any corporation with large exposure to China or other emerging markets is likely to have felt some currency pressure during a third quarter which saw rapid acceleration in the dollar complex. Most corporations are simply not nimble enough to adjust to quick changes in currency valuations, leading to losses on the international side of the ledger book.

Valuations could also matter once again. Since the economy in the US is seen as quite robust and strong at the present, investors may want to question their portfolio allocations. Good things do not last forever, and while the current rally under President Trump has been impressive, it has come at the end of a long, albeit often sluggish, recovery period.






All of this brings up the point of today's headline, the eerie similarity to the market of 2007, which presaged not only a massive recession, but a stock market collapse of mammoth proportions, a real estate bust, and vocal recriminations directed at the banking cartel, which, as we all know, came to naught.

In 2007, the Dow peaked on July 11, closing at 14,000.41, but was promptly beaten down to 12,845.78 at the close on August 16. It bounced all the way back to 14,164.53, on October 16, but was spent. By November 26, the day after Thanksgiving, the industrials closed at 12,743.44 and continued to flounder from there until the final catastrophic month of October 2008.

The chart reads similarly, though more compressed in 2018. The Dow made a fresh all-time high on September 20 (26,656.98) and closed higher the following day. On October 3, a new record close was put in, at 26,828.39, but the index has come off that number by nearly 400 points as of Tuesday's close.

It is surely too soon to call for a trend change, but, if 2018 is anything like 2007, the most recent highs could be all she wrote, the proof not available for maybe another month or two, but the Dow bears watching if it cannot continue the long bull run.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74

At the Close, Tuesday, October 9, 2018:
Dow Jones Industrial Average: 26,430.57, -56.21 (-0.21%)
NASDAQ: 7,738.02, +2.07 (+0.03%)
S&P 500: 2,880.34, -4.09 (-0.14%)
NYSE Composite: 12,960.57, -39.56 (-0.30%)

In a Give and Take Environment, the Takers Will Rule

Entering the first full week of trading on the major US markets, investors are swamped with signals running the gamut from bullish to bearish to bust, putting the direction of the market unreliably up in the air.

It's not a pretty picture, but hardly one which the behemoth American economy cannot endure. The usual drivers of investment - Fear and Greed - have been seen shuffling about Wall Street with notable hangovers, especially Greed, which ended 2006 with a six-month long 17% buying binge on the DJIA.

Fear, which had been praying quietly at home for most of the 2nd half of last year, binged through the holidays on news of slow retail sales and the continued run-down in the construction industry.

So the two of them are planning a partnership of sorts for the early months of 2007 - lubrication for the skids - to keep everyone somewhat afloat on the money and credit mothership.

Greed says there are bargains out there and you don't want to miss out. Fear says your mortgage is tapping you out and you should retreat from the speculative market.

That's where the partnership stands, with both boys tossing signals of varying strengths of Doom, Gloom, Boom, Bust and Bonanza. And of course, it's January, so market watchers and witches of all stripes and hats will trot out the ancient adage - how goes January, so goes the year.

It's enough to drive a rational investor batty, the operative word being rational, begging the question: what's a reasonable strategy in an up and down market?

One word: allocation. One more: hedge. Um, forget it, here's a plan. If you've got more than 75% invested (25% cash), you're normal, but right now, overexposed. If you've been at that percentage for the past six months, you probably have some hefty profits and now would be a good time to relieve yourself of them before the market does it for you.

Converting some - not all - of your profitable investments to cash within the next few weeks makes sense. If the market sells off, you can buy back in at lower prices. If it continues rising, you still have the cash which should be invested in either CDs or if your appetite for risk is still unsated, dollars.

That's right. The greenback is likely to rise over the short term against the Yen, Pound and Euro due to three distinct forces: 1) Some expression of fiscal restraint and responsibility by the newly-installed Democratic majority in Congress; 2) The US economy will perform its peers in 2007 as their slowdown will be more painful than ours, and 3) Lower inflation and slightly tighter credit after years of excess.

My plan calls for shifting as much as 50% of the whole out of stocks and into a mix of fixed investments or currency trades. Since the chances for a meaningful correct some time soon are very good and getting better every day, you should take some of the profits, pare some losses and wait until January has an imprint - either up or down - before making any major strategic investment moves.

Keeping track of the market - just the Dow, since that's the one that counts for gauging purposes - we've had three days up and one down (Friday, Jan. 5), though the losses on that one day more than outdid the cumulative gains thus far. The Dow is down roughly 40 points in 2007, but it's far too early to discern direction. It's likely that the index won't give us a reading that we can use as an indicator until the 24th or 25th, but let's keep a sharp eye on it.

2007 Predictions (part 2)

Management will be key in 2007. Those companies which can outperform their rivals and adjust to changing economic and market conditions will appreciate dramatically in 2007, while the bulk of publicly-traded companies will skirmish with health care, distribution and marketing issues.

Stocks in general will perform poorly, however, and some will fail outright. A correction is fairly due in the near term, most likely in the first two quarters of 2007, though either sharply rising prices or range-bound fluctuations are equally possible. There has not been a 10-15% correction in the Dow for the entire length of the current bull market, which has now extended to 51 months.

The Dow has just completed its 4th consecutive year of positive returns and 2006 was the best year in the past three. It's not surprising that stocks have accomplished such sparkling gains considering the healthy profit scenarios and rather loose policy guidelines over recent years.

What is surprising is how the markets have behaved with rigid resolution during a time of high deficit spending, a poor balance of trade and the general malaise associated with the conflict in Iraq and the poor US foreign relations policy. Falling currency values must have contributed to higher share prices over this period. Foreigners have, in relation to dollar-denominated assets, more money to boost stock prices, and they certainly have. One could assert that stocks must rise just to stay even with the falling value of the US dollar.

Continued loose policy on many fronts, including the Fed's rate policy could lead to a hyperinflationary environment, but that's all about to change. The shifting politics in Washington should foment positive movements on fiscal policy, foreign relations and spending. A conclusion in Iraq is overdue and calls for an end to US military involvement in the Middle East will only grow louder if the conditions remain the same or worsen.

It's going to be a year of transition in which strong internal management will not only profit but lead into a more balanced and dynamic market. With that in mind, a 15% rise on the Dow would put the average at 16,675, a number that not only seems unrealistic, and probably is. Don't expect the Dow to cross much higher than 16,000 at some point in 2007, but be reminded that a pull-back in the first half will make such a move all the more daunting.

To say that every rally climbs a wall of worry is to speak loudly of this current bull. Sustaining the edge during a transition will not be easy for traders or investors. Expect a cyclical change in sector leadership, and small emerging technology companies in computing, agriculture, medicine and energy will perform very well and many will be takeover targets.

Large value companies, like those comprising the Dow, will continue to diversify to meet changing demands and become even more entrenched in their respective business sectors. That's all positive news for US stocks and 2007 will present quality buying opportunities. The underground, or unseen, economy will continue to thrive and feed into the mainstream at an unprecedented rate. Cash and credit are circulating and growing remarkedly; a condition that must be approached and understood to be cautionary.

2007 will experience political disruptions more often than economic ones. The world's currency exchange system, precarious as it is, has now interpreted globalization effects and accommodated. While areas of fragility will persist, no cataclysmic events can be seen looming and those problem areas such as inflation and disparities in markets will be met with policy action. Areas outside the US will almost certainly afford better returns, though with the associated higher risk. Established foreign firms based in stable nations should be given a hard look.

Expected gains are 7% on the Dow, 12% on the Nasdaq and 5% on the S&P 500 at year end, though the range, especially the lows, could be dramatic.