Minyan Mailbag: Don't Fight the Fed
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.
Since January, stock index rallies have been weak and of short duration. If it isn't yet clear to investors that distribution is occurring, I don't know what it takes. Although the Fed is coming out of an unprecedented easing cycle that may somewhat alter the 3 steps and a stumble rule, the Fed's seven interest rate increases should still provide investors' some "cause for pause".
The equity markets' decline comes as no surprise.
What does baffle me is that the dollar, gold, and long-bonds seemingly have not come to grips with the idea that Greenspan can't increase interest rates a lot higher without taking the U.S. economy into a depression on the eve of his departure from the Federal Reserve (not a legacy that he would likely deem acceptable). That leaves what seems to be an almost inevitable outcome of the Fed discontinuing their interest rate hikes once the economy shows resilient weakness, having already resolved that they will have to live with the dollar consequences that result (or at least allow Japan and China to worry about it if they want to).
Gold is just above the trendline under the lows going back to 2000. I'm adding to gold today. It seems that investors will eventually figure out the only viable lesser-of-evils for Greenspan to choose.
Your analysis is the crux of the bet between Scott and I. We made the bet just to instruct Minyans. I agree fully that the Fed must turn around and go the way of complete destruction at some point, but don't think it will be by Scott's deadline.
We truly are in amazing economic times...the grand experiment. But like experiments in physics, you can't alter the rules of nature.
I have added to gold/gold stocks as well.
Behind the scenes, the Patriot Act II is playing a role in currencies. It seems that it is now almost impossible for a U.S. citizen to open a bank account outside the U.S. This has amazing implications.
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