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Weldon's Money Monitor




Hawkish or dovish ? Bullish or bearish? Necessary or over-kill ???

Indeed, our long-held core-secular theme comes to light, exemplified in the micro-analysis of today's FOMC pow-wow results, as global markets attempt to decipher the smoke signal rising from the Fed's campground.

It's the spectrum-stretch.

Reflation or deflation? That is the question, and it is the lack of a clear-cut answer that causes the Fed's conundrum.

The stretch, the intensity of the pull from each direction, has never been more intense, than it is right now.

Hawkish is the rate hike, leaning into the wind of dovish hope.

Hawkish is the implication that the Fed will continue to raise rates at a measured pace.

Hawkish is the implication that a potential rise in inflation pressure, emanating from rising energy prices, could be dealt with ala an appropriate policy response. In other words, if inflation gets loose thanks to energy, the Fed reserves the right to raise rates by more than a measured pace.

Hawkish is the thought that unfortunate developments (ie: the single worst natural disaster in the nation's history) does not pose a more persistent threat.

Hawkish 4 ... Dovish 0.

But, hold the press, the doves are making a strong comeback bid, amid the later-news-wire revelation that the Fed was not unanimous in its decision to raise interest rates.

There was ... gasp ... a dissenting voice.

This holds out hope to the doves, yes ?

Hope, that the Fed will be swayed away from further rate hikes, thus rekindling reflationary sugar-plums dancing in the heads of global equity and housing markets ... if ... the Fed is beginning to shift towards the dovish side, right ?


In fact, potentially, maybe, could be ... way wrong.

What we see here ... is a crack, a division in the Fed, at the worst possible inflection point in its history, amid the impending departure of Alan Greenspan, who has cemented the Fed's opinion into one single voice, his.

Moreover, we might go so far as to suggest that the mention of the potential increase in inflation pressure that could emanate from the action in energy prices, could be meant to appease hawks on the FOMC who are likely arguing for inflation vigilance.

Hence, what appears as hope ... could be a crack in the Fed's solidarity, at least as presented by its ultimate puppet-master. A Fed policy-puppet, with strings being pulled in a variety of different directions as a result of dissenting opinion made public ... could be disastrous for confidence, when confidence is feeble at best.

Let's talk catalyst ... for a serious retrenchment in the US consumer ... in the form of a Fed that is divided, publicly.

Hawkish wins, but confusion is about to reign.

Again, we continue to keep the technical spotlight on the evolving upside breakout in gold and mining shares relative to the broader US stock market.

Indeed, this is usually an ominous sign for US stocks.

We need only two words, a question, we ask you ... "Got Gold" ?

How about, gold stocks, as we note the simple facts of life in the bullion sector, as per the progressive-bullish structure of the inner-sector, inter-market dynamic. In other words, the market is set up such that ...

... Gold is rallying in USD terms ...

... and ... gold is rallying, at the same time, against almost every other currency in the world ...

... while ... the Philly Gold and Silver Index (XAU) is beginning to outperform the underlying bullion market ...

... and ... the AMEX Gold Bug Index (HUI) of unhedged gold-specific mining shares is leading the XAU higher, while outperforming bullion by a greater magnitude than is the Philly index.

AND NOW ... the icing on the cake ... as gold, along with both hedged, and unhedged mining shares, are breaking out, and outperforming the broad U.S. stock market...

... implying a secular, big-bigger-picture dynamic, as per the continuation of the new bull market in gold, versus all paper currencies, specifically the monetarily reflated U.S. equity market 'paper-currency' as a whole.

Note the charts below, first revealing the sharp upside breakout and trend reversal in the XAU / S+P 500 Index Ratio, seen directly below ... and ...

... the potential major move underway, as per the upside violation of the 15-year downtrend line, following a text-book 50% Fibonacci retracement of the first bull wave from the 2000-01 secular low in gold, relative to stocks.

We conclude with two final words, we ask, again gold ???

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