The Fed has taken its foot off the gas pedal. We’ve been watching this for a couple of weeks now. Crunch time is almost here. Be afraid. Because the Fed doesn’t have a clue what to do next.
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Gold has pulled back after breaking out of its trend channel. That’s usually a sign of a top. Now what?
Short term cycles are due for tops and little pullbacks at least. If it doesn’t happen, it would be another sign that the long term cycles are back in up phases. But are these cycles, or just the manifestation of the power of the Fed to create the illusion of a market?
How do you trade it? With one eye on the ground and the other to the sky. Walk this way.
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The Fed’s massive bailout of Primary Dealers and its alphabet soup loan programs for all other big financial players, have now made moral hazard permanent and structural. Why worry about risk when you know that the Fed will always take you off the hook when the shit hits the fan?
How can we know how this will play out? How can we know if these loans can ever be repaid? Will they be repaid through inflation, perhaps hyperinflation? Or will the borrowers simply default if the markets and economy recover too slowly?
Then who will be on the hook for the Fed’s guarantees when the Fed must assume the losses? Who pays? Taxpayers? Depositors? Everyone, again through massive inflation?
Of course, there’s always a chance that everything turns out just fine. The world returns to normal in a few months. The economy bounces back, and all the trillions lent by the Fed gets repaid timely, with no financial price to be paid.
We don’t know, but there will be telltale signs in the weeks ahead that will give us a heads up.
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We expected the worst, and we’ve gotten it. But that does not mean that things will get better. The revenue trends had been strong. Now they’re awful, and spending is unimaginable. How can this be sustained? In this report, I’ll show you the data, and discuss how to handle what’s to come.
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I warned about it last week when the Fed’s POMO schedule first showed a reduced purchase rate. The Fed is taking its foot off the gas pedal. Here’s what that means for your stocks and bonds.
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Gold has reached trend resistance and 10-12 month cycle momentum is at the level where it peaked last year. Here’s what to expect, along with a few mining picks. Dig it!
What happens this week could tell us whether we’re in a bull or bear market.
As of 4:15 AM ET on Monday, virtually all of Thursday’s market gain has been wiped out. The S&P futures were trading at 2742, which would put the S&P cash index back below the centerline of the trend channel. Bears would have a foothold, but it’s where Monday finishes that matters, not where it starts.
Here are the critical parameters and levels you need to know to be positioned correctly.
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Federal tax collections are collapsing but the US Treasury now has $827 billion in cash in its bank account at the Fed. This is double the previous highest level ever. This money has all come via debt sales over the past week.
The Fed funded every single dollar of that expansion through its purchases of the Treasury debt. The Fed used Primary Dealers as middle men. The dealers collected a nice skim and the Fed monetized the debt, while being able to claim that it didn’t. But this is money that did not exist two weeks ago. Now it does.
This has frightening implications. Here’s why, and what you should do about it.
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This short term trendline is the magic 8 ball for gold’s outlook.
Lee Adler