Aggressive Fed Could Upset Markets, Gold is the Hedge

Aggressive Fed Could Upset Markets, Gold is the Hedge

Aggressive Fed Could Upset Markets, Gold is the Hedge

$DIA, $SPY, $QQQ, $VXX, $GLD, $SLV

The mins from this month’s FOMC meeting outline an aggressive agenda that may upset financial markets in the months ahead.

Fed officials said the plan is cautious, and stocks rallied on the news.

The Big Q: How safe should participants feel long-term?

The Big A: Watch carefully what the Fed does.

There are 2 Key policies from the Fed to keep eyes on in the coming months, they are as follows:

  1. A trimming of the Fed balance sheet, and
  2. the traditional rate hike

As securities on the Fed balance sheet mature, monthly caps dictate how many of those matured assets will be allowed to come off of its balance sheet, as opposed to being reinvested.

As time goes on, the caps will increase incrementally, this approach will likely cause a passive rise in interest rates, which could be burdensome to the US economy.

However,  real danger comes from a compounding effect between this trimming of the balance sheet and the standard rate hike that’s expected next month or in September.

FoMC voters  held off on an official rate increase this month, announcing their plans for the balance sheet in its place. Some experts believe the Fed will push rates higher in June others not until September.

The Fed’s intentions to reduce its balance sheet while continuing to raise rates could be problematic mainly because of the excess pressure it will exert on our untested economic recovery.

Then why are Fed officials in a hurry?

According to a theory offered up by one analyst, the academics running the Fed have realized President Trump will most likely be firing most of them, so they are now intent on trying to normalize policy prior to their inevitable departures.

Plus they may be rushing to unravel the web of artificial support that’s been holding the economy together for the past several years because markets seem to be strong and confident right now. Thus gives them scope to backtrack if things start going South again.

The Fed has exhausted all of its tools and resources to bolster the US economy after the last major collapse. And it used its power to keep markets up and that gets us where we are today.

Fed officials know they are out of tricks.

If the economy takes another dive, they have little at their disposal to stop it.

This may explain why they seem to be going ahead to raise rates and trim the balance sheet, so they can slash rates and build the balance sheet back up when the market corrects again.

This month’s FOMC meeting mins have Fed officials on the record saying they would not change their plans for the balance sheet (until the economy exhibits “material deterioration.” Can we then assume they will take that stance in regard to direct rate hikes too? Yes.

The Fed will move slowly but surely, with more aggressive measures until markets start reacting negatively. But, Fed may be overestimating its ability to control the economy when it starts pushing back against the “hawkish” policies.

History tells us that,markets do not sit around and wait for policy makers to right their wrongs; the damage is often done long before officials are able to react.

We should be aware that the Fed’s efforts to prepare itself to handle the next crisis could be what that causes the next crisis.

Shayne and I expect that the Fed will keep pushing until it breaks the economy, when that happens, real, tangible assets like Gold, Silver, fine art, fine diamonds, thoroughbred blood stock and Tier 1 vintage and classic motor cars will likely be the few assets that prosper, much of those for the very rich, what about the regular guy?

That said, now it is Key for the average savers to protect themselves by adding Gold and Silver (Bullion, Coins, Mining Stocks & Royalty Streamers) to there portfolios for financial security.

Friday, the US major stock market indexes finished at: DJIA -2.67 at 21080.28, NAS Comp +4.94 at 6210.17, S&P 500 +0.75 at 2415.82

Volume: pre-Holiday trade on the NYSE was light with just 683-M/shares exchanged.

  • NAS Comp +15.4% YTD
  • S&P 500 +7.9% YTD
  • DJIA +6.7% YTD
  • Russell 2000 +1.9% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.39) Neutral (0.23) Bullish (0.42) Very Bullish (0.51)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.35) Bullish (0.44) Bullish (0.29) Bullish (0.33)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.46) Bullish (0.48) Bullish (0.31) Very Bullish (0.58)
HeffX-LTN Analysis for GLD: Overall Short Intermediate Long
Bullish (0.25) Bullish (0.25) Bullish (0.29) Neutral (0.22)
HeffX-LTN Analysis for VXXL Overall Short Intermediate Long
Bearish (-0.41) Bearish (-0.44) Bearish (-0.42) Bearish (-0.38)

Have a terrific Memorial Day weekend to all of our American readers.

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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