If Powell was attempting to erase what little credibility the Fed had left, he succeeded, and what is going to it take earlier than gold takes-off?
by David Brady through Sprott Cash
Wednesday’s FOMC assembly was a whole fiasco. If Powell was attempting to erase what little credibility the Fed had left, he succeeded. A few of his feedback have been downright absurd, even infantile.
The Fed has already begun tightening and the Nasdaq has dumped 25% from its peak. Bond yields and mortgage charges are hovering whereas dwelling gross sales are actually falling. How is extra of the identical making us higher off? Oh yeah, decrease inflation. How does that assist in case you collapse the system within the course of?
How about Q1 GDP at -1.4%? One other destructive quantity in Q2 and we’re formally in recession. The Atlanta Fed, one among your personal, has forecasted destructive GDP for months now. Both he’s mendacity or extremely dumb—or each—however such an announcement is past cause.
Actually? Powell ought to know precisely what its impression can be primarily based on what has occurred for the reason that second he talked about the phrase “taper” and what occurred the final time they pursued Quantitative Tightening or QT. Unbelievable.
There have been so many asinine statements, I may go on and on, however this final one says all of it:
As with many headlines nowadays, the precise reverse is true. “Subprime is contained.” “It’s not QE”. “Inflation is transitory.” “Inflation shocked to the upside as a result of Ukraine battle.”
On the finish of the day, comply with what they do, not what they are saying:
“What Taper? Fed buys $101.3 Billion USTs and $35.5 Billion MBS throughout month of April alone. Fed pushes inflation larger with stealth asset purchases regardless of purported finish of QE.” – Occupy the Fed
They hiked the Fed Funds price by 0.50% to 0.75-1.00%. In addition they “mentioned” …
My response to the latter was “Seeing is believing”. In different phrases, I don’t see this occurring, but when it does, it received’t final lengthy.
My takeaway from all that is that the Fed is attempting to stroll a positive line between decreasing inflation and avoiding a systemic collapse within the course of. The inventory market and GDP numbers already recommend that’s inconceivable, even earlier than the speed hike yesterday and the supposedly pending stability sheet discount. The Fed has a tough option to make within the subsequent few weeks (months at most): Both proceed to be hawkish and threat a whole meltdown in shares, bonds, housing, and the financial system at giant or throw within the towel and threat hyperstagflation adopted by the Biggest Despair. Both manner, a collapse is coming. The query is: has it already begun or will the Fed engineer yet one more remaining melt-up? Based mostly on historical past, my guess is on the latter. We’ll know very quickly, imho. The markets will proceed to check the Fed’s resolve by dumping shares. If the Fed does revert to stimulus on steroids, the sky is the restrict for Gold and Silver till all confidence is misplaced in Fed insurance policies and stimulus now not works.
As for the markets within the short-term, it was a promote the rumor, purchase the actual fact occasion. The greenback tanked, and Gold and Silver rebounded off their lows. Gold reached a excessive of 1910 this morning however in need of resistance on the prior excessive of 1921.
It’s now falling once more, as are shares, and my goal on the draw back for a positively divergent decrease low in Gold at 1820 or barely above stays in place. However we’re heading all the way down to a serious low earlier than take-off, IMHO. It’s only a query of when not if. The choice is the entire collapse of all the things. Even then Gold will outperform virtually all the things else, particularly shares and housing.
I’ll finish this week’s article with the next quote. It completely states that both the Fed throws within the towel on its tightening polices and sacrifices the greenback or the Biggest Despair goes to start sooner moderately than later:
“The final time the Fed made a 50-basis-point transfer was March 2000,” notes Darius Dale. “The dot-com bubble burst shortly thereafter, with the S&P 500 shedding 50% and the Nasdaq Composite shedding 80% from 2000 peak to 2002 trough.”