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STOCKS PLUNGE, STOCKS BOUNCE. The equity markets, the economy… it’s all about cheap money. With inflation spiking, money junkies are worried that interest rates will rise, as will the cost of monetary methadone injected into the system by central banksters.
In the late April meeting of the U.S. Federal Reserve’s policy committee, several members of the monetary mob urged the gang to discuss scaling back the central bank’s current program of buying $120 billion a month in treasury and corporate bonds, according to meeting minutes.
“A number of participants suggested that if the economy continued to make progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes noted.
The Dow Jones Industrial Average fell 587 points last Wednesday after the news was published, as gamblers reassessed their tolerance for the risk of costing more to stay on their high.
On the same day, James Bullard, president of the Federal Reserve Bank of St. Louis, said, “If we were comfortable… that the pandemic was largely behind us… then we could talk about adjusting monetary policy.”
The Fed’s zero interest rate/bond-buying scheme has pushed equities to new highs throughout last year and this year, despite the economic toll of the COVID War, which has destroyed tens of millions of lives and livelihoods.
Liars?
Fed chair Jerome Powell and the Fed gang have said repeatedly that they will not raise interest rates until the economy reaches full employment, inflation rises past 2 percent annually… and shows signs of staying above 2 percent for an extended time.
The Fed says the current rates of inflation are temporary and will rebalance after the global economic crisis eases and supply-chain disruptions are ironed out.
As if you can believe them, the Fed said they will notify the market gamblers of any policy change well in advance.
Markets were also startled by the possibility of the Fed curtailing bond purchases in the near future.
Good Job Numbers
News that jobless claims fell to a 14-month low of 444,000 boosted some market sectors at week’s end.
After a Thursday rally, on Friday, market junkies stepped away from tech and other growth stocks while value stocks that could profit from an economic rebound, such as banking and energy, held their gains when the U.S. Composite Output Index, a measure of manufacturing’s activity, reached its highest rating ever.
TREND FORECAST: With equities running on long multi-year highs, while the recent volatility signals investor worries that the economic bounce will flatten and the prospects of runaway inflation are real, no correlation exists in money junkie minds that asset values are divorced from economic fundamentals.
Again, minus a wild card, as long as money stays cheap and interest rates stay low, equity markets will stay strong. Conversely, when the Fed rate nears 1.5 percent, equities, the housing market, and the economy will slide into crash mode.
This Week
Yesterday, it was a different story. All of a sudden tech stocks rebounded… for any reason they could make up. The NASDAQ jumped 1.4 percent, and last week, its small gains ended its four-week losing streak. The S&P rose 1 percent, and the Dow gained 186 points.
Earlier today, with no big news to spark sharp movements, it was a little bit more of the same with the markets moving slightly up. But by the end of the day, equities closed down with the Dow falling 81 points, and the S&P 500 and NASDAQ erasing their gains, ending the day basically flat.
TREND FORECAST: The reality of inflation, despite what the central bank is selling, will force the Feds to raise interest rates… which we believe The Street already knows and expects. Thus, prepare for the 2021 Bear Market, coming soon to a country near you!
Inflation Surge
To illustrate the reality of how the fundamentals of the economy mean zero and Bankster intervention is what keeps the false economy and overvalued equity markets on their high, CNN (the Cartoon News Network), sold the fraud today by declaring, “Central banks were the superheroes of the early phase of the pandemic, taking dramatic steps to save the economy and financial markets from ruin.”
“Superheroes… taking dramatic steps to save… the equity market?”
How low can you go? Imagine the mentality of those elevating the bank mob to “Superheroes.” And why should central banks intervene in saving the Wall Street gambling casino called an “equity market”?
Because it has become the American Way… a way to also bail out criminal banksters that were “Too Big to Fail”… and, as the former Attorney General Eric Holder indicated, “Too Big to Jail.”
It’s basically the same story with global central banks. Last week, the European Central Bank indicated it would continue its negative interest rate/bond-buying schemes because “the economy is still reliant upon policy support to prevent widespread unemployment, corporate insolvencies and economic contraction,” while the gamblers’ stock markets have “exhibited remarkable exuberance.”
The market players are worried interest rates will rise, and it will cost them more to gamble.
A new Deutsche Bank survey of 620 mark players shows that nearly 40 percent of respondents worried that rising interest rates would be a “central bank policy error”… up from 21 percent last month.
TREND FORECAST: The “Biden Bounce” will only temporarily juice the economy and despite inflation rising, Washington and the Fed will inject more cheap money to artificially prop it, and equities markets, up. Thus, the more cheap money injected into the system the further dollar will fall and the higher inflation will rise… and so too will precious metals which are a hedge against inflation.
INFLATION: PERMANENT OR TEMPORARY? Economists are debating whether the unexpectedly sudden, sharp rise in commodity prices – with many items doubling and lumber quadrupling in price over the past year – will ease as production facilities return to full operation and supply-chain kinks are worked out, or if climbing prices are here to stay.
Some factors point to fleeting price spikes: inventories of raw materials were depleted during the economic shutdown as mines and factories cut back production. Now consumers are buying cars, houses, and other material-intensive items again, causing a surge, and subsequent shortage as shoppers vent pent-up demand.
As a result, relatively scarce materials can command premium prices until supplies grow.
And the trend that we had forecast when the COVID War began, that the shift to officing at home, combined with rock-bottom mortgage interest rates, has rocketed demand for new houses, especially in locales away from city centers. That surge has commandeered supplies of lumber that already were unusually low after wildfires decimated forests across the western U.S.
However, by December, lumber was as plentiful as before last year’s economic shutdown, although supplies are still 15 percent below their levels in 2006, the last time housing demand was so strong, the Wall Street Journal reported.
Copper, a component in plumbing pipes and electronics, both of which reached peak demand in recent months, set a record price above $10,000 a ton recently as China sharply expanded its imports.
Copper mines and their ore carriers largely shut down during the economic crisis. Now they are returning to production, but supply chains are still disrupted.
Expanding production at existing copper mines can take months, and years are needed to bring a new mine’s ore to market.
Gas prices are on the rise, with May futures reaching $2.13 a gallon this month, 6.5 percent above their historical average. Many U.S. oil producers have gone bankrupt, tying up some productive capacity in legal red tape.
Meanwhile, as we reported last month, producers’ financial backers are urging companies to curtail exploration and focus on pumping more oil to generate cash, a strategy that could lead to shrinking supplies in future years.
A South American drought has shrunk the world’s corn supplies, sending short-term futures prices higher than those for late-year delivery. The grain is coming up short at a time when China seeks to quadruple its imports to fatten hogs for its meat-loving, expanding middle class.
TRENDPOST: Indications are that many factors pushing prices higher will ease by this year’s fourth quarter. History shows, however, that reduced costs for raw materials and consumer items do not always translate to equal reductions in retail prices.
Whether prices ease back or remain high longer term depends on the commodity. Steel and plastic production can return relatively quickly. Copper will need longer before supplies can meet an ever-expanding demand for electric cars and increasingly sophisticated and ubiquitous electronic devices. Food supplies are at the mercy of the weather in a world where droughts are increasing in length and number.
TREND FORECAST: It is clear the Federal Reserve is either lying or guessing where inflation is heading. “We were never good at forecasting. Nobody is, not even the brilliant minds at the Fed. I pray the Fed will be right. I hope it’s transitory. It’s not clear it will be,” Richard Fisher, former president of the Dallas Federal Reserve, told CNN Business.
We forecast there will be temporary inflationary drops on many products and commodities. As the dollar weakens, it will cost more to buy less. And overall, while prices will cool down, they will remain much higher than they were before the COVID War was launched.
With the government pumping in more cheap money to boost the economy, the dollar will decline further and demand for products will increase, thus pushing inflation higher.
Gold/Silver: Gold, the safe-haven asset and hedge against inflation, broke through a four-month peak today, as the dollar and U.S. Treasury yields slumped, closing at $1,900 per ounce. Silver moved up 81 cents per ounce, finishing the day at $28.12, hovering near its highest level since early February.
As we have noted, if there were no cryptocurrency markets, gold would be trading in the $3,000 per ounce range and silver above $100 per ounce.
We also noted that unlike the cryptocurrency markets, which will continue to experience sharp volatility – be it from Tesla-type statements or government/central bank intervention – precious metals will not be subjected to such statements or action. Thus, we maintain our forecast for both gold and silver to remain the most secure safe-haven assets.
Thus, we maintain our forecast for gold to range around $2,100 per ounce, and silver to break above $50 per ounce by years’ end.
Oil: Brent Crude is trading where it was last week, at around $68 a barrel. With the COVID War winding down, expectations for higher oil demand are increasing. Thus, we maintain our forecast for Crude to break solidly above $70 a barrel over the next few months, which will, in turn, push inflation higher. And, again, the higher inflation, the higher interest rates will rise. And the higher interest rates rise, the deeper the economy and equity markets will fall.