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MARKETS ROILED BY FED’S CHANGING STANCE
U.S. equity markets slid down through last week as the Wall Street Gang anticipated, then digested, the U.S. Federal Reserve’s signal that it might slow down its flow of ultra-cheap money pumping scheme that has artificially inflated equites and the economy by raising interest rates and slowing down its $120 billion per month bond buying sooner than the Fed has previously said they would.
After Wednesday’s meeting of the Fed’s open market committee, records showed that 13 of 18 committee members now think they should start raising the base interest rates from near zero, in 2023, not in 2024 as the committee’s majority had thought in March. (See, FED SIGNALS RATE HIKE SOONER)
And what will it mean when the Fed raises rates? Read Gregory Mannarino’s article, Rate Hike? Taper? Lift-Off? THE FED. HAS NOT EVEN BEGUN TO INFLATE in this week’s Trends Journal.
The Standard & Poor’s 500 index sank 1.9 percent for the week, breaking a three-week run of rising values with its worst performance since 12 May.
All 11 of the index’s sectors fell, with consumer staples, materials, and real estate all off at least 1.5 percent; energy, financials, and utilities lost 2 percent.
The Dow Jones Industrial Average plunged 3.45 percent over the five-day stretch, its worst week since 30 October 2020; the NASDAQ dropped 0.9 percent for the week.
Meanwhile, the CBOE Volatility Index reached its highest level in weeks.
On 18 June, James Bullard, president of the Federal Reserve Bank of St. Louis, said in a CNBC interview that a rate hike might be appropriate late in 2022. His comments helped send the Dow down 533 points for the day.
Bullard’s remarks briefly goosed yields on treasury securities, but by day’s end they had fallen to 1.44 percent from their 1.56-percent high earlier in the week.
It was the yield’s fifth consecutive weekly loss. Yields fall when bond prices rise.
Prices for copper, gold and lumber slipped following Bullard’s comments, which might have exacerbated commodity prices’ downward slide following China’s announcement that it will release some of its stockpiles of strategic metals.
As we have long been reporting with stock trading at record highs and the forward 12-month PE ratio for the S&P 500 at 21.2x, which is above the 5-year average of 18x and the 10-year average of 16x, market values have been outpacing the economic recovery for months.
Thus, the market players are unsure if markets’ downturn last week was a reflexive reaction to the Fed’s shifting stance or a sign that investors are losing confidence in the strength of the U.S. economic recovery. Indeed, the headline last Sunday on CNN’s website was: “The US economy is never going back to ‘normal’.”
TREND FORECAST: We have forecast repeatedly – most recently in our 25 May, 2021, market overview – that when the Fed raises interest rates, values in the equities and housing markets, and the economy in general, will slide as markets collide with economic reality.
Confirming what we had long forecast, by continually denying the facts of rising inflation and saying it was only temporary, Fed Bankster Jerome Powell blurted today that inflation “was larger than we expected and may turn out to be more persistent than we expected.”
A New Week
Yesterday, stocks shot back up, with the Dow Jones Industrial Average spiking 550 points, partially on the expectation that Washington will continue to pump trillions in the economy to keep inflating it… and hopes that the Fed will hold back on raising interest rates and tapering its bond buying mania.
Before the Panic of ’08, the Feds held about $900 billion in financial assets. When Panic hit The Street, it spiked to $4 trillion. And then, to help fight the COVID War as the markets began to crash in March 2020, the holdings doubled to $8 trillion, possibly hitting $9 trillion by year’s end.
Thus, the artificial boosting of equities and the economy, apparent by the hard data provides clear evidence that the Banksters will continue to build their mountains of debt… and take other unprecedented measures, to artificially keep equities and the economy pumped up.
With Fed warnings of raising interest rates and tapering bond buying suddenly disappearing from The Street’s radar, today the Nasdaq hit an all-time high, the S&P 500 almost broke another record high and the Dow, after being flat most of the day, rose 68 points.
TREND FORECAST: We maintain our forecast we made last year for the “Biden Bounce.” The economic recovery, estimated to increase the Gross Domestic Product by 7 percent this year, will be strong and sustained… for several months.
But, when will the markets crash? As noted by the facts, the Bankster Bandits will do all they can to keep stocks artificially propped up. However, we maintain our forecast for a bear market, with equities dropping some 20 percent before year’s end. And when Wall Street goes down, so too will the nation’s economy.
Indeed, on 15 June, The Wall Street Journal reported that “Before the pandemic, U.S. companies were borrowing heavily at low interest rates. When Covid-19 lockdowns triggered a recession they didn’t pull back. They borrowed more and soon paid even less.”
Noting that “vulnerabilities arising from business debt remain elevated,” the Federal Reserve reported that total business debt at the end of March this year was at $11.2 trillion… or about half the size of the U.S. economy.
Thus, when the economy crashes so too will a national debt crisis ensue.
GOLD/SILVER: The recent dollar strength and expectations that the Feds will tighten monetary policy continue to push gold and silver prices lower, with gold prices dropping around $100 last week. Today, spot gold fell nearly $8 to $1,775 per ounce.
However, as we have continued to note, the higher inflation rises, the stronger the sentiment to invest in the most stable safe-haven hard-asset, gold and silver.
And today, Federal Reserve Chairman Jerome Powell told the House Select Subcommittee on the Coronavirus Crisis that inflation rose higher than expected.
As inflation rises so too will gold, thus we maintain our forecast for gold to move toward $2,100 per ounce and silver to trade in the $50 per ounce range by year’s end.
Also, should the crypto selloff continue, with less money going into the cryptocurrency markets, more will be bet on safe-haven precious metals.
BITCOIN: It was another volatile day in the crypto markets as concerns of government restrictions on cryptocurrencies intensify. The crypto crash has wiped out $1.3 trillion according to MarketWatch.
To illustrate the volatility of the digital coin, last week, after plunging some 50 percent from its high, Bitcoin climbed above $40,000 after Elon Musk tweeted that Tesla would allow bitcoin transactions “when there’s confirmation of reasonable (50%) clean energy usage by miners with a positive future trend.”
The tweet spiked BTC up some 6 percent.
As we have been detailing for over a year, the harder governments call for crackdowns on cryptocurrencies – for whatever reasons – the lower the prices will fall. Thus we maintain our forecast that should Bitcoin, which is now down some 50 percent from its recent high and up 9 percent this year, fall to around $25,000 per coin, it will continue to rapidly decelerate.
For further analysis and crypto forecasts in the Trends Journal, note these three articles: BLOCKCHAIN BATTLES: CRYPTO PRICES FALL AS CHINA SHUTS DOWN MOST BITCOIN MINING; HEDGE FUNDS GOING LONG ON CRYPTO
OIL: Despite a number of commodities sharply falling in recent days, Brent Crude and West Texas Intermediate closing at 74.81 and 73.06, remain relatively strong, trading in the same range as last week.
Counting on a strong economic rebound, CNBC reported today that Global Research raised its Brent Crude price forecasts for this year and next, saying that tighter oil supply and recovering demand could push oil briefly to $100 per barrel in 2022.
Indeed, with demand increasing, natural gas futures are up almost 100 percent from a year ago. Thus, the higher prices of oil and gas, the higher inflation rises.