Once upon a time, in a galaxy far, far away, nations used to covet strong national currencies. Such were a vote of confidence in their economy, their political leadership and their fiscal and monetary policy. Not any more!
We live in an era in which monetary officials seem to take turns cursing their own currencies and like Haitian Voodoo quacks, take turns sticking pins into it in order to bring it to its ruin.
Such was effectively the case with the minutes released this afternoon from the Federal Open Market Committee.
In effect, the Fed officials seemed to be casting aspersions on the weak growth in the Eurozone ( they could not help throwing Japan and China in there as well ) as deleterious to their efforts to generate some inflation here in the US all because these "bumbling monetary officials over there ( my take ) "cannot seem to get their ducks together long enough to actually generate some real growth in their respective economies which in turn is causing "our Dollar to keep going up ( again my take)".
"If this keeps up, it will mess up our export markets and thus curb our growth which will in turn cause us to miss our goal of generating 2% inflation".
There you essentially have it in a nutshell. And to think we pay these peoples' salaries!
Immediately, as if on perfect cue, down went the US Dollar, up went the Euro, the Swiss Franc, the British Pound and even the Canadian Dollar.
What do you think that did to gold? If you answered "it caused it to reverse from its losses and move higher on the day", go to the head of the class because that is exactly what happened.
What the Fed did was to express its fears about the overall slowdown in global growth and the deflationary impact of a strong Dollar. That is being interpreted by the markets as a sort of brake on the timing of any interest rate hike next year as the market had come to expect.
Equities of course LOVED, ADORED, PRAISED, REJOICED in it as it meant more cheap money for a longer period of time - just great for stocks which remain the only place in town where one can expect to invest money and produce any sort of meaningful gain or return on investment.
It is rotten news for savers and those looking for some sort of stable, decent, conservative place to park money. It means more rewarding of debtors and more punishing of savers a bit longer than the market had anticipated yesterday.
That being said, once the reaction from the minutes wears off, I suspect we will go right back to the same trends previously, namely the Dollar will continue to strengthen and commodities will continue to grind lower. After all, if the Fed itself is complaining about slow global growth, why be in a hurry to rush out and load up on sagging commodities, many of which are suffering because of the lack of solid, growth-based demand.
Let's see how the dust settles and then proceed from that point. Personally, I hate these days because of the all the convulsions that the minutes produce in the markets. It makes sense to just get out or lighten up ahead of the release and let the others rip and shred each other to pieces while you watch the chaos blissfully from the sidelines.
I am noting one interesting thing at this point however - crude oil and its products ARE NOT responding to the weaker Dollar, at least at this point. That tells me that the fundamentals are so weak in crude right now on account of the slowing global growth and burgeoning supply, that not even the macro trade in which index and some hedge funds blindly buy a basket of commodities when the Dollar moves lower is not having any impact on that complex. That is not good news for growth nor is it good news for those talking up inflation.
Deflation is the name of the game and has been for the last few years. Those who keep yapping about hyperinflation and currency induced inflation are simply barking up the wrong tree. Maybe they will snap out or their stupor and wise up and listen to what the markets are saying. Then again, maybe they will not!
Here is a chart of the US Dollar. Note that it has been stymied at the resistance zone shown on the chart. With a near vertical move over the last three months, the FOMC minutes has put a cap on the greenback for the current time. Let's see if it holds at 85 on the downside or not. If it does, it will consolidate and meander sideways for a while as it bides its time and garners more strength for what I believe will be a push through 87. It is going to be interesting to see if the Fed now gets in the same game that Draghi and the ECB were playing back when the Euro was near 1.40.
My guess is that Draghi and company are not happy at all about the FOMC's statement. They do not want their Euro moving higher not when they are dealing with an economy that is stuck in the toilet.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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