Trump Discovering Federal Reserve’s Dilemma

August 3, 2018 in Columnists, News by Slad

 

Source: Miles Franklin

 
 
U.S. president Donald Trump recently issued some pointed comments about the Federal Reserve and some of the currency policies of China and the Eurozone. Which highlight the underlying flaw in the Federal Reserve’s management of the money supply, that the entire world is on the verge of finding out about in a big way.
 
When the Federal Reserve lowered interest rates and printed several trillion dollars a few years ago, even former chairman Ben Bernanke acknowledged that the purpose was to promote easier financial conditions and the appearance of wealth. Of course it would logically follow though that when interest rates rise and the printed money is retracted, that you would get the opposite effect. Which is never particularly politically palatable.
 
Mr. Trump, a Republican, said he was “not thrilled” because every time the economy strengthens “they want to raise rates again.”
 
President Trump obviously has the right to feel however he chooses about the credit cycle. Yet if the purpose of lowering interest rates is to temporarily support the market during times of recession, either rates eventually have to come back up, or else you just print the currency into oblivion.
 
Amazingly, it’s almost as the tag-team combo of the politicians and bankers has managed to pull off both at the same time.
 
Which is why while Trump’s comments about China and the European Union manipulating their currencies are not entirely incorrect, it’s a little bit like the pot calling the kettle black given the past decade of Federal Reserve monetary policy.
 
“China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day — taking away our big competitive edge,” Trump tweeted on Friday. “The United States should not be penalized because we are doing so well.”
 
I want to be careful not to take his comments out of context. But at least given that quote, it seems as if president Trump is implying that the nation’s big competitive advantage is simply in having a weak currency.
 
Which is not out of line with the prevailing Wall Street Keynesian economic mentality, yet nonetheless is just the latest clue that when push comes to shove, some form of money printing/asset guarantee program is eventually the plan. Whether that comes from the White House, the Federal Reserve, or some combination of the two.
 
The last item of note is that Trump actually did mention how rising interest rates further compounds the government deficit Due to all of the short-term borrowing, which means that as rates go up, the government’s interest expense rises as well..
 
In an apparent reference to Fed rate increases, Trump added, “Tightening now hurts all that we have done. Debt coming due & we are raising rates — Really?”
 
At times it isn’t easy to read or extrapolate what Trump really knows, is aware of, or what he might really be thinking. He’s talked about auditing the Fed, but at other times like now, he makes statements that indicate that he wants low interest rates, and is not at least publicly explaining how a stable dollar and debt load will ever be achieved. So it’s hard to know exactly how it will all play out.
 
But what has not changed is that the debt load and devaluation of the currency have left the current financial system long passed the point of no return. Which does not mean that life or commerce is going to stop, but rather just that there is going to be a shift in the balance of power and wealth among the various asset classes.
 
With a continued loss of faith in paper being replaced by commodities and hard assets. Similar to what Russia just did. And what is mathematically guaranteed to happen at some point in our lifetimes.
 
With this latest news providing more evidence that it is likely to be much sooner than later.
 
 
 
To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).
 

Gary Christenson, Contributing Writer For Miles Franklin

 
Market Tops Take Time
Miles Franklin sponsored this article by Gary Christenson.
“Please, God, just one more bubble.” – Bumper sticker, Silicon Valley, 2003.
In early July 2018 I wrote about market parallels between 2000 and 2018. The link is here. The article listed the tops from the 2018 stock market bubble. An updated list follows:
Since the Peak           Wk. End. Date        Index or Stock
6 months ago               Jan. 19                    Transports high
6 months ago               Jan. 26                    DOW high
6 months ago               Jan. 26                    DAX high
6 months ago               Jan. 26                    S&P 500 high
6 months ago               Jan. 26                    Nikkei high
2.5 months ago            May 11                    CISCO high
2 months ago               June 8                     Intel high
1.5 months ago            June 15                   Yahoo high (AABA)
1.5 months ago            June 22                   Netflix high
Last month                   July 27                    NASDAQ high
Last month                   July 27                    NASDAQ 100 high
Last month                   July 27                    Facebook high
Last month                   July 27                    Amazon high
This month                   Aug. 3                     Apple high
 
SO WHAT?
  • The DOW, Transports, DAX, S&P 500 and Nikkei 225 peaked in January, over six months ago. They might rally and reach new highs, but after half a year… it looks unlikely. See graphs below.
  • The NASDAQ Index and the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have accounted for most of the gain in the NASDAQ and S&P 500. When they collapse the NASDAQ game is over.
  • The topping process in 2000 took from January to September, so an extended topping process for 2018 is no surprise.
  • The FAANG stocks have run up too far and too fast. These media darlings will disappoint someday, but the craziness may not be over yet. Apple hit a new all-time high today, August 1. The Elliott Wave folks projected a top (months ago) for Amazon of $1,900. So far the top has been $1,880, close enough.
  • The larger the liquidity induced rally, the larger the crash. Remember the NASDAQ 100 in 2000 – a drop of 84% top to bottom.
Read: “The FAANG-nary in the Coal Mine” by Adam Taggart.
FUNCTIONING MARKETS?
From Charles Hugh Smith: “Here’s What We’ve Lost in the Last Decade
“Functioning markets. Free markets discover price and assess risk. What passes for markets now are little more than signaling devices to convince us the economy is doing spectacularly well. It is doing spectacularly well, but only for the top .1% of 1% and the class of managerial/technocrat flunkies and apologists who serve the interest of the top .1%.”
When High-Frequency-Trading (HFT) machines control most volume and humans are not involved, exaggerated moves higher and lower are likely. The stock markets have moved higher since 2009, thanks to Quantitative Easing, $ trillions in corporate buybacks, rock-bottom interest rates, a new housing bubble, massive central bank liquidity flows into stocks, international purchases of stocks, HFT, and managed data, statistics and press releases.
There is a substantial risk that all these stock market beneficial “tail-winds” will not continue.
 
CONSUMER CONFIDENCE – AT NEW HIGHS?
Confidence, highest allocation to stocks and everything is wonderful… or not?
“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”– John Templeton
WHAT ABOUT STOCK INDEXES AND INDIVIDUAL STOCKS?
The Disparity Index measures the difference between price and the 40 week moving average of the price. High readings are cause for concern that momentum will decline and the index or stock could begin a lengthy correction.
Examine the weekly charts for the DOW which peaked in January and the NASDAQ which peaked in July. The NASDAQ may rise to new highs this fall, but who knows in managed markets?

 

Examine the weekly charts of Facebook, Amazon, Apple and Netflix. Apple reached a new all-time high on August 1. Facebook tumbled in July and created a record market capitalization loss. Netflix disappointed.
Amazon reached a crazy new high of almost $1,900 per share. Amazon shares sold for $26 in August of 2006. Think too far, too fast!

   

 
CONCLUSIONS:
  • In “managed” stock markets, there are few guarantees.
  • Price to Earnings Ratios (P/E) are high. Example: Amazon stock P/E = 226.
  • Momentum has moved to the NASDAQ as it did before the 2000 crash.
  • The Disparity Index shows over-bought conditions in the NASDAQ and FAANG stocks. This indicator can become more over-bought, but does the risk of a crash outweigh the possible gain of a few percent?
  • Silver and gold (read this, and this) reached highs in 2011, seven years ago. Their risk/reward fundamentals are far better than most over-bought NASDAQ stocks that could crash now or soon.
  • “The stock market will always do whatever makes the greatest number of people look foolish.”– Unknown.

 

Miles Franklin will convert dollars retrieved from over-valued NASDAQ stocks into real money-gold and silver bullion and coins. Do it!