Friday Markets | "Maybe FOMC members talk too much"
Right now Gold is sounding an alarm. If nothing is done soon, the rest of the world may not listen.
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Market Rundown
Good Morning. The dollar is flat. Bonds are flat. Stocks like this and are up some. Gold is down $8 as of this writing. Silver is down 3 cents. Oil is down $1.50. Grains are mixed and Crypto has not bounced along with or ahead of stocks like it has in the past few rallies.
Cheers
Maybe FOMC members talk too much.
Credit Suisse’s contributing Economist yesterday released a missive to clients. It is, in our opinion, the answer key to what ails the marketplace and our economy. It is also doable, reasonable, and consistent with their bias. But it ain’t easy when no one is responsible. No-one is responsible because risk is a can kicked down the road year after year. They talk for their pay too much. They do too little
The Economist, Zoltan Pozsar says:
Maybe the Fed should hike 50 bps in March, put an end to press conferences, and sell $50 billion of 10-year notes the next day... Maybe FOMC members talk too much.
He’s right. They talk too much and do too little. The longer the Fed opiates fears, the bigger the erosion of confidence the market will have in them to act properly when things get worse.. And that is reflected in one simple way; Gold. The price of Gold increases because of uncertainty and lack of confidence in leadership.
Gold Suppression is Fraying
The price of gold has been kept in check for a generation now. But Gold is not a domestic US asset. When it defies US attempts to keep it in check, as it is starting to now, that is a reflection of growing global concern that the US is not keeping its shit together.
Global central banks, on the same page for decades now, are starting to differentiate in their behavior we believe. It is slowly becoming every Central Bank for itself.
Europe is buying Gold, Russia is buying Gold. China and Turkey are buying it. El Salvador is buying digital Gold.
Kettle Steam
Zoltan talks about volatility. That happens to be a specialty of ours. He says:
Volatility is the best policeman of risk appetite and risk assets. To improve labor supply, the Fed might try to put volatility in its service to engineer a correction in house prices and risk assets – equities, credit, and Bitcoin too…
Volatility is indeed a pressure valve for markets. Suppressing it only works so long. And it is definitely suppressed by the Fed along with Gold.
If you do not let steam out of a tea kettle every so often, it eventually boils over. Either turn the flame off by hiking rates or let the markets function properly to let steam blow off. Talk is cheap and market manipulation is worse. Remove the source of heat, open the valve, or risk an explosion.
Zoltan goes on:
Volcker sparked volatility… he didn’t talk too much about what he was doing – he kept the market guessing.
Maybe the Fed should hike 50 bps in March [ GoldFix: remove the heat ], put an end to press conferences [ Goldfix: open the valve ], and sell $50 billion of 10 -year notes the next day… Maybe FOMC members talk too much. They don’t keep the market guessing. They suppress volatility…
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Suppressed Volatility Festers
In almost every discipline: Physics, Psychology, Economics, Buddhism and so on… you cannot keep suppressing the “bad” in perpetuity without eventually affecting the “good”. Call it: Conservation of Energy, shadow-self, marginal utility, yin/yang, or whatever you want. It doesn’t go away. Risk can be tamed or talked down for only so long. But unaddressed at the source it festers. Our markets can and will break or worse. But that is only a symptom of a worse problem if it happens. Societies break soon thereafter if markets aren’t allowed to self-clear once in a while
Right now Gold is sounding an alarm. If nothing is done soon, the rest of the world will be happy pick up the pieces of a broken empire.
Zen Moment
Have a good one
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