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Gold surges higher, dollar tanks

UPDATE

Gold surged higher at the close of COMEX trading, up $21 at $1353.00.  Initially the market was driven by strong buying on the inflation jolt.  It looks like technical buying and short covering came into the market towards the end of the session – a sign that the shorts feel a need to liquidate their positions.  Similarly, and inversely, the dollar took an initial dive, steadied then dropped again precipitously. Looks like we are heading toward the biggest single-day gain for gold in 2018. . . . . .MK

 

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U.S. stock market battles to shake off morning jolt from inflation data

MarketWatch/Victor Reklaitis and Anora M. Gaudiano/2-14-2018

“Inflation scares that were responsible for the stock-market tumble over the past few weeks made a brief appearance on Wednesday with the release of consumer-price index data. But the main equity gauges recovered from the initial shock to trade higher. The cost of rent, clothes, gasoline, health care and auto insurance all rose, contributing to the 0.5% jump in the consumer-price index. Core inflation, which strips out volatile food and energy prices, rose by 0.3%. Analysts said stronger inflation data may force the Federal Reserve to be more aggressive in tightening policy.”

MK note:  Not sure that the speculators have had their final say on the inflation numbers – the quiet stock market fits neither the uncertainties generated by the news, nor the more visceral reaction in other markets.

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This chart says gold is beginning a long-term uptrend

Gold Seek/Jeff Clark/2-14-2018

“There aren’t many investment scenarios you can point to with any degree of certainty and say, ‘This asset is going to rise’ Saying so is usually fraught with risk, even if in hindsight it turns out to have been an accurate call. But there are certainly times when you can see that the odds are heavily stacked in your favor. And we have one of those potential scenarios right now in gold. It’s a rather strong setup, based on a simple algebraic equation: if A happens, then B is likely to happen. And in this case A equals the direction of the US dollar.”

MK note:  Jeff Clark echoes arguments made on this page over the past several months – a rationale tied to the history illustrated in the longer-term dollar index chart – and its relationship to the price of gold.

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Gold vaults higher on this morning’s CPI report, dollar craters

UPDATE………Gold is now spiking higher as the strong CPI number sinks in, up $17 at $1349.50.  Silver has also gained some momentum, up 18¢ at $16.80.  The inflation number came in far above expectations.  The big addition to the national debt over the past two days is also raising concerns (scroll immediately below for details).

The dollar index is in free fall. . . . .We will keep you updated.

EARLY REPORT

Gold dropped abruptly on the Consumer Price Index report of a .5% jump in inflation, then just as abruptly jumped higher – as traders attempted to read a meaning in the numbers. Gold is now trading at $1334, up $2.00 on the day.  Silver is up 3¢ at $16.64.  The stock market has been indecisive as well but trading down 128 at the moment. The dollar moved indecisively higher on the news.

A quick look at our Chart of the Day tells us that it is not the number itself that is affecting the markets this morning, but the context in which it is delivered.  At a 6% annualized rate today’s CPI number validates the higher inflation expectations that pushed stock markets sharply lower last week.  The developing trend above the 2% annualized figure the Federal Reserve has targeted will be troublesome for stocks, bonds and the dollar as well.  It will be interesting to see how this all plays out over the course of the day.

Chart of the Day

 

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Saxo Bank says volatility focus pushing major geopolitical risks to background

Saxo Bank/Steen Jakobsen/2-13-2018

“The market is so focused on NASDAQ volatility that a lot of geopolitical risk is being ignored: Israel and Iran are now directly facing off each other,  whereas in the past it was through a proxy: Haaretz – After years of covers proxy wars, Iran shifts to direct contact with Israel.”

MK note:  In general, the temperature is rising in the Middle East, including troubling reports of U.S.-Russia encounters in Syria, as reported today in the New York Times.

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Credit Suisse believes central banks are selling off their dollar reserves

ExchangeRates.org.uk/Francois Aure/2-14-2018

“Appetite for the US Dollar has certainly waned in recent months as the more hawkish ECB has prompted institutions and funds to scoop up the potentially undervalued Euro and dump some of the Dollar, who’s bullish trend over the last few years has looked increasingly tired as other Central Banks have adopted a more hawkish approach. Economists at Credit Suisse released a report on Central Bank activity in Asia, where they have seen a number of major banks trimming their Dollar reserves . . “

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Dalio’s Bridgewater boosts gold holdings in SPDR, IShares

Bloomberg/Luzi-Ann Javier/2-13-2018

“Billionaire hedge fund manager Ray Dalio boosted his holdings in the two largest gold-backed ETFs last quarter before prices of the metal capped the biggest annual gain in seven years. . . .In August, Dalio recommended investors consider placing 5 percent to 10 percent of their assets in gold, citing political and economic risks.”

Related: Dalio – [T]he dollar’s role as the dominant world currency is an anachronism/ MKS&S/ 1-25-2018
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U.S. Treasury finally updates the national debt number . . . .

MK note: . . . . . adding $179 billion to the accumulated federal debt in two days. Treasury had not updated the national debt figure all year due to restraints placed on borrowing until after the president signed the budget bill February 8th. The total amount, as you can see in the Treasury table below, blew past the $20.5 trillion mark to stand at

$20,673,916,370,594.86


Related:  The National Debt and Gold – Here’s why the two have risen together since the 1970s and why the correlation is likely to continue/Inclusion, USAGOLD Safe Haven Investor Introductory Information Packet

 

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Gold up respectably today, much in abeyance waiting for tomorrow’s CPI report

LATE REPORT

Gold closed up $7 today on the FOREX at $1329.50 on a sharp break in the dollar  index. The upside move started in Asia as the yen moved higher, lost momentum in Europe, then reasserted itself during the U.S. session. Silver had a quiet, sideways day. All seemed to be in abeyance awaiting tomorrow’s CPI report with much speculation about what is likely to be reported and how it will affect various assets.

Barron’s Avi Salzman captured the spirit of the day when he wrote: “The release of tables showing the changes in the prices of mundane items like tires and cheese will be watched on Wednesday with the same intensity as if it were the fourth quarter of the Super Bowl. Investors want to know if inflation is really back, or if the fear of rising prices is over-hyped. Trillions of dollars in stock and bond market value could hang on the difference of a few tenths of a percentage point.” Even if you knew the CPI number ahead of time, it would be difficult to place a sure bet on how gold would likely react. I guess we’ll find out tomorrow following the 8:30AM ET tip-off.

Quote of the Day
“I‘m concerned that our increasing fractious political process, particularly with respect to federal spending, is threatening our ability to properly defend our nation, both in the short term and especially in the long term. . .The failure to address our long-term fiscal situation has increased the national debt to over $20 trillion and growing. I would urge all of us to address this challenge.” – Dan Coats, Director of National Intelligence


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US economy is an ‘accident waiting to happen,’ says Yale economist Stephen Roach

CNBC/Evelyn Cheng/2-13-2018

“‘Given this deficit spending, our savings rate is going to go to zero adjusted for inflation, and that’s going to push us into a realm of wider current account and trade deficits,’ Stephen Roach, Yale University senior fellow . . . The way I look at the fundamentals is they’re extremely fragile, and we’re kidding ourselves every time there’s a correction to say, well the economy is sound,’ Roach said. ‘It is not sound at all when seen through the lens of low savings. We’re an accident waiting to happen here, and just by spinning a market correction, saying the fundamentals are sound, and then going down the road of deficit spending.'”

MK note:  Roach is right.  Let’s cut the glossy rhetoric in the financial media to a  minimum or eliminate it completely  – this sense that ‘there’s nothing to see here’. Instead of whitewashing every negative turn of events, just a reversion to neutral without the qualifiers would be an advancement in the interest of Main Street investors.

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Powell says Fed alert to any developing financial risks

Bloomberg/Rich Miller/2-13-2018

“‘We will remain alert to any developing risks to financial stability,’ he [Fed chairman Jerome Powell] said Tuesday in the text of remarks in Washington at his ceremonial swearing-in. ‘We are in the process of gradually normalizing both interest rate policy and our balance sheet with a view to extending the recovery and sustaining the pursuit,’ of its twin statutory goals.”

MK note:  On the job. . . Nothing earth-shaking here but a public commitment to a continuation of Fed policies instituted under Janet Yellen. . .at least for now.

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Gold pushing higher today on dollar weakness

EARLY REPORT

Gold is pushing higher in early trading, up $6.00 at $1329.00.  Silver is sideways this morning at $16.57.  Gold turned to the upside in Asia overnight in concert with a stronger yen and weakness in the Tokyo stock market, came off a bit in London trading and then swung sharply higher at the New York open. Overall dollar weakness underlies gold’s upside bias this morning.  The Dollar Index is off a little over one-half per cent as we go to fetch this report to the server and back below the 90 mark.

The most interesting news to surface this morning came from Bank of America Merrill Lynch – a survey showing that fund managers have cut their bond portfolio allocations to their lowest level in 20 years.  This comes at a time when sovereign states – in particular China and Japan – have also cut bond purchases to the bone, while the U.S. government has launched a spending spree that will push deficits over the $1 trillion mark.  One wonders where the financing is going to come from in future years and how all of this is going to affect the bond market and interest rates.

Chart of the Day

Chart note:  With inflation concerns and expectations on the rise, I thought posting the gold-inflation adjusted chart a worthy enterprise. Its most helpful feature is that it shows us where the price of gold would have to go in order to match performance levels of the past once currency depreciation is taken into account. Most gold holders are interested in what the inflation-adjusted price of gold would need to be to match the 1979-1980 nominal high just under $900 per ounce.  The answer, as you can see, is about $2200 per ounce.  We should keep two things in mind when contemplating those numbers.  First, gold anticipates inflation, as it did in the 1970s run-up, so the $2200 number is by no means a ceiling.  Second, this chart is based on the Consumer Price Index measure of inflation which many analysts believe to be flawed and understated.
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Rattled by U.S. fiscal, monetary tug-of-war, investors start looking abroad

Reuters/David Randall/2-13-2018

“The turmoil stems from a tug-of-war between monetary and fiscal policies: The Federal Reserve, which is mandated to keep inflation low and stable, and U.S. fiscal policy, which is adding stimulus with a $1.5 trillion Republican-led tax cut and an extra $300 billion over two years in federal spending as the central bank unloads bonds from its balance sheets. . .Underlying the push outside of U.S. assets is a fear of rising inflation, after years of ultra-loose monetary policy.”

MK note:  With this mentality in play, one would think that some of that loose capital would make its way to the gold market.

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U.S. CPI report takes on bigger importance after markets plunge

Bloomberg/Katia Dmitrieva/2-13-2018

“Wednesday’s report on the U.S. consumer price index will be the most closely watched in recent memory, with investors seeking to understand the recent plunge in the stock and bond markets. They’ll probably need to look beyond the main numbers for the full story.”

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Asia, Europe stocks drift down overnight

DJIA overnight trading implies open down 210. . . .A reversal from yesterday’s more than 400 point gain if current levels hold.

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Commodities on cusp of supercycle

ETF.com/Sumit Roy/2-13-2018

Interview: Maxwell Gold, ETF Securities

“The commodity market tends to move in much longer periods than a traditional business or market cycle that stocks typically move in, or even a typical economic cycle, which historically has been about five to seven years. Commodity cycles are usually about 10 to 15 years long. We had a sell-off and an oversupply of commodities for the past several years. The turning point was 2016. Since then, we’ve been seeing a drawdown of the supply glut, as well as a reduction of output due to reduced capital investment and more supply discipline from a lot of producers, especially in the energy and mining sectors. . .The important takeaway is that we’re at the very early stage of this.”

MK note:  As go commodities, so goes gold.

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Gold ETF holdings post weekly decline of 21 tons

Scrap Register/2-12-2018

“The slide in gold prices last week was accompanied by pronounced outflows from global exchange-traded funds, including 6.5 tons on Friday, said Commerzbank in a snippet. ‘The gold ETFs tracked by Bloomberg decreased by a good 21 tons last week, thereby reversing the lion’s share of the inflows seen since the start of the year,’ Commerzbank added.”

MK note:  Evidence that hedge funds and institutions were liquidating ETF gold holdings to cover requirements in other aspects of their book.

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Why gold will benefit from yen strength

Seeking Alpha/Cliff Droke/2-12-2018

“Although the IAU (below) has pulled back since peaking on Jan. 24, the yen’s recent strength suggests that turning outright bearish on the near-term gold outlook is premature. Coupled with gold’s recent increase in relative strength vs. the U.S. stock market (see Feb. 9 commentary), the continued strength in the yen suggests that the gold price will eventually reverse its recent decline and continue its intermediate-term recovery. Any additional gains made by the yen in the coming days will only serve to improve the short-term gold price outlook, for extended rallies in the yen are testaments to lingering safety concerns from which gold always will benefit.”

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Gold up today on commodity strength across the spectrum

LATE REPORT

Gold ended higher today up $6.50 at $1322.50 pushed by rising commodity prices across the spectrum and some dollar weakness.  Silver also finished higher up 20¢ at $16.53. President Trump today announced an escalation of the trade wars with various (mostly Asian) countries by promising of a “reciprocal  tax” on their exports to the United States.

The markets in the days and weeks ahead will need to sort out how the burgeoning trade wars are going to affect the value of the dollar and the market for U.S. sovereign debt.  So, whereas the stock and bond market rose today for reasons no one could readily quantify, there are these looming trade, currency and debt problems that are quietly intensifying in the background and don’t seem to want to go away. Volatility was pushed to the background today, but possibly not for long. . . . . . .

Quote of the Day
“My job is not picking the top. My job has always been risk mitigation. Picking crashes is impossible… timing crashes is impossible. If you require a forecast in order for your investment thesis to do well, then I think you’re doing it wrong.” – Marc Spitznagel, Universa Investments


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The 14 stages of investor emotions and trading psychology

OPTION ALPHA/Kirk du Plessis/2018

“The chart below is a visual representation of the 14 stages. . . This would be a great visual to print out and put in your office or desk to remind you to ask yourself: ‘Where am I right now?’”

Courtesy of OPTION Alpha / Click to enlarge

Jonathan Kosares note: It’s no secret investor emotions can have a profound impact on a market’s price action. From Euphoria, to Fear, to Panic, to Capitulation, each stage in a market’s ascent, or decline, can be assigned a particular emotion. Sometimes, such assignments are easier after the fact – sometimes they’re clear in the moment (Bitcoin ~$20,000 I’m looking at you). After two 1000+ point drops in the DOW last week, I began to wonder to myself what ‘emotional stage’ we might be in with the broader stock market at this point. I did some looking around, and found this phenomenal chart.

After reading the author Kirk du Plessis’ description of each emotional stage, I figure we’re somewhere smack dab in the middle of Anxiety, with a sprinkling of Denial. He describes the Anxiety/Denial stages as follows:

5. ANXIETY – Oh no – it’s turning around! The markets start to show their first signs of taking your “hard earned” gains back. But having never seen this happen, we still remain ultra greedy and think the long-term trend is higher.

6. DENIAL – The markets don’t turn as quickly as we had hoped. There must be something wrong we think to ourselves. Our “long-term” view now shortens to a near-term hope of an improvement.  Also note in the chart the bubble note…”Temporary setback.  I’m a long-term investor.”

Take a look at really any article out regarding the stock market right now, and they all say basically the same thing. “Buying opportunity.” “Long-term investor’s shouldn’t be concerned.” “Just a correction.” “Don’t Panic!” “Fundamentals are still strong.” “The market went up really quickly, so it only makes sense it would decline quickly too.”

A sampling if you don’t believe me…

Stock Market Got You Confused? – CNN Money
Don’t Panic:  Three Things Investors Should Do During a Correction – Forbes
Why Long-Term Investors Shouldn’t Sweat the Stock Market Correction – TheStreet.com

The characteristics (and language) of the Anxiety and Denial phases written into these articles is palpable. Just turn on CNBC for 10 minutes on one of these down days and you’ll get more of the same. And what’s interesting to me, is even though most articles out there have used the word ‘fear’, I don’t think we’ve even sniffed the “Fear” phase yet. But make no mistake about it – and despite the ‘relief’ bounces we’ve seen over the past few days – an ‘emotional’ shot has been fired across the bow. Two shots actually. And we’re probably just one more of these big tests to the downside away from full-on Denial, which will ‘hot knife through butter’ it’s way to the Fear phase. And then, look out, as it’s the Desperation/Panic/Capitulation phases that are typically associated with the biggest price declines.

But what about gold? Probably somewhere between Depression and Hope in my estimation. Retail investment demand remains down at multi-year lows (despite some forward progress on the price), but is showing signs of life. National anecdotal reports suggest that client selling at the retail level, a year ago overwhelming, has begun to subside.  And even recently, open challenges regarding the validity of gold’s ‘counter-cyclical’ foundation as an investment (i.e. why isn’t gold rising with the volatility in stocks) have been met by analysis/commentary from the most unexpected of places.

So my parting thought to our readers….

Which asset would you buy? The one gyrating frenetically between Anxiety and Denial, or the one quietly making it’s way from Depression to Hope? I, for one, would choose the asset glancing in it’s rearview mirror at the “Point of Maximum Financial Opportunity”

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Miner Barrick missing gold’s tailwind

Bloomberg/ Danielle Bochove , Mario Parker , and Christopher Sell/2-12-2018

“With investors on edge amid the turmoil in markets, gold’s back in the spotlight and there’ll be a barrage of commentary as a rich seam of producers report earnings. Chief among them is Barrick Gold Corp., which just delivered the third-worst return among the 15 major gold miners tracked by Bloomberg Intelligence last year. Analysts will be eager to hear about the company’s strategy to improve margins after Barrick shares failed to catch the tailwind that propelled gold to its biggest annual gain in seven years.”

MK note: We have said it many time but it is worth repeating for those new to precious metals investments:  We are not opposed to owning gold stocks, we simply feel it is mistake to think that they are in any way, shape or form a substitute for owning a real safe-haven in the form of gold coins and bullion. Gold stocks are stocks first and an investment in gold second – and an indirect one at that, as the latest Barrick results testify.

 

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Investors have yet to grasp the long-term implications of mind-boggling budget deficits

MarketWatch/Howard Gold/2-12-2018

“The same people who came to power railing against the debt built up under a Democratic administration—including our sitting president, who on the campaign trail repeatedly blamed the nation’s economic woes on the $9 trillion President Obama added all by himself to the national debt (although every penny had to be allocated by a mostly Republican Congress) — are now enthusiastically digging us deeper into the fiscal ditch. Last week’s spending bill was just the lime on the margarita glass.

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Gold up modestly in quiet early trading

EARLY REPORT

Gold is attempting to get its legs underneath it this morning with little in the way of news to influence the price in the early going.  Gold is up a moderate $4 at $1320 in quiet trading.  Silver is up 12¢ at $16.47.  Commodity prices are pushing higher and that could help the precious metals as the day moves along. The U.S. Labor Department will report on January’s consumer prices on Wednesday and producer prices on Thursday. The market will be watching to see if the trends established in December’s CPI report (a 3.6% annualized rate) carried through to January’s numbers.

Stocks are in recovery mode this morning – at least so far. In this morning’s Financial Times, Bridgewater’s Bob Prince warned of “more volatility as we are entering a new macroeconomic environment.” Goldman Sachs’ Brian Levine issued a similar warning at the end of last week saying that he believes there has been an important sentiment shift – “a regime change one where you sell-the-rallies rather than buy-the dips.”

Chart of the Day


Chart note:  Gold’s performance since 2000 illustrates its potential as an investment for the times.  After 12 straight years of positive returns (2001-2012), we had one sideways year (2014) sandwiched between two years of declines (2013 & 2015).  Over the last two years (2016-2017), gold has once again delivered positive returns – a performance many gold market analysts view as a harbinger of things to come.  If you are looking for an overview of gold’s past history, we offer a page in conjunction with the St. Louis Federal Reserve you might find interesting: Gold trends and indicators in chart form.   We welcome your visit.
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Bulls, bears and sloths

A sloth’s guide to surviving a week of market volatility

Financial Times/Tim Hartford/2-10-2018

“Perhaps we slow investors should adopt a mascot. I suggest the sloth. Hanging upside-down, moving at a few metres a minute, is much like trading infrequently: it saves the costs of doing things more quickly. Sloths take almost two months fully to digest each meal — which is handy, given that they eat mildly toxic leaves that would poison them if absorbed too quickly. Investors are reminded, all too often, that the financial world is lush with toxic get-rich quick products. A slower approach to finance makes market movements a great deal more digestible.”

MK note:  I have to admit that a sloth-like approach to portfolio design fits my worldview.  I have never been much of a trader and I do find that if I buy an investment for the long-term and essentially forget about it, I do much better than the opposite. That’s why I am content with physical gold ownership.  My attitude is to buy it, stick it in the safety deposit box and forget about it. The investors I know who take a similar attitude seem to be the happiest, and ultimately, the most successful gold owners.  I guess if you believe in it – believe in what it can do for you – you do not need to check on it constantly, fret about it and seek constant validation that you did the right thing by diversifying your holdings.  When it comes to investment there are bulls and bears and then, as Tim Hartford points, there are the sloths.  Count me among the sloths. . . . .

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According to the Fed’s other inflation measure, inflation’s at an 11-year high

Mises Institute/Ryan McMaken/2-8-2018

“According to the Federal Reserve’s Underlying Inflation Gauge, the 12-month inflation growth in December was at 2.98 percent. That’s the highest rate recorded in 136 months, or about 11 years. The last time the UIG measure was as high was in September 2006, when it was at 3 percent.”

MK note:  The Underlying Inflation Gauge (UIG) is Under Wraps (UW). And the free market unsurprisingly is pushing 10-year Treasury yield toward that number. . .

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Investors brace for more swings as U.S. inflation specter rises

Reuters/Chuck Mikolajczak/2-11-2018

“Next week, coming off one of the most volatile stretches in years, two important readings on U.S. inflation could help determine whether the stock market begins to settle or if another bout of volatility is in store. If the January’s U.S. consumer price index due next Wednesday from the U.S. Labor Department, and the producer price index the next day, come in higher than the market anticipates, brace for more selling and gyrations for stocks.”

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Meticulous care must be taken in monetary policy to settle markets

The Yomuiri Shimbun/2-10-2018

“Given the latest fluctuations in stock prices, speculation has emerged on the market that interest rate hikes will be postponed. There is also a view that if rate hikes are delayed amid brisk business, it will increase concern about steep rises in interest rates later on. In any case, it is essential for Powell to explain his policy plans meticulously in his testimony to Congress scheduled for late this month.

The stock market crash of 1987, known as Black Monday, happened shortly after Alan Greenspan assumed the post of Fed chairman. A change in heads of central banks could lead to destabilizing the stock and financial markets. The term of the Bank of Japan’s governor, Haruhiko Kuroda, will expire in April. To realize a smooth transfer to the term of a new central bank governor, it is imperative for the monetary authority to have interactions with markets on such matters as the future course of massive monetary easing.

MK note:  This Japanese newspaper makes not the slightest attempt to hide its sincere desire for the Bank of Japan and, we note, the U.S. Federal Reserve as well, to keep the monetary spigots open. Note the strategic use of the adjective “massive”. . . . .

 

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Give gold ‘a little bit of time’ and it will start trading like a safe haven again

CNBC/Keris Lahiff/2-10-2018

“Give it a little bit of time,” Mike Dudas, partner at Vertical Research, told CNBC’s “Futures Now” this week. “We’ve just come off a tumultuous last four or five days in the equity markets and everything’s getting re-based.”The inverse relationship between stocks and gold should reestablish itself as volatility returns and erratic moves become more commonplace, predicted Dudas. The Cboe Volatility Index (VIX), which measures market volatility, spiked on Monday to its highest settlement since 2011. Three months earlier, the index had settled at an all-time low.”

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Market turmoil increases the attraction of cash

Reuters/Swaha Pattanaik/2-10-2018

“Deciding whether to hold bonds or stocks these days is akin to choosing between the frying pan and the fire. Rising U.S. Treasury yields helped trigger an equity market decline that this week officially became a correction. Given that fiscal and monetary policies could hurt even the safest government debt, cash may become the most prized of all assets in the selloff.”

MK note:  If inflation is knocking on the door, as many have suggested, you really don’t want to be in cash.  Gold is the better alternative.

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