Mkt Recap: Stocks sputter, Gold Bounces, Ct explodes

Politics

Markets

Stocks finished up an anemic amount considering the last 2 days of pump-priming by Japan and Fed hand holding. The SPX finished up 0.29 at 2152.43 while the Dow closed 18372 up 24 points. Europe finished the day lower, and the Nikkei was up a bit. In Commodities, Crude Oil washed out on EIA info and Opec resilience. The supply fundamentals kicked in there. Gold was up around $8.00 for a nice rebound from yesterday, and Silver stayed strong adding to its gains of the last 3 days closing in New York at $20.455. Copper was the strongest metal up approximately 2.60 on the day. Cotton had a 2 day spike from 67.78 to 73.15. -Soren K.

Cotton: We saw this 100 years ago. Didn't you?

h/t @chigrl

Central Banking as Market Backstop

parts posted earlier today

Everybody on the Stimulus-Go-Round

The drivers of the past 2 days activity are still in place. Today was a pause as markets digested what was done. We feel the markets are all starting to price a global Stimulus-Go-Round . Central Bankers will coordinate stimulus packages to help bolster their economies from continent to continent. Japan was first. The EU has announced they will address their Italy banking woes. They will do more in light of potentially losing 18% of their GDP if the UK actually leaves. The UK will lower rates 25 basis points on Thursday after the Brexit GBP swoon. The FOMC trotted out 4 horsemen of the Stock-apolypse on Tuesday to calm nerves with ambiguous but consistent comments-

Gold: If it stays above 1301 while OI decreases we have a base to rally BIG (arrows)- yuuuge!

-interactive chart HERE

FOMC message

We feel their main message was: What is happening outside the US will not affect you. That means: If everyone else injects more money, so will we. The meta-message: Everyone is trying to export their deflationary woes by debasing their currency. The US will not be importers of their liquidity woes. We stand ready to print. Buy stocks.

Lather Rinse Repeat

We also know that talking markets up is a good way to set the stage for not having to do anything real at all. The cycle goes like this:

Stocks down:Hint that we will print money if stocks stay down
Stocks then go up: Fed doesnt have to print money
Fed doesnt print, hints stocks too high, may raise rates
Stocks go back down
Go to 1 above

Oldie but Goodie

The Fed's Tool Box is Empty Except for Words

Central Bankers have 1 real tool to moderate market behaviour, interest rates. When interest rates are at zero, that tool is no longer in their kit. All they have left is the power of words. And they are not afraid to use them. QE, in case you are wondering is not monetary ploicy. It is a coordination of the Fed (monetary policy) with the Treasury (fiscal policy). It will happen when Fed words lose their power. Our problem is that people are in charge. And people can become arrogant from their own success.

FED: We'll use words to "manage" markets

Stocks are untethered from the economy now

The stock market is supposed to mirror future economic expectations. It is a very public barometer of how investors feel. Intended or not, a rallying stock market is no longer a barometer of economic outlook. It is an indicator of future Fed action. The Fed may think that getting the market high enough will get the economy going. We do not think so. We think the Fed is sweating bullets because the money is not being spent on cap expenditures or osustainable growth. To simply print money in this age of electroncic fund movement is to encourage mal-investment, or bubble behaviour.

Helicopter Money is Next

That is where Helicopter money comes in. Helicopter money is an atttempt to bypass the banks and get money to main street without the intermediary. Its intentions are good. Its use would become necessary because of other good intentions gone bad

Lets say helicopter money puts $10k in everyone's bank account overnight. Good, right? Sadly it is not good. From there 1 of 2 bad things happens. OR BOTH.

Inflation-businesses raise prices because people have more money to spend- iphones go up 20%?
Taxation- Taxes are raised to pay for that handout.- Income taxes raised by Democrats, Sales taxes raised by GOP, VAT by everyone

This is exactly what happened in LATAM countries like Argentina.Which resulted in frozen class mobility. Theunintentional end game in the USA is runaway inflation. And the Fed is trying to direct all that extra cash in the markets toward stocks adnaway from assets like Gold. Because that would mean the end of FIAT confidence. Doctor Yellen is on line 1. She says you've got inflation, but its the good kind in your equity system dont worry. As long as it doesn't metastazise to the Precious Metals area you'll be fine

Bernanke caught after meeting Abe in Japan