After 7-Day Market Selloff, Expect The Fed To Move
Around 10:15 AM this past Friday 28 February 2020 (in NYC), I posted a video to my LinkedIn account regarding the continued selloff in the stock market. And it wasn’t just stocks selling off. Just about everything sold off except treasuries. And considering the action of the prior 6 days of this selloff, I thought it peculiar that #gold was moving up until Friday when it fell by 4.6%, or about $75. During the prior six days gold was steadily rising, performing its traditional safe haven role. Lo and behold Bitcoin (BITCOMP) fell by approximately the same 15% as stocks during the same period. Looks more like cryptonite than the supposed safe haven status adherents bless upon it.
In the video I said that I can’t be sure if it is Coronavirus that is the true cause of the selloff. No one can know in the heat of the moment if this is the BlackSwan we’ve been waiting for. But I said that one thing I was sure of was that the Fed and other major central banks of the world would be sure to do something in the form of QE, HelicopterMoney, lowering interest rates, more liquidity injections into the repo market, or other dramatic measures. And I said it would be as soon as 4PM in New York on Friday afternoon.
At the closing bell the headlines started coming. Lots of chatter about the Fed and other central banks lowering rates and quantitative easing. On Bloomberg there was an article about Powell considering to lower rates. CNBC had this to say, quoting former Fed governor Kevin Warsh. And throughout the weekend there has been article after article on all the main stream financial websites as well as sites like this one, Talk Markets.
I also said that the central bankers would take cover under the move by Hong Kong to give all of its permanent residents HKD10,000 ($1300). They could easily say “Well, everyone else is doing it so we need to also.” Hong Kong blamed a recession and the Corona Virus for the move. I find it to be temporary and fleeting, as not all permanent residents even live in Hong Kong, and $1300 doesn't go too far in an expensive city like this one.
It’s not too hard to figure out what the central banks of the world will do when panic hits markets. They only have one tool in their box these days, and that is various categories of debasing the local currency. If you watch the treasury market, bond traders are telling us the same. The price of treasuries rose dramatically over the same 7 days, with yields on the 10-year falling by 0.363%, and a full 50 bps since 4 February 2020. Just two months ago when 2019 closed out, the 10-year was at 1.92%, or 76.4 bps. The bond market is anticipating a move by the Fed, and even the tweeter-in-chief, President Donald Trump is clamoring for the Fed to move.
Fear not, the Fed will comply. Will it be between meetings or at the next scheduled meeting? 25 bps or 50 bps? Only time will tell.
Just like penicillin won't help a patient infected with a virus, QE in all of its unglorious forms won't help cure the world from the Corona Virus and restart our ailing economies.
With all that is going on in markets these days, which has been building to a crescendo since August 1971, there is one thing to remember: when the monetary system of the world resets, he who owns the gold makes the rules.
Disclaimers: The contents of this article are solely my opinion, and do not represent neither the opinion of this website nor its owner(s), nor any employer whether by contract or for wages. ...
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