Adem Tumerkan Blog | Gold, Bond, And Now Stock Investors Doubt The Fed | Talkmarkets - Page 3
Editor-In-Chief at Palisade Research
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My name is Adem Tumerkan and I am the Editor-in-Chief of Palisade Research. 

I'm 26 years old. Born contrarian and skeptic. I like the mining sector but I'm really a contrarian/value investor that ... more

Gold, Bond, And Now Stock Investors Doubt The Fed

Date: Thursday, June 29, 2017 10:31 AM EDT

But today, the U.S. stock market doesn't need a rising GDP or inflation to push valuations higher. Why? Because they have the Fed. After the infamous 'Greenspan Put' during the 1990s, where former Fed Chairman Alan Greenspan propped up asset prices by lowering interest rates, markets suffer from insane moral hazard.

Add Ben Bernanke, the successor to Alan Greenspan, and his introduction of 'Quantiative Easing' (all three rounds of it) and markets are heavily addicted to stimulus. 

Bond investors and gold investors and stock investors are all doubting the Fed's talk about growth and inflation. Watching President Trump's difficulty to get anything done in office, his promises of 'bigly tax cuts' and infrastructure spending projects seem like pipe dreams. That is why they are preparing for once the Fed ends up putting their foot in their mouth and quickly reverse this tightening course.

If the equity market truly believed the Federal Reserve's assertion that the economy is strong enough to withstand higher interest rates, it would be fleeing from stocks offering high yields.

It's doing the opposite. . .

Companies in sectors that serve as bond proxies — telecom, utility, and real estate — were the only ones to see net buying last week, along with industrials, according to client data compiled by Bank of America Merrill Lynch.

Thus, the big 3 markets are pricing in, and preparing for, rate cuts and more stimulus. . .

That is why we haven't seen gold drop below $1000. This is why long term bonds, like the 10 & 30 year, are falling while the Fed hikes. This is why the stock investors aren't fleeing from stocks offering higher yields and equities prices continue their bull run even as economic data deteriorates. 

All three asset classes will greatly benefit from more stimulus. And they know its coming.

The Fed's constant enthusiasm is a facade. Nothing more. The economy is anemic at best. Growth and inflation are softening. And even more daunting, the origination of loans are collapsing. 

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