What a battle of the minds! These two (Trump and Powell) are really going head to head, each with his own unique style.
Trump is aggressive, tweeting, and openly criticizing the FED’s policy and, on the flip side, celebrating the U.S. economy’s achievements, as if the government’s actions and policies are more important than what 156,000,000 working Americans are collectively doing to improve the world, by adding value to the economy.
Powell, on the other hand, is quietly sending Trump a message, by saying yesterday to reporters that he doesn’t want to take full credit for how the economy is doing (is he nuts or what), but that he sees overall a strong correlation between his committee’s policies and the success of the U.S. economy.
He then added that it’s not his role to criticize the government, but that trade tensions resulting from Trump’s policies are the main reason the FED is cutting rates by 25bps, even though the U.S. economy is doing well.
Each of them is trying to set up the other to take the fall, if and when one comes. Powell was very picky with how he worded his reply when a reporter asked him about the FED’s tools once the recession comes. She asked him if cutting rates now in a strong economy isn’t going to prove problematic later on – when he would need to aggressively cut and cut and cut.
His reply was that no one is ruling out a rate hike, if the situation allows. In other words, the FED is becoming much more open to ditching its long easing and tightening cycles and moving into a more flexible policy tradition. Markets don’t like or appreciate uncertainty and Powell gave them a whole bunch of it yesterday.
He also said that this isn’t a typical easing period and that the markets shouldn’t expect years of cuts, but that he doesn’t rule out hikes down the road. He acknowledged that the U.S. economy is strong, but that Europe and China are weakening.
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This is confusion and when that happens, investors sell equities and raise cash levels, which is the reason the dollar is strengthening and precious metals ARE CRASHING. It’s temporary, but natural; metals needed a breather, after the past 60 days of beautiful bullish action and I was certain they will sell-off, no matter what Powell says.
Trade tensions aren’t going away either; everyone believes that Trump’s intentions are to ink a deal with China BEFORE the 2020 elections, but the opposite is true. He has learned from Bush and from other previous presidents that by leaving major loose ends at the time of the elections, voters will almost always reelect the reigning president so he can finish what he started.
So, I don’t expect China and the U.S. to get anything done before the elections. This means we will continue to experience easing from central banks. Historically, making insurance cuts give corporations the confidence to go out and invest in growth, a feature that many of them have neglected, preferring to buy back their own stock instead.
No matter what the FED does – cuts, hikes, or keeps rates leveled-off, the fact remains that, rain or shine, 10,000 boomers are retiring every day and 90% of them cannot survive without Washington’s help. The central bank can’t change that.
There’s no way around it: governments must find ways to cheapen their currencies and though the dollar wouldn’t do it first, I do anticipate Washington to make the way to devaluation more realistic in the next 3-4 years. It will do it not because it wants to, but because of de-dollarization.
The FED’s decision is in no way a reason to sell gold and silver and take profits on the recent gains; it is a time to think about the fact that if the global economy is slowing and Europe can’t get back on track, it might escalate and put pressure on American businesses. In the meantime, in today’s world, you definitely want to be a borrower. I’m taking on great debt in real estate by acquiring rentals which are cash-flowing; rents cover all of my principal and interest expenses, sewer, maintenance, management, miscellaneous, and still I get to keep about $100/door. It’s a terrific set-up.
Mark my words, since I’m not the first guy to realize that borrowing in this decade will be a great strategy: more and more consumers and businesses will be taking loans and money velocity will increase – this is the inflation decade and, therefore, silver’s decade.
Research Partner, PortfolioWealthGlobal.com
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