Did You Catch Powell’s and
Bernanke’s Fireside Chat?
Tamir Pardo is an Ex-Chief of the Mossad.
In a 25-minute lecture of his, he discussed several topics, among which are the ramifications of social media and mass-media on decision-makers and their ability to draw conclusions and to form connections between seemingly unrelated events.
In his speech, he talked about this global Butterfly Effect and how the riots over pensions in France, for example, are able to inspire riots over social reforms in one’s own country.
If a decision-maker at the highest level of a country has to be briefed about risks and dangers in point A, and has to somehow deduce that this will lead to implications on point F, his job becomes impossible, for the most part.
Who could envision, for instance, that Russia would be buying drones from Iran?
The point is that information that could be relevant to understanding one scenario might be five or six levels of separation away from its origin.
Just last week, gold’s price looked like it might decline for months on end – after two FED governors and heads for their respective branches telegraphed that inflation is not close to being in the range that they’d consider safe to begin cutting rates.
Against that backdrop, along with positive signs that the debt ceiling debacle won’t reach crisis mode and, coupled with the upbeat earnings reports from the world’s most important companies, gold tanked below $2,000/ounce, all the way to $1,960.
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The following day, though, former Chairman Bernanke and current Chair Jerome Powell, both spoke about monetary policy.
Just like Tamir Pardo, the Ex-Chief of Mossad said about his job being like running thousands of start-ups simultaneously, so did Powell’s comments help to move gold’s price back up, but the question still lingers… was it a bounce before resumption of further downside, or was that swift hiccup all there was to the gold sell-off?
In order to properly answer that, let’s look at what he said:
- He talked about the FED’s unconventional programs, which act in a way that serves to resolve crises, without actually raising/cutting rates.
Here’s a snapshot of how insanely in-demand they’ve been:
Courtesy: Zerohedge.com, Bloomberg
As you can see, with the Discount Window, the Bank Term Funding Program and the FDIC Bridge Loans, we’d already be in a full-blown panic and talking about a recession.
Like the Ex-Chief of Mossad stated, no one conjured up the probabilities that these programs would be able to avert the contagion, but they have (for now).
Higher rates for longer are certainly not the best outcome, when talking about record high prices for gold, but as I’ve always said, if 80% of your net worth is tied to growth and prosperity and only 20% is hedged for the end-of-the-world, then a soft landing is not a bad option.
- Powell talked about the lag effect, which, in their estimation, has not yet come to fruition.
What he means to say is that the FED expects that between now and October, the tight monetary policy will finally work its way through all sectors of the economy, and we’ll learn if they over-did it.
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