There are certain weeks where you just feel the market Earth shifting beneath your feet. This was one of those weeks.
Blame it on the Fed. Blame it on Dollar. Blame it on gold. Blame it on interest rates.
Whatever it was that triggered the macro earthquake we felt this week looks very real and very persistent. The only question is what shape does the landscape take from here for all major assets classes?
- The Fed - They are now officially in an accommodating stance. Whether they are beholden to the bond market or to the President we will never know. What we do know is that the 180 they have made has been legendary in scope. The message of inflation or die is very clear. Bringing me to the next topic of conversation...
- The US Dollar - The Fed's message of inflate or die means death to the Dollar long-term. It took quite awhile for the Fed's message of inflation before all other considerations to resonate in the currency markets. However, with this week's significant technical breakdown in the Dollar, it seems that traders are finally getting it. King Dollar needs to come down in value, perhaps markedly so. A good segue into our next point of discussion....
- Gold - The yellow metal broke out in a big way this week. Everything went and it went hard on the upside. There isn't anything to be observed in the breakout in gold or any of the gold miner related indices that says this is not a legitimate acceleration of trend to the upside that will bring with it new heights of valuation. With the Dollar being sacrificed by a Fed being led by the inflate or die mandate, it's simply a matter of how high will gold fly.
- Rates - Just as everyone was convinced rates were going perpetually higher (they went much lower) this time last year, there is a case to be made that everyone is wrong once again about rates. Back to the inflate or die mandate out of the Fed. While everyone believes that since economic activity slowing equates to lower rates, most market participants are not well versed on stagflationary economic dynamics. There is a case to be made for the next bout of QE, in whatever form it comes, resulting in much higher interest rates as deficits are in no position to support increasingly bloated governmental balance sheets. This means the Dollar is sacrificed, inflation soars and rates follow along with it.
While investors were busy admiring the Slack IPO, debating U.S. policy towards Iran and wondering when semiconductor stocks would turnaround, the market landscape literally just completely changed in what will likely be a shift that we point to as being one of the most important of the year when looking back at 2019.
Get your galoshes and Ushanka hats, the winds they are a changing.
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