Despite the Federal Open Market Committee voting last week to maintain all of the Federal Reserve’s current rates, some market experts — including this one — are projecting that a rate hike is coming soon, and the Foreign Exchange market could see significant volatility because of it.
Indeed, as we suspected back on July 1, the Federal Reserve, in its release about the policy meeting held July 26-27, signaled that headwinds from Brexit are waning and pointed to diminishing near-term risks. But what does that mean, in practical terms? It means that the Fed is back in business: delivering mildly hawkish rhetoric, while preparing for the next rate hike. Continue reading "FX Volatility To Pick Up With Growth"→
This week, investors believe that they may have finally gotten the green light for ECB easing. With Eurozone inflation officially turning to deflation, investors believe that Mario Draghi and the ECB have been backed up into a corner with no escape, thus they will be forced to initiate a Quantitative Easing program that will balloon its balance sheet. In fact, the buildup towards this move started a few months back with Mario Draghi sending ever clearer signals of the ECB’s intent toward a full blown QE that will probably involve purchases of government bonds in a Federal Reserve-like manner.
If you will recall, Mario Draghi had also outlined the ECB’s intent to balloon its balance sheet back to its 2012 record of roughly €3.1 trillion. With the ECB’s current balance sheet at €2.216 trillion that means an estimated €884 billion in additional liquidity coming to the markets. As would be expected, the Euro has been in utter meltdown over the past few months, sliding to a low not seen in more than 9 years; of course, all this comes on the back of the impending liquidity injection and especially now as deflationary fears were confirmed with the Eurozone’s CPI at -0.2%. So far, this is par for the course, yet for me, this dredges up old memories of 2012.
The Big Mistake
Just by stating the obvious, that the ECB has to increase its balance sheet by a jaw-dropping €884 billion in order to increase its balance to the size it was a little more than two years ago, shows just how big a mistake the ECB has made in its policy since then. Across the “pond,” the Federal Reserve’s balance sheet has been growing since 2012 and its size has only now stabilized, as the US enjoys above-trend growth, a hair’s breadth of full employment and core inflation at a decent 1.7%. In the meanwhile, as the ECB was aggressively shrinking its own balance sheet, Eurozone growth came to a virtual standstill, unemployment remained stubbornly high, exports slowed, manufacturing weakened and, of course, the Eurozone moved into deflation. Continue reading "Can The ECB Learn From Its Own Mistakes?"→
Interest rates, oil prices, earnings, GDP, wars, peace, terrorism, inflation, monetary policy, etc. -- NONE have a reliable effect on the stock market
By Elliott Wave International
You may remember that after the 2008-2009 crash, many called into question traditional economic models. Why did they fail?
And more importantly, will they warn us of a new approaching doomsday, should there be one?
This series gives you a well-researched answer. Here is Part IX; come back soon for Part X.
Myth #9: Inflation makes gold and silver go up.
By Robert Prechter (excerpted from the monthly Elliott Wave Theorist; published since 1979)
This one seems like a no-brainer. The government or the central bank prints more bonds, notes and bills, and prices for things go up in response. Gold is real money, so it must fluctuate along with the inflation rate.
Once again, it doesn't happen that way. Let's examine the history of inflation and the precious metals since the low of the Great Depression.
The Fed's capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation; the Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. In the late 1970s and early 1980s, rampant inflation was again brought under control by a determined and persistent Federal Reserve.
However, when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.