January 16th Market Update – Expanding central bank balance sheets fuel asset prices; Falling oil prices too much for central banks to take; The alt-media is short on knowledge, but long on showmanship

I have uploaded a January 16th Market Update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

The S&P futures are right near 50-day mva. The central banks and US Treasury are hoping the index retakes the moving averages
The Nasdaq took out the 50-day mva today
The Down needs to move up some more before the 50-day mva is taken out. It is vital that we retake the 50-day mva and the elites are hoping for this to happen.

The central bank balance sheets are once again expanding in aggregate. The latest research shows that the central banks have begun to add to their balance sheets once the the major stock averages began their precipitous free fall late last month.

A sustained drop in oil prices would have been calamitous to the credit markets. The $30 drop was too much for the central banks to take. They acted accordingly.

-There are still decent real estate prices and some fair deals in the United States. So what if prices took out their 2005 highs? Rents are up about 30% over that time. Camparatively, residential real estate can still provide predictable returns. Just stay away from the overpriced areas. Simple math can determine this.
-Mortgage rates are down about 50 bps. Subsidized mortgages are doubleplusgood.
-I look for the 10-year UST yield to touch the 50-day mva.
-There is so much dishonesty and showmanship in the alt-financial media.
X22 Report has about 350k YouTube subscribers, but virtually all his predictions have been incorrect. But that doesn’t matter. He’s short on financial market skill, but long on showmanship. He must make a lot of money on his monetized channel. He just keeps shoveling the crap to the unwashed masses who have convinced themselves that collapse is right around the corner for the past decade.
-For people who listen to and follow the X22 Report or the other charlatans in the alt-financial media, their lives have already collapsed. These dumbed-down patriots are now unable to free themselves from their confirmation bias and the shackles of calamity fears, while these dispensers of collapse porn sink their followers further into the abyss.

Want to see true monetary inflation? Look at the costs of these items

Items that cannot be imported show the true monetary inflation
This charts illustrates the price inflation of a few items that cannot be imported and which reflect the truer rate of the monetary inflation. The government seeks to control these sectors in an attempt to hide their profligate ways.

A reader asked the following question:

Why does the costs of rent continue to rise more than inflation?

Here is my answer:

There are a number of items that cannot be imported or exported freely. There are certain factors of life and production that cannot move freely across borders from high-cost to low-cost countries. Obviously, the price of rent cannot be arbitraged. Moreover, the price of rent cannot be arbitraged between less expensive areas of a nation and more expensive areas. Imagine if we could pay the rent of Columbus, OH, while living in New York City.

We can take this further. While technology is assisting in keeping the costs of healthcare down (some healthcare jobs have been off-shored to low-cost nations and some operations and dental work can be performed in Mexico), for the most part the costs of healthcare are generally isolated to each country.

House prices reflect this sad reality and so do the costs of higher education.

Thus, the government tends to subsidize these sectors heavily in an attempt to hide their transgressions of hyper monetary printing. It is the government and the central banks that are directly to blame and it does not matter who is in office. As the printing spirals further, the government seeks to control more and more aspects of our lives. This will continue until the government controls just about every factor of life.

To make matters worse, whenever the government subsidizes a sector such as healthcare, it distorts the supply/demand equation. This only helps to restrict supply, stimulate demand, and drive up costs further. Just look at the chart. Even if a nation has universal healthcare, the costs bleed out somewhere else. They almost always result in higher taxes and real estate prices.

Contemplate what the heavily subsidized mortgage market in the U.S. has done to house prices. This is the government’s attempt to help keep the true costs of real estate down. There are nothing but market distortions. Before long, we become addicted to these mortgages and their low interest rates.

Indeed, the government is our worst enemy, but we allow it to happen. We freely embrace these government “benefits,” which only helps in accelerating the process. Before long, we become hopelessly dependent on the government for a sundry list of services. It seems like one huge case of the Stockholm Syndrome.

Those who still cling to the traditional mindset of pursuing a college degree and finding a well-paying job will fall further behind. This is not the “American dream,” this is the American myth.

Reconciling propaganda with reality; Those who cannot fall further behind

What was so important about the early 1970s?

In response to my January 11th podcast titled, Getting ahead in rural America; Prosper during desperate times, I received an email from a reader in Ontario. He has observed many of the same phenomena north of the border as I see here in middle America.

It’s sad how the elites gutted the manufacturing here [Canada] since the 70s. We got the same drug problem here, especially fentanyl and weed. Its pretty bad in the small towns. I went to a rock festival here in London, Ontario. It was like Zombie-land downtown.

Great point about rentals and section 8 housing. I drove through the Scranton area many moons ago. Pretty run down. Reminded me of Hamilton, Ontario here.

I was watching a video a while ago about the suicide epidemic of men in the central N. American states and provinces. Sad. The destruction of N. America started back in the early 70s and is still continuing now. Almost all the wealth is concentrated in a few urban centres. George Carlin said it best.

Here was my email response to the reader:

The irreversible trends started shortly after Kissinger went to China in 1971; the same year the Feds shut the gold window. The US was chosen to be the world financial hub and spread its dollar to all four corners of the world. This would standardize global trade and benefit the international corporations.

Thus, the Feds would export the inflationary money printing and import the deflation to hide what they were doing to the citizens. The globalist media has been running cover to lie to the people ever since. That’s how the US dollar became the reserve currency. No other country wants to have the reserve currency. Only the gold shills say this. The US fell on the sword as that meant it needed to gut its industry. That was the end. That was the time to begin buying assets and quitting our jobs.

Why are people tuning out with drugs? Cognitive dissonance. These people cannot reconcile with what the media and government says to do and what they see in reality. We know better. We have no illusions on my blog.

Now the corporations have arbitraged between all low-cost and high-cost countries. Like you said, Canada is in similar circumstances. It is a high-cost nation.

it’s been a slow slide ever since. Year in and year out. There is no hope for anyone holding on to the old paradigm of going to college and getting a job. That’s a myth that dies hard.

Indeed, the destruction of the middle class in the United States began in earnest during the early 1970s. It soon spread to all the developed nations. Notice how the media, from movies and TV to books and news, also saturate us with the ideation of recreational drug use. This is being done on purpose. As the need for us to remain alive diminishes, the elites want us to indulge in more drug use.

Never once think that the growing trend for marijuana legalization was grassroots. This agenda is centrally planned and it is the hope of the elites that we all consume marijuana, drink alcohol to excess, and take mind-altering drugs.

I wish I have better news for us, but I do not. At least we know our adversary and how this plan is unfolding. It transcends politics and the life we have been crafted to believe by the globalist media.

The talk of collapse creates learned helplessness. The alt-financial media have been proclaiming it for over 25 years, but we are still functioning. We need to move forward and not fall victim like so many others. Knowing the truth can be very powerful.

January 14th Market Update – Moving averages are important; The latest trade data point to problems; AMZN and AAPL analysis; Bitcoin, treasuries, and the dollar

I have uploaded a January 14th Market Update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

-Domestic stock market analysis with some ideas.
-In this uncertain trading environment, a look at the moving averages is important
-Fed Vice-Chair, Richard Clarida, talks the party line
-I still think the Fed may unwind the balance sheet more than what some are hoping for.
-A retrace of 10-year UST yields to 50-day mva (2.93%) is in the cards.
-It is difficult to determine how gold and oil will do when we do not have the COT reports. The weakish US dollar should continue to support both as well as the commodity sector.
-The concerns over the flattening yield curve may be unwarranted. We live in a centrally-managed economy and financial system
The latest Chinese trade data do not help the trade negotiations and will continue to cause problems for the foreseeable future.
-AMZN and Jeff Bezos. Could we look back 10 years from now and say this was the beginning of the end for AMZN? Bezos is 54, will probably lose half his shares, and seems more concerned about chasing tail at this point. It is easy for him to take his eye off the ball. Some say he is interested in running for office. That is too many distractions. Bezos said that eventually all companies die of old age. Is he hinting at something?
-AAPL has its own set of problems. It doesn’t have Steve Jobs anymore and Tim Cook cannot seem to conjure up more novel ideas. Is he just squeezing out extra toothpaste from the tube? When Warren Buffett catches on to a tech company’s financial engineering, perhaps it’s too late. AAPL is not a banking firm.
-AMZN and AAPL problems don’t necessarily spell the end of the Nasdaq rally, but it can’t help.
Are the latest bitcoin stories believable? Any BTC bull should dip back into the game and pick up a small starter position. The returns are asymmetric.

Can the internet make us overconfident in our ability to make financial decisions?

So much information, so little time

Recall my November 7th article, Is the internet a wealth equalizer?, and how I presented the case that perhaps the internet was not the great information and wealth equalizer that many claimed.

Even the World Bank has said that the internet has been increasing income and wealth inequality. Those who know how to use the internet to their advantage have seen tremendous growth in their personal wealth.

Which means that for the vast majority of humanity, technological innovators such as the internet have actually helped to undermine their level of financial wealth, and I have an idea why. For people who invest and make financial decisions based on subconscious emotion, unrecognized biases, social media influences, or their favorite blogger, the internet has been a net negative. It makes it easy for them to indulge in their bad financial behavior.

Is the internet a wealth equalizer? – November 7th

Most people only unwittingly use the internet and social media to reaffirm their preexisting ideas and beliefs. While this may make us feel better with respect to the political divide, it can often be lethal with investment decisions.

The internet usually contains the proper data in some form for just about every subject and idea, but trying to locate it can be an arduous task. To make matters worse, our confirmation biases can preclude us incorporating the correct data points into our choices. Moreover, we need to figure out how much information is enough; when do we stop the search for data points and act?

Can More Information Lead to Worse Investment Decisions?

Expanding on my original research, a reader of my blog sent me an article today titled, Can More Information Lead to Worse Investment Decisions?, and it dovetails with my original theories. It’s author, Joe Wiggins, explains that having access to additional information can actually make us overconfident in our abilities to make proper decisions.

When we come into possession of more, seemingly relevant, information our belief that we are making the right decision can be emboldened even if there is no justification for this shift in confidence levels.

Can More Information Lead to Worse Investment Decisions? (Behavioral Investment, January 9th)

For many new investors, this overconfidence can often be lethal. Just look at those young investors who got caught up in the crypto craze. There’s a lot of information out there at our fingertips, but much of it is often irrelevant, even erroneous, or formulated by disingenuous promoters and shills.

There are so many data points and pieces of information available on the internet and many can easily become overwhelmed when attempting to decipher the necessary information. We face many potential drawbacks, most notably the challenge of disentangling signals from a blizzard of noise in order to make consistent decisions.

First, overconfidence is one of the largest and most ubiquitous of the many biases to which human judgment is vulnerable.

The second way overconfidence earns its title as the mother of all biases is by giving the other decision-making biases teeth.

Overconfidence – Psychology Today (January 22, 2018)

On many occasions, having additional evidence to support a decision may simply be a repetition of prior information (merely in a different guise) or be erroneous with no predictive power (a major problem in an environment marked by uncertainty and randomness where things that look like they matter, actually do not).

As we receive more information, therefore, we are prone to believe that we are more accurate in our decisions, when there is often no justification for this. This can create an anomalous situation where behavior consistent with being diligent and thorough, actually results in worse investment decisions being made.

Can More Information Lead to Worse Investment Decisions? (Behavioral Investment, January 9th)

Keep it simple

Over the years, I have developed a set of heuristics that assist in my data collection efforts. When it comes to making investment and trading decisions, very often my correct conclusions are the ones that are the easiest to explain to others. The research on my blog incorporates 34 years of financial education and a lot of trial and error. My heuristics are the culmination of all these experiences.

We need to be confident in our abilities without becoming overly confident. There is no substitute for experience; the more we are exposed to the outside world, the more wisdom we gain. With this wisdom, we will find the information overload more manageable as we can more successfully wade through the blizzard of endless data.

It may be fine to follow certain experts in a field, but if they are usually wrong, perhaps it’s time to look to others who have better track records.

January 11th Educational Update – Getting ahead in rural America; Prosper during desperate times

I have uploaded a January 11th Educational Update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

Keep in mind that social proof is a very powerful force. It keeps the debt-slaves in their place and is a self-imposed internment camp of the mind. The Opioid crisis and degradation of the wage-base are pounded over our heads to promote hopelessness and despair. We can overcome.

Meet a person who works three jobs and cannot stay ahead; A perspective of life in Wilkes-Barrie, PA. But this can pertain to any rural or economically depressed area in the United States. It could pertain to Dayton, OH, or Huntington WV (two cities I have traveled to, my mother lived in Dayton as a child).
-In Wilkes-Barrie there are over 90 houses that sell below $50,000. Many of these homes can be bought with seller financing or with federally-subsidized loans, with little money out of pocket.
-Chris, the person in the interview, could borrow $20-30,000 from his or his wife’s parents to buy his first couple houses.
-He can learn how to work with the Section-8 housing voucher program, which assists with the rent payments of lower-income tenants. He can provide a valuable service to his community while making superior cash flow.
-In many working-class and lower-income areas, Section-8 housing vouchers will provide higher rents than non-subsidized rents.
-I have participated in the Section-8 voucher program in the past and observed that my subsidized tenants were often superior in many regards to my non-voucher tenants. They appreciated my efforts to provide them a great place to live. All it takes sometimes are stainless-steel appliances.
-If these voucher holders do not take care of the premises, abide by any of the terms of lease, or do not pay their stipend portion, they can lose their vouchers. You can be their last hope. Develop a good relationship with the county voucher case workers and you will be sought out by everyone, even other sellers.
-There is a lot of hope and we can move forward.
-Chris could easily acquire 8-10 homes over several years. He can eventually quit a couple of his jobs and have enough money for retirement. He could take vacations with his family and live a longer life.

Some observations from a listener in Toronto

Universal health care

“Universal health care works here. Not sure if it will for the states.”

V – Toronto, Canada

From what I can tell, universal health care does seem to work as intended in Canada. Why is this? First, the population is smaller. Second, it seems that there are less contrasting interests than what we would find in the states. Although Canadian demographics are diverse, almost on par with those of the United States, its mindset is more consistent. What I am trying to say is if a social program like universal health care is to work, the people in the nation need to be on the same page.

Consensus in the United States is virtually impossible to achieve. Obamacare was poorly constructed and seemed doomed to eventually fail, and effectively, it has. Beginning in 2019, the personal mandate penalty will be eliminated. This means that societal pooling of insurance risk will be removed from the equation. This was the primary premise under the program’s normative economic analysis. Moreover, the cost burdens of the program still resided with the health care consumer. Just ask anyone in the U.S. seeking healthcare insurance.

My only concern is that the negative externalities of any social program are rarely ever revealed to the public. Normative economic study is what I would consider “subjective” analysis. Normative policy is employed when interested parties wish to achieve a policy goal. In the United States, supply-side tax cuts come to mind. Those promoting supply-side programs employed complex algorithms to make their case, but at the end of the day all it resulted in was explosive deficit spending. This only worked to help  the wealthy; those with a lot of taxable income and those with the income-generating assets.

Normative analysis usually leads to disingenuous arguments and the promotion of self-interested agendas; those who stand to receive the lion’s share of the benefits exert the most effort to achieve their desired results. Normative analysis will almost always lead to misleading findings.

This is why I am careful to stay clear of opinions. While positive analysis can be misleading as well, it is much more straightforward in its logic and results.

Martin Armstrong has been dissing real estate for several years

“Martin Armstrong a couple of days ago was saying real estate has peaked. It’s time to get out. Property taxes are going through the roof.  Looked at Zillow for our nearest neighbour, Erie county, western New York State. Example, $350k house, $11k property taxes. Crazy.

Looked up Florida. Suburban Orlando, Winter park. $ 1.2 million mansion [equals] an 800 sf shack house in Vancouver. Bargain price. 

In Detroit about 30% of the houses that are remaining are in property tax arrears, and are being sold off at auction. Corporations are buying them up and renting them. I agree with Martin Armstrong that certain locations, New Jersey, New York State, Illinois are going to see an exodus of people leaving to less taxed states.

V – Toronto, Canada

There are many areas of the United States in which I would not invest. The northeast comes to mind. In late 2011, I purchased a single-family house on Long Island, just outside NYC. While the market value was about 250k at the time, the property taxes were about $10,000 a year. Although I owned the house free and clear, I needed to rent the house for $1,000 a month just to cover taxes and insurance. In early 2013, I sold the property and deployed the capital to properties in suburban Maryland and Virginia. In Maryland the tax rate is at about 50% lower, while in VA, the rate is at about 70% lower.

High tax states, such as Illinois, New York, New Jersey, and Connecticut are having a difficult time maintaining home prices. Keep in mind the changes to the IRC, which caps SALT to $10,000 a year is clearly designed to anger the voters in the blue states. Trump got the last laugh on that one.

I am familiar with the real estate process in Detroit. The houses lay vacant for years, and every third year of delinquent taxes, a property is auctioned off for back taxes. Speculative investors will scoop up the properties for the back taxes (maybe a couple thousand dollars), lay on them vacant for the next three years, and hope for a redevelopment or city buyout. If this doesn’t happen, they give the properties back to the city for another auction. Consider this like buying a call option on the property.

Be careful of people like Martin Armstrong. He has clearly been incorrect in his conclusions about real estate for almost four years. His confirmation bias is to see real estate fail, so he will only write about the areas with problems. He cherry picks his positive economic analysis. Moreover, he demonstrates the backfire effect when confronted with conflicting information.

Amstrong also likes to instill fear in his followers; he has expensive services to sell you and can only make the sale if he can convince you that he is needed.

There are plenty of areas in the U.S. and sectors of housing to invest. Working-class housing in affordable areas is still highly sought out by investors and homeowners. With interest rates fading, it is still worth  looking into, but Armstrong will not tell you about these situations. He has his Socrates service for you.

I agree what you say that this is all done by design. Make housing unaffordable, crashing the market. The people holding cash 💰 buys them cheap, and rents them out. Your observation of buying houses in the secondary markets to rent out is spot on. You have to do your due diligence. Check to see how financially sound the city is, and your investment has a good cap rate.

V – Toronto, Canada

Indeed, this is correct. But this provides us plenty of opportunities.

It’s funny how socialism is embraced by the millennial Bernie Sanders generation. They don’t understand that if you tax the population too much and make the cost of living too expensive, people will flee. It’s all the same in Western Societies. All done on purpose. Like you said. These globalists want to destroy the western societies.

V – Toronto, Canada

Once again, your observations seem spot on. Moreover, these social programs will be administered by the banks and corporations. The deficit spending helps these shareholders, while the monetary printing and leverage ultimately benefits the asset-owning class. The intended beneficiaries lose out over time as their cost of living continues to escalate. The debt is turned into negotiable instruments and bonds that investors use as collateral to buy up more assets. So, these folks listen to the disingenuous normative analysis and cannot make the connection between their social benefits and their ever higher cost of living. Rents, education, taxes, and healthcare costs will spiral out of control and the masses will engage with the government to “help out” again.

Keep in mind, I am not here to denigrate social spending. I am only here to warn the reader to take action to make the best of the situation.

January 9th Economic Update – Market analysis; Normative vs. positive economics; People are becoming more irrationally irrational

I have uploaded a January 9th Economic Update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

To download the Rense/Rifat interview – Right mouse click here

-Fed policy flip/flop gives some great long opportunities. Will it last? The markets reacted in a very predictable manner.
-Emerging market stresses have abated and the US dollar has faded, as expected
-With less uncertainty in the emerging markets, oil is rising. Lower interest rates help the drillers
-Gold holding up with the rest of the commods.
Normative economics vs. positive economics. I don’t give my opinion on normative policy and objectives. In order to succeed financially, we must analyze the results of normative social policy ( we use positive economic analysis of cause and effect), and make decisions based on the likely outcomes of social spending programs.
-We cannot change the world at large. How we respond to it will make the difference. It takes an objective and independent mind; a rare commodity.
-Social objectives always come with hidden costs and negative externalities. If we can identify them, we can stay ahead of the rest of the population
-People are acting less rationally irrational. They are becoming more irrationally irrational. They can no longer take care of themselves and are quickly losing their free-will.
-I propose some reasons why humanity is becoming less able to think rationally. A Jeff Rense interview with Tim Rifat. 
-The futurists from 50-150 years ago all discussed how humanity would turn out. They were correct. Look around.
-Take a step away from the daily news feed and social media, regardless of source. We are being conditioned to accept chaos and depravity.
-Our hope is that we can overcome the hypnosis and degradation of western humanity to move forward and succeed.
-Boom/bust cycles; why they are accelerating in speed and amplitude. It has nothing to do with what Martin Armstrong discusses.

January 8th Update – Answers to email questions; Student loan debt forgiveness, universal health care, the Trump wall, and mass immigration

I have uploaded a January 8th Market Update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

-Keep in mind, I am not here to offer my opinion on whether I like or dislike social spending.
-What would happen if the US government forgave $1 trillion in student loans? Who would benefit and who would suffer? I apply economic logic to show how we would be impacted
-Does a country benefit with universal health care? Do the benefits outweigh the costs?
-The politicians and demagogues count on the average person never making these simple connections.
-I feel badly for most Canadians. Their personal debt levels are out of control, but the costs of social spending manifest somewhere. There is no such thing as a free lunch and the tax burdens are continuing to rise. Moreover the massive deficit spending and personal debt accumulation create negotiable debt instruments that are used to buy up other assets. In Canada, the specific problems arise in its real estate markets.
-Michael Moore won’t ever tell you this, but what is the cost of universal health care in Canada? A real estate market that will forever be more expensive than the average tax-slave can afford.
-With respect to the Trump wall, notice how Trump is being pitted against two highly polarizing and unpopular democrats (Nancy Pelosi and Chuck Schumer). If the democrats wanted to stop all this, the party could have presented a middle-of-the-road Senator from the Midwest. It’s just Kayfabe and the battle of the meaningless must continue.
-It is amazing how worked up many of my friends have gotten over this wall situation.
-Where are the costs for immigration borne? How does the average person lose?
-How do we stay ahead of the social and deficit spending?
-Gold shills get it wrong all the time. If we have a hyper-inflationary collapse, I will tell you where to invest.

Bears beware: the Fed has listened to the primordial scream of world markets

The Fed is trying to salvage its credibility, but things still could roll over

The events in the capital and financial markets are coming in fast and furiously over the past few days. I don’t have many answers yet, but tons of observations and ideas.

I just wanted to pass along an article I just picked up off The London Telegraph. The article titled, Bears beware: the Fed has listened to the primordial scream of world markets, provides some good analysis on why we may see the markets turn in the short-term and what this all means for the US dollar going forward.

The US Federal Reserve has called off the hounds. China has abandoned efforts to purge financial excess, reverting to stimulus on multiple fronts.

Policy pirouettes by the world’s twin superpowers mark a critical moment in the tightening cycle, with sweeping implications for global asset markets and for the health of the international economy over the next year.

Bears beware: the Fed has listened to the primordial scream of world markets – The London Telegraph (January 6th)

It is worthwhile to entertain the thought that the Chinese and American monetary policy authorities may be working together while they attempt to fashion some sort of trade package. We also observed how the Fed chiefs all came out in a unified fashion late last week to promote their new mindset. This was a sudden turn of philosophy. Perhaps, Dow 22,000 was the Maginot line.

This was a far cry from his [Jerome Powell’s] comment before Christmas that the Fed’s pre-set plan to shrink the balance sheet by $50 billion a month was on “autopilot” — even though half the world was by then in flames. In the US itself the Goldman Sachs Financial Conditions Index had jumped 100 basis points since early October.

The new line is clearly a concerted Fed message. A day earlier Robert Kaplan from the Dallas branch said he was watching “very, very carefully” lest QT causes liquidity to evaporate and leads to a crunch.

It is the reassurance that skittish investors have been waiting for after a $20 trillion slide in global equities and signs of seizure in the credit markets. The S&P 500 index of equities roared 3.4 percent within hours. January suddenly feels different.

Bears beware: the Fed has listened to the primordial scream of world markets – The London Telegraph (January 6th)

Regardless, I still believe there is further rot in the credit markets that have yet to fully manifest. In the short-term, this does little to alleviate the global economic strains and stresses and we still may experience intermediate-term economic problems. My concern is that these monetary policy actions may not provide enough help and could be coming too late to stop what is coming.

While this could provide us with some good long trading opportunities, I am concerned that if events turn darker, the Fed could lose some of its standing.

Does the Fed know something?

I am contemplating a weaker dollar (and firmer gold prices?)

In a recent article I posted, we discussed how the dollar might begin to lose some of its recent strength. I enumerated in my December 25th blog post, Are the planets aligning against the US dollar?, that the dollar bulls may be mistaken in guessing about further dollar strength in the short- to intermediate-term.

Ironically, I based some of my reasoning on the fact I thought the Fed’s tight policy was irrational and that some investors could begin to spot structural problems.  Clearly, President Trump’s ostensibly unstable behavior was not helping the situation.

Now that the Fed has become more dovish, the dollar still could fall as global funding stresses may abate. In addition, short-term rate differentials may narrow around the globe. If the Fed keeps its balance sheet at a larger-than-anticipated size, there will be more dollars in the global economy.

The dollar may top out as dollarized funding pressures could recede under a dovish Fed policy

It is the Fed that matters most. For the last year it has been draining dollar liquidity mercilessly, both by shrinking the balance sheet and by raising rates. The “broad” dollar index has soared to an 18-year high.

The squeeze has been slow torture for a world financial system that has never been more dollarized or more sensitive to US borrowing costs, especially in those emerging markets that were flooded — nolens volens — with cheap dollar debt during the QE years.

Turkey and Argentina were the prime casualties of 2018, but South Africa, The Philippines, Indonesia, India, Mexico, and in its way China have all suffered.

Offshore dollar debts worldwide have ballooned to $12.8 trillion (BIS data). Roughly $4 trillion of contracts outside the US are priced off three-month Libor rates alone, which have doubled over the last year.

The strains reached breaking point in the fourth quarter. Dollar funding markets in Asia and Europe began to dry up. High-yield credit spreads have surged by over 260 basis points in Europe, where bank stocks have been in free-fall.

Bears beware: the Fed has listened to the primordial scream of world markets – The London Telegraph (January 6th)

If the dollar fades, which it should under a dovish policy and lessening funding constraints, I believe gold could follow through and take out $1,300 on a trading basis. I am not claiming to be outright bearish on the US dollar, but I am no longer bullish.  Could commodities tick up here?

Keep in mind we could also see further dollar weakness if the markets begin to worry about whether the Fed policy changes have something to do with something the Fed sees, but has not made public.

Like I said; so many thoughts, but few answers….