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The Committee to Destroy the World opened its hydra-headed mouth one too many times last week.
The result was the biggest drop in stocks since Brexit.
The Dow Jones Industrial Average fell nearly 400 points, or 2.1%, on Friday, while the S&P 500 dropped nearly 54 points, or 2.5%, and the Nasdaq Composite Index also shed 2.5% and nearly 134 points.
What was the monumental news that finally rattled investors?
Was it the latest nuclear test by North Korea, which experts now believe could have the ability to reach the U.S. mainland with nukes by 2020?
Was it the overt disrespect shown to President Obama by Chinese and Philippine leaders?
Was it weeks of lousy economic data?
Or the prospect of the most depressing presidential choice in generations?
Turns out it was nothing of the sort…
This Is Terminal Complacency
It was nothing so much as the mere whisper by one of the clueless members of the clueless Federal Reserve that the august group of former tenured economics professors working 24/7 to destroy the global economy might raise interest rates sooner than expected by a whopping 25 basis points.
This is worse than pathetic.
It gives the lie to all those stock market bulls claiming that there is anything other than easy money holding up overvalued markets.
Imagine what is going to happen if these whispers turn into action, and the Fed actually summons the long overdue courage to hike rates.
The rush for the exits will resemble 10 pounds of baloney trying to squeeze into a five-pound bag.
The Fed whispers (by normally dovish Boston Fed President Eric Rosengren) followed the European Central Bank's decision not to intensify its quantitative easing and low-interest-rate policies.
Perhaps the ECB saw a ghost after two large European corporates were able to raise money at negative yields, the first time that such an abomination of nature has ever occurred.
While such bonds are designed for economically insensitive buyers like the ECB itself, no doubt some idiots in the private sector offered to subsidize Corporate Europe.
The fact that ECB inaction bothers investors more than negative rates tells you all you need to know about how the world was driven to the edge of a cliff by flawed economic theories and short-sighted investors.
Bonds also sold off but primarily at the log end of the curve.
German 10-year bunds returned to a positive yield, and Japanese bonds continue to sell off and push back up to zero. Think about that carefully for a minute.
Central banks succeeded in destroying global bond markets; patching them back together is going to leave a lot of blood on the streets.
Get Ready for a Return to Volatility
Whether Friday's sell-off is the end of the unprecedented period of low volatility they we saw this summer remains to be seen.
The VIX popped five points (40%) yesterday to 17.50 but is still below its long-term average of 19 or so.
Volatility, like interest rates and all measures of risk, remains grossly undervalued. September and October can be among the cruelest months for investors.
Buckle your seat belt – and load up on gold.
Get Michael's favorite gold strategies in one exclusive download, plus his Sure Money service at no charge. Just click here.
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About the Author
Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.
How do you explain that, lately, the the gold price seems to run in tandem with equities?
Dear Mr. Lewitt,
I really appreciated your analogy/humor today; thank you for sharing that information (and your views) with me today. Re: "The rush for the exits will resemble 10 pounds of baloney trying to squeeze into a five pound bag."
Sincerely and I hope God blesses you today,
Rev. Mary Muennig
…am anxious to see if your prediction is accurate.
Again the Fed has shown that they still carry a verbal cudgel that beats their message into the brains of spooked investors. I think that they have gone beyond their mandate in verbally manipulating markets and willy nilly destroying shareholder value especially gold which is enemy number 1 in their crosshairs. They have already beat us savers into the ground with negative interest rates and yes I agree they are out to destroy the world.
Curious to know why gold dumped along with stocks on Friday. You suggest buckle up and load up on gold, why if all it does it tank along with stocks when anyone hints of a Fed raise? I own gold, and am damn ready for this to shake lose of following equities every spike and dump. WHEN will this occur do you think?
Dear Mr. Lewitt,
I was just talking to the Lord Jesus about this and then he (King Jesus) gave me his approval to share this with you. This is a true story (I'm going to give you only a very brief description of what happened.): I'm keeping very little of my money in my checking account now-a-days and I have my savings (nest egg so to speak) in silver. I have a little silver with me (I.C.E.). Approximately 1 to 2 weeks before the Sept. 1st this year I went to various places, in my city/town, to try to get money for a few important grocery items (toilet paper being one of them) and I could not even use a/the Canadian Silver Maple Leaf to do that. It's certainly time for a change around here. Thank you for listening to me/putting up with me today.
Sincerely,
Rev. Mary Muennig
Maybe someone should look into how much money these Fed people make on puts after their untimely announcements.
Same effect after Greenspan's notorious "irrational exuberance" comment.
You'd be forgiven for thinking that the SEC, the US financial watchdogs, are there to stop insider training within the industry or protect the consumer against fraudulent activity, or that central banking is about what's best for the country, or that stock broking is actually a service *for* the benefit of consumers. However none of that is true. The industry serves it's masters, and is rewarded handsomely.