Tag: The Federal Reserve

Is The Market Doing Push-Ups?

Posted on by The INO.com Team

It sure seems that way, doesn't? We are up one day and down the next. I'm not surprised with the market's action, it is what I expected after such a big drop.

It's Thursday and while this is an important day, I think Friday is going to be a more important day. Last Friday we saw the Dow Jones close at 16,643.10, the S&P closed at 1,988.87 and the NASDAQ closed at 4,828.54. As I write this, all three major indices are lower than last Friday's close and are down for the week. However, they are not lower than the recent Friday low close we witnessed just a few weeks ago when the Dow closed at 16,459.75, the S&P 500 at 1970.89 and the NASDAQ at 4717.16. Those closes in my mind are all crucial, if they are broken we could see a continuation to the downside. If they hold, it gives hope to the bulls that this was just a short-term correction and the markets will start going back up. Continue reading "Is The Market Doing Push-Ups?" →

Beware Of Dead Cats

Posted on by The INO.com Team

Whether we like it or not, the markets made history with yesterday's 1000+ point swing in the Dow. We've also never seen three days in a row where this index has lost 300 points each and every day. So what does all this mean? What it underscores is just how fragile the world markets are at the moment and the general uncertainty and concern that investors have in the U.S., Europe and Asia.

At the moment, China is writing the script and with today's announcement of yet another cut in interest rates I don't see how China can win no matter what it does. It is very hard to bring back investor confidence and trust to the markets once it has gone. I think the loss of confidence has already happened in China and no matter what the government does, it is not going to be enough to bring it back any time soon.

The fact is, the government of China is in a lose-lose position no matter what they do and they have just brought this upon themselves. I do not expect the Shanghai index to rebound in a sustained manner anytime soon.

I'm not sure who created the phrase "dead cat bounce" and how it relates to the market, but it goes like this. When a market has had a pronounced move down like we've just seen in all the major indices and in many stocks, it's not unusual for the market to rebound. Professionals call this a "dead cat bounce" and it is not to be trusted as it does not change the previous negative direction of the market. It is simply a rebound, possibly caused by news or a short covering rally. Continue reading "Beware Of Dead Cats" →

Look for Value Opportunities and Put Your Capital to Work Selectively in this Market

Posted on by admin

The Gold Report: When we talked in November, you warned that there would be downward pressure on gold this year. What are you anticipating for the balance of 2015 and into next year?

Florian Siegfried: We were being cautious in November when we published guidance that indicated gold could trade as low as $1,070 per ounce ($1,070/oz) as a support zone. And that is pretty close to where it is trading right now. But I think that we have to distinguish between the paper price of gold and the physical price, which trades at a premium. For example, the U.S. Mint currently sells gold at around $1,400/oz.

"Pretium Resources Inc.'s Brucejack is one of those mines that brings a long mine life and high grade in a safe jurisdiction."

This suggests that there is some tendency toward increasing premiums in the market for physical metal. Where we go by the end of the year is a difficult question because it's always hard to catch the bottom of the market. But a look at the last three or four years gives us some clues. Hedge funds were maximum net long in gold at the peak of 2011, and now they're maximum net short, which could be a good contrarian indicator (see chart above).

It looks as if $1,080/oz could be the bottom. It's not defined yet, but the sentiment is definitely at extremes.

The turn in gold will come from short covering, and the short covering will come when the bearishness really reaches a climax event. Probably we are there, but we will have to wait and see. It is difficult to make a call for year-end because there are so many factors influencing the gold price, and sentiment is extremely negative. The trigger for moving up could come from the bond market, which is in a difficult spot right now. Liquidity is down. Yields and credit spreads are rising. When something goes wrong there, where will the conservative money go to? I don't think it is going to go back into government funds. As investors lose confidence, that could be the trigger for gold. We are probably going to see this in the fall, by September or October. I think the bond market is about to turn around.

TGR: What are some of the other triggers you're watching? Are you monitoring the U.S. Federal Reserve and whether that rate hike happens in the fall? Continue reading "Look for Value Opportunities and Put Your Capital to Work Selectively in this Market" →

Dollar's Fate To Be Decided In Beijing?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Last week's GDP growth figures proved that US economic performance is still pretty mediocre, bordering on mildly tepid. While the Hawks were eyeing a 2.6% growth figure, actual GDP fell short of expectations and posted a rather dismal growth rate of 2.3% annualized.

Yesterday, we got the Fed's favorite inflation indicator, Core PCE, the inflation barometer that's extracted from the GDP release. And what we got was a dismal 1.3% inflation rate (YoY). This validated, once again, that the US economy failed to reach escape velocity that would necessitate several rate hikes a year. Rather, it suggested that anything beyond one or two rate hikes was unnecessary. Hardly a hawkish sign, yet Dollar demand keeps on rising while US yields move lower. It is this very combination that suggests that Dollar demand is being stirred by the demand of US Treasuries. Some say that this is investors moving into safety amid the rout in Chinese markets. Well, that's probably true, at least, in part. But the rest? There's a big bet on what China will do next. Continue reading "Dollar's Fate To Be Decided In Beijing?" →

How Many Rate Hikes Can The U.S. Handle?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


The FOMC meeting ended yesterday as many had expected. Besides some marginal tweaks in the language, the message remained the same; data will determine our rate policy. Now, hours after the latest US GDP figures hit the newswires, it seems that Dollar Bulls are gearing up towards a September rate hike. Part of their rationale is because the data is good enough to sustain a rate hike. And that’s essentially true. With wages growing annually at 2%, Core Inflation at 1.7%, unemployment at 1.8% and now GDP bouncing back, indeed, a rate hike is warranted. At the same time, there are essentially no signs that the US economy is overheating. Rather, we’re seeing notable signs of stabilization. This, then, begs the question: How many rate hikes can the US handle in the upcoming year?

No Escape Velocity in GDP

When we examine the dynamics of GDP growth, it’s evident that the US GDP growth rate is not breaking the range. Instead, it has the same cycles that tend to end around the 3% growth rate. After that, the US economy tends to decelerate, only to regain momentum later. But this range of growth has not been broken. This means that there’s no evidence that US GDP is at escape velocity, a pace which would require several rate hikes a year.

United States GDP Annual Growth Rate
Chart courtesy of Tradingeconomics.com

No Escape Velocity in Inflation

When we examine US Core Inflation, a similar picture emerges. US inflation is within the Fed’s 2% range and is showing no signs of overheating, i.e. escaping the Fed’s target. Rather, every time it reaches the 2% range, it tends to cool and then slide slightly lower. Continue reading "How Many Rate Hikes Can The U.S. Handle?" →