"Gold is the money of kings. Silver is the money of gentlemen. Barter is the money of peasants. And debt is the money of slaves."
Here are a couple of facts one needs to remember when attempting to decipher yesterday's Federal Open Market Committee (FOMC) announcement and press conference by Fed Chairman Jerome Powell:
- The Federal Reserve Board is not part of the U.S. government.
- The Fed's dual mandate is a) "maximum sustainable employment" and b) "price stability." Nowhere do we hear the term "stock market" related to the dual mandate.
Given those two facts, in all of the noise of yesterday's 2% drop in stocks everywhere within sixty seconds of Jerome Powell's revelation of "3 versus 2" (rate hike next year), where was it ordained that it was his job to juice the stock market?
This morning on CNBC, the panel was so completely obsessed with what Powell said and how he said it and how he should have said it and when he should have said it that they totally forgot the basics of the Fed-101.
Since the last great Fed Chairman Paul Volker retired, three consecutive Fed chairs have done everything possible to levitate stock prices. After the Crash of '87, the Working Group on Capital Markets was formed as a means of avoiding similar crashes by way of a legion of traders whose mission is to monitor stocks 24 hours a day. While it was a worthwhile stabilizing tool in highly emotional market swoons such as the Challenger Disaster, 9/11 and the Great Financial Crisis (GFC), what began as an "emergency tool" evolved into a "political tool."
But what it always was, and remains to this day, is a "banker's tool," because it is the banks that control the Fed and the banks control the markets—all markets. So when I am listening to this sycophantic debate over the FOMC release, I have to ask myself whether the farm worker in Des Moines or the social worker in San Francisco cares a hoot about Powell or the Fed or stocks.
If the U.S. Congress bears the responsibility of creating the Fed and has granted them the dual mandate listed above, they should be applauding Jerome Powell for truly being data-dependent and recognizing weakness starting to creep into the data, making the "3 versus 2" decision a means of fulfilling his mandate of maximum sustainable employment and price stability. After all, it was on Oct. 3 that the CNBC crowd were clinking glasses in celebration of yet another all-time high in the S&P 500! To the members of that CNBC panel, who were whining and sniveling and assailing the Fed, I say, "for shame!" for behaving in such an avaricious, self-serving and pitiable manner.
As for tactics, the precious metals were sucked down in a vortex of algorithmic tantrums along with stocks and base metals but this morning, we need look only to the USD Index, where we see a 0.61% drop back below 96.
It was once told to me by a very old and very wise former bond trader that comparing the intellectual capital of the stock market to the bond market is like comparing a kindergarten child to the average adult. He further said that comparing the bond market to the currency market is like comparing an average adult to Albert Einstein.
The FOREX markets are the most sophisticated markets on the planet, as they take the collective global assimilation of data and instantaneously assign it to pricing assets. So it is with great fascination that I note while stocks collapsed yesterday on fears of a hawkish, "too tight" Fed policy, the U.S. dollar is crashing this morning, which means the FOREX markets viewed the FOMC policy statement as "dovish."
As an investor, I would rather trust the intellectual efficiency of the FOREX markets than the boorish behavior of the stock markets to provide my guidance for all decisions moving through year-end. The weak dollar is screaming to us that the Fed is indeed aware of the global slowdown and that they will eventually blink. The reason they will eventually blink goes back to point 1 in the two facts introduced at the onset of this missive. The Fed is owned by other banks, not U.S. citizens nor the government, so when you are reading or listening to anything emanating from them, it is imperative that you understand that they do nothing that in any way will undermine the safety, survival, and ultimate prosperity of their member banks. They act for themselves and themselves alone.
In light of the events laid out in this missive, I continue to look for an upside resolution of the current battle for gold, in the $1,250-1,260 resistance zone, and silver in the $14.80-15.00 resistance zone. Coeur Mining Inc. (CDE:NYSE) pulled back from over $4.70 to under $4.25 during yesterday's post FOMC tantrum, and the SLV April $13 calls gave back a little profit from our $1.00 entry level, having closed at $1.22. I will add to both if they open anywhere near where they closed but suffice it to say that I see new highs in both by year-end.
The last day for tax-loss selling is Dec. 27, so I will be preparing a list of tax-loss weakness candidates for rebounds in early 2019. I will be tweeting the list out on Boxing Day, with a follow-up e-mail the following day. The list of casualties is long and bloodied this year, and while it has in recent years been relegated to resource stocks, this year it is crypto, cannabis, energy and blue chips, with the biggest top-to-bottom crashes in the market darlings of early 2018, crypto and cannabis.
Exploration stocks like Aben Resources Ltd. (ABN:TSX.V; ABNAF:OTCQB) and Great Bear Resources Ltd. (GBR:TSX.V; GTBDF:OTC) have given up either all of a substantial portion of earlier 2018 gains, but if I had to take a tax loss on either of the two, the former should be sold and the latter should be bought. I have been thoroughly unimpressed with the way ABN's news flow completely disappeared after the glory holes reported on Aug. 8, but remain mightily impressed with the continued great results from the Dixie project. (I currently own both issues and am down on ABN and up on GBR.)
This will probably be the last missive until Christmas so I wish all you who celebrate a Merry Christmas, and good health and wealth to you and your families.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.