Hey There Income Hunter,
Last Friday was a monumental day.
It wasn’t a news event that moved markets, but rather the reaction to news that made the difference …
Powell tried his best to continue the hawk talk, but the cat was already out of the bag.
It just took the market a day to realize what the “real message” was. In the end, this single line in the Fed’s statement was all you needed to know …
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy.”
That was a pivot. Maybe not THE pivot, but the Fed board agreed to begin slowing down rate hikes.
A day later the inventors reacted with a vengeance.
Today we’ll take a look at a couple of the most powerful moves and where you should get on board.
Fed Speakers Confirm a Slowdown
There will be a barrage of Fed speakers this week. Judging from Monday, they have been tasked with softening the rhetoric.
As I have been saying, the bond market is fragile and the Fed cannot afford to have a UK-like crisis come to America.
First a headline from the San Francisco Fed Research team: The United States Monetary Policy Is Significantly Tighter Than the Fed Funds Rate Suggests.
Sounds to me like they are warming up the crowd for a pause in the rate party.
Housing Plunge Scaring the Fed
Recent housing data may be the culprit that has the Fed backpedaling.
Check out these numbers …
- Average rate on a 30-year mortgage is now 7.3%, the highest since 2000
- Mortgage demand at 25-year low
- Wells Fargo mortgage is business down 90%
- Credit card debt hit $930 billion, which is higher than 2008
- The average American’s savings down 72% this year
Used Car Prices Plunge
The auto market is another one to watch closely as a report yesterday showed a negative year-over-year change in prices …
What makes this so damaging to the economy is the amount of auto loans that were valued at much higher prices could now be in danger of default.
All this bad economic data will weigh on employment, debt defaults and, most importantly, tax receipts.
Tax receipts are dropping fast, which means Treasury bond issues are also rising and that is the 600-pound gorilla in Powell’s office right now.
His No. 1 job is to protect the government’s credibility for paying back its debt holders and, trust me, we are close to the point where this could blow up the markets quickly.
The Treasury announced last week that the budget deficit will rise to $2.7 trillion this fiscal year and could be higher next year.
THE Pivot Is Coming … What’s the Trade?
The trade is silver, pure and simple.
It is set up so well and has strung together a few higher lows and higher highs, as you can see in the chart below …
I sold my long positions in both the iShares Silver Trust ETF (SLV) and the iShares Gold Trust ETF (GLD) for nice returns.
I am waiting patiently for a pull back and I think we may get one on Thursday when the CPI report is released.
I expect another number near 8%, which should trigger a down trade in risk assets, but the severity of the growth picture is more important right now.
Traders should look to buy SLV under $20 if they get the chance. If it closes below 19 they can stop themselves out for a small loss – but once SLV takes out 21.31 it will not look back and $30 will be the first target.
Bring It Home
The trade of the decade will be to catch this pivot back to QE and the signposts are flashing that it is near …
Gold and silver are always the first to breakout and anticipate the Fed pivot, and I believe Friday was the trigger for it.
The other macro force at work is the tremendous demand for gold by the eastern central banks, which are designing an alternative to the US dollar.
The plan will include gold and silver to be held in a basket of currencies and hard assets that will remove the weaponization of a single reserve currency.
Stay tuned for more as the week unfolds and the CPI report is released on Thursday.
Until then have a happy Election Day.
Live and TRade With Passion My Friends …
Griff