There are few phrases as unwelcome as “told you so.” It should be left in schoolyards where it belongs. For that reason, we won’t say it.
But we’re going to come uncomfortably close when we say instead …
“We hope you took our advice!”
Recently we trotted out time-tested market wisdom to “buy the rumor, sell the news.” As we approached the long-awaited Federal Reserve Open Market Committee meeting at the end of July, we made the case here and here that “that even if the Fed cuts rates, stocks will take a beating.”
So, we said that selling the news would trigger the next big decline.
And so it happened. The Dow Industrial began the last week of July at 27,300. Then the Fed announced its new policy rate and the Dow fell four straight days. It finished Monday, August 5 at 25,700.
The S&P500 began the week of the Fed announcement at 3020. Then the Fed spoke, resulting in six straight days (so far!) of lower prices. The index finished the following Monday at 2844. That’s a loss of six percent from its all-time high set just last month!
The biggest drop in each of those markets – and the worst day in the stock market so far this year – came on Monday when China stopped supporting its currency, the yuan, letting it fall to the lowest level in 10 years.
President Trump responded, designating China a “currency manipulator.”
Which, of course, it is. As is the United States. And in fact, the Fed’s interest rate cut day ago was nothing other than an act of currency manipulation itself. We said as much, citing the Mises Institute, here, and went on to explain, “The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros. That’s what governments do in trade wars.”
And that is precisely the problem. Why should anyone put their faith in paper currencies that are mere insubstantial assertions of value and therefore so easily manipulated?
In fact, everything the Fed does is currency manipulation including interest rate manipulation, liquidity operations, paying banks interest on excess reserves, and both quantitative easing and quantitative tightening. The government’s fiscal behavior – borrowing and spending – can be described as currency manipulation as well.
We have warned many times (see here) that gold is the big winner in currency wars. It is because currency wars are conducted everywhere by legal counterfeiters of unbacked digital and paper money. No wonder gold has entered a new bull market. No wonder gold has now hit all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
How long before it hits an all-time high in the US dollar?