Not a word was spoke between us,there was little risk involved
Everything up to that point ,had been left unresolved
Try imagining a place where it’s always safe and warm
Come in, she said, I’ll give you shelter from the storm
When Bob Dylan released this song 42 years ago it was on the album Blood on the Tracks. When the FED embarked on its QE1, QE2 and QE3 it was to respond to the blood coursing through the streets of the U.S. financial system. The U.S. banking system was threatened with insolvency and the FED‘s monetary injections sheltered the banking system from a storm of forced systemic liquidation of assets. QE1 coupled with a questionable TARP program did prevent a systemic liquidation but QE2 and QE3 I always believed were superfluous but in the land of counterfactuals it is an impossible point to prove.
But the program’s success will now be determined by the FED‘s ability to EXIT from the emergency liquidity injections. There was little risk involved as the FED balance sheet expanded at $85 billion a month. But as the FED has proclaimed, it is set on reducing the balance sheet as it worries about a labor shortage-induced bout of inflation. As Chair Yellen stated in the previous FOMC statement, quantitative tightening would begin “relatively soon.” It is time to let financial markets leave the safe and warm embrace of the FED‘s printing press. There are too many unresolved issues:
***Quick note on today’s trade: I always caution about buying GOLD during times of political uncertainty and war. Gold did hold its rally all day even as the U.S. equity markets rallied back from an early selloff in response to President Trump’s incendiary tweets directed at North Korea. I traded the gold versus the Swiss franc as both deemed to be are havens in time of uncertainty. But GOLD rallied to new highs even as the S&Ps recovered. I am putting this on the radar screen as it may be the GOLD that provides some shelter from the market sensing the inability of central banks to plan an exit from QE programs. GOLD closed today at the November 9 levels, which was Trump’s victory day when the GOLD failed to hold an early rally and closed $60 off its intra-day highs.
As far as the North Korean situation is concerned, it is tense but as an Asian expert informed me months ago, the key to any military action will be when the U.S. begins evacuating some of the 100,000+ U.S. citizens residing in Seoul, South Korea. As I wrote previously: The U.S. cannot just send in cruise missiles for the response from the North Koreans will be to rain missiles and artillery down upon Seoul resulting in hundreds of thousands of casualties. This is North Korea’s Trump card (pun intended). The U.S. would have to destroy North Korea’s retaliatory capacity and that would require tactical nukes. (Hopefully a path not followed.)
Does bombastic buffoonery not take a vacation? Anyway, pay attention to the GOLD as it approaches $1292, the high it made November 10 as a rally attempt failed. But I caution about buying GOLD as a hedge against the outbreak of conflict. A trade? Maybe, but of short duration. A hedge against the success of central bank policy outcomes? Absolutely.