Did you know that Thursday was one of the most critical market days in recent memory, one that should be internalized by gold bulls, currency traders and equity investors alike.
It was the day the latest central banking "bait and switch" died.
What did we learn? The dollar is done tightening in any meaningful way. And the euro is done loosening.
In the past, we'd been told the opposite. The Fed was tightening and the euro was loosening.
But on Thursday, it became clear Mr. Market didn't believe the Fed's tightening fairy tale. The dollar dropped hard.
And the EU may be done with what "Money Druggie" Draghi once proclaimed was "anything it takes." Anything but aggressive loosening as later on Thursday Draghi proclaimed the era of rate drops was suddenly over.
Bait and switch, finished. Over.
Why did they play such games? One reason was because the gold market follows dollar policy. As long as the Fed could pull off the ruse that considerable tightening was underway, gold demand stayed down.
And central bankers hate gold.
But now the lies are unraveling. No more baiting people into the dollar. No more pretending the euro has "switched" to aggressive loosening.
This is all a big deal. It's fairly obvious that Fed tightening is over and this could finally let loose the Gold Bulls. Sure the Fed may continue to pretend that the "recovery" demands a tighter dollar to combat price inflation... but its recent 25 basis point hike crashed markets around the world. If the Fed can't hike by 25 basis points, how is it going to push rates up for the rest of the year in any meaningful way?
And "Druggie Draghi" has reversed course too.
Thursday, the Day the "Bait and Switch" Came to an End
It didn't look like it to begin with. The ECB cut its refi rate to zero from 0.05% and expanded negative interest rates from its deposit facility to 0.4% from minus 0.3% early on Thursday. It also announced it was expanding the size of its monthly bond purchases to 80 billion euros ($86.86 billion) and would include investment-grade, euro-denominated, nonbank corporate bonds in its purchases.
This was easing indeed! And the currency markets reacted hard, sending the euro tumbling to an intraday low of $1.0822.
But then came the big news.
Draghi held a news conference and announced a significant portion of easing might be over! The ECB would continue easing, he indicated, but not with rate cuts. Going into negative territory - NIRP - had subjected the ECB to considerable criticism because Euro banks ended up paying the ECB to hold excess liquidity overnight. Draghi had had enough.
You know how central bankers can be. So sensitive.
They also lie a lot. Now the truth is clearer. This is why the US dollar fell against every currency on the planet.
The US central bank is losing its credibility quickly. Investors are beginning to see that the US financial bubble is the largest one, with more downside. What’s more, many currencies are in their third, fourth or fifth year of steep decline against the US dollar driven by two factors: the popping of the previous commodity bubble and the Fed tightening myth.
Important stuff: The bear market in foreign currencies has run its course and it’s the dollar’s turn to dive again.
This may not happen all at once. Current trends may linger for a while. But ultimately the reversal will take effect, barring other moves by the most important players - the Fed and the ECB.
Our investment strategist Ed Bugos has a lot to say about this in a just-released alert focused on this critical shift. Also, in our upcoming newsletter as well. He makes some very clear trade recommendations based on his insights.
Now is a good time to subscribe to the TDV newsletter. If you're new to trading and investing and want to learn more about it, you'll be pleased to know that subscribers can download our just-issued "Beginner's Guide to Defensive Investing."
The Guide, which is an entire e-book, provides readers with the basics of our equity and options strategies and puts them into the context of business-cycle investing and Austrian economics. It's a simple but comprehensive read. We're not stopping with the guide however. We've been working round the clock on an upcoming analysis of the 2016 Jubilee Year and its significance throughout the spring and summer headed into an explosive October.
Many of the sociopolitical and economic trends that we forecast in 2015 via our Shemitah analysis are extending into 2016 with significant consequences around the world. These are man-made event after all, and if you understand the mystery religion and how it has been extended into world affairs, then you can unlock a treasure trove of understanding about world events and investment returns.
Hope you join us for what's going to be a wild ride. Many people are going to be significantly injured by what's going to occur in 2016 and, in fact, they already have been. But if you have the right insights and understand what to do, you can benefit tremendously. And, with our new investment guide for beginners, even if you are new to all of this, you can get informed very quickly and get profiting from all this chicanery imposed by the central banks.