Here's How You Know The Economy Is Not Growing Fast Enough … The Federal Reserve is acting cautiously. If they're concerned, chances are you should be, too. Federal Reserve Board chair Janet Yellen announced on Wednesday that the Fed's benchmark interest rate – the federal funds rate – will remain unchanged … The statement by the Federal Open Market Committee, the central bank body responsible for adjusting interest rates, showed an increase in optimism, omitting a reference that was in September's announcement to fears about "global economic and financial developments." But the apparent improvement in the Fed's outlook came despite its acknowledgment that the "pace of job gains slowed and the unemployment rate held steady." – HuffPost Business
Dominant Social Theme: The Fed is done with quantitative easing.
Free-Market Analysis: The Federal Reserve again decided not to hike. But officials put out a statement that a rate hike was more likely at the end of the year. This is in line with a recent Daily Bell analysis that you can view here.
We concluded in this analysis that gold may be the best safe-haven play and were pleased to see a recent post by trend watcher Gerald Celente that makes some of the same points.
Celente provides a "big picture" presentation that shows definitively that the world is about to be flooded with yet more liquidity – as if US$200 trillion or so in the past half decade or so is not enough.
Capitalism is dead. It has been replaced by Bankism, one of our Top Trends for 2015. The principles of free market economics, price discovery and fiscal discipline have been replaced … When [current bubbles burst] and economic chaos prevails, gold, we forecast, will emerge as a safe haven asset.
Celente's analysis is certainly buttressed by the HuffPost Business article presented above. Conditions, we learn, are not ripe for a rate hike NOW but soon they may be. Here's more from the HuffPost article:
The FOMC will next meet on Dec. 15 and 16 to decide whether to raise rates. And in a less expected development, the Fed's Wednesday announcement clearly left the door open to an interest rate hike in December.
… No matter what decision comes in December, the news will not be great. Even if the bank maintains current interest rates — a move that employment advocates might have welcomed a few months ago as a decision to err on the side of jobs and wage growth — it would now be considered a sign that the economy is worse off than even those advocates had warned.
Here is why: If Fed officials — who, partly by virtue of their role, are far less sensitive to concerns about inadequate job growth than many full employment advocates — think the economy is too sluggish to raise rates, then the economy is really in trouble.
If one wanted to write a perfect script to support our recent analysis regarding Fed actions, this would surely be it. This analysis of ours borrows from an article by Thorsten Polleit entitled, "The Fed Can't Raise Rates, But Must Pretend It Will."
Polleit is chief economist of the precious-metals firm Degussa Goldhandel GmbH and as such he obviously has a hard-money bias. He is "talking his book" in this article. Nonetheless, he made some specific convincing points.
The Fed, he wrote, intends to continue to emphasize the possibility of a rate hike while never making one. Right now a rate hike would have a worldwide impact on markets and the economy. But if the Fed is successful in its strategy, markets and bubbles now in play may deflate on their own.
He called this the "Waiting for Godot" strategy – and as in this famous play, Godot never arrives. Nor will a hike. The lack of a hike may be seen in a negative light by the markets, as it will be believed that the Fed has essentially lost control. This alone, over time, may depress equity prices and deflate bubbles that have arisen. That's the idea anyway.
Now, you see, the Fed has all but confirmed this thesis. Each element appears clearly in the Fed's latest statement: a warning that a hike might be imminent NEXT time; the assertion that the markets are aware that "the news will not be great" no matter what the Fed decides and that it will be evident the economy is "really in trouble," if the Fed declines to act in December.
The emphasis on potential economic trouble is what Fed officials seem to be hoping will damp perceptions of better times ahead. They hope in this way they can puncture the bubbles that have arisen due to the insane amount of stimulus that central banks have been producing.
The HuffPost article also offers other ideas on how at least some stimulus can be delivered even without monetary actions. One significant action would be to pressure other countries to keep their currencies cheaper than the US dollar.
Legislative actions can work as well. The current budget deal may help keep safe an estimated 700,000 to 800,000 jobs as it provides perhaps US$100 billion in new spending.
Thus, even though the Fed is not showering more easy credit on the economy, stimulus lives in another form. And though the Fed has backed away from excessive money printing (so it maintains) Gerald Celente provides us a missing piece of the monetary puzzle by showing us that the world will continue to be awash in monetary stimulation no matter what.
Here's more from his article:
Happy Halloween! It's Central Banks Rig-The-Market Week … It has become a Halloween ritual. A year ago, the Federal Reserve ended its quantitative easing bond-buying scheme, which started in 2008 and ballooned its balance by $3.5 trillion.
In response, world equity markets, which had been volatile all month in anticipation of the end of QE3, continued to fall. Some 48 hours after the Fed's announcement to end its money pumping scheme, in a tightly coordinated central bank maneuver, the Bank of Japan showered the sagging markets with a heavy dose of monetary candy.
… Here's how CNN summed up the news on Halloween, 2014: "Those who stayed in the market despite the turmoil earlier in the month are having an extra Happy Halloween … . Like the house that gives out the giant candy bars to trick-or-treaters, the Bank of Japan gave the market an extra large boost Friday by announcing additional stimulus measures.
Celente does us a great favor here by providing us with a worldwide frame of reference regarding liquidity. Rates are moving down around the world. The European Central Bank recently said it might be more aggressive with its US$1 trillion euro quantitative easing program. A negative deposit rate policy is on the table that would presumably encourage money to circulate with more velocity.
The People's Bank of China has cut interest rates for the sixth time since November, Celente reports, and also lowered mandated bank reserves. Both Bank of England Governor Mark Carney, and Swiss National Bank Vice Chairman Fritz Zurbruegg recently wrote opinion pieces indicating that they stood ready to "respond as needed to market turmoil."
Gerald Celente also believes the Bank of Japan will shortly lower rates, just as it did last year. And this leads to his conclusion – already mentioned – that sooner or later gold will reap the rewards of central bank monetary debasement.
While, as stated, we've drawn the same conclusion regarding gold, it occurs to us there are other opportunities to consider as well. Markets may be uncertain and prone to significant bubbles but pre-public offerings (we have mentioned this many times before) in select sectors may attract significant capital.
Certainly, the cannabis sector may be seen as quite compelling, given that the entire planet seems on the cusp of an industry that will rival tobacco and alcohol in size and perhaps surpass both of them.
Justin Trudeau's ascension to prime minister has excited speculation about the size of the business opportunity that may soon be available in Canada. Trudeau intends to legalize cannabis, creating an industry opportunity worth billions.
Such a business opportunity surely has not been available since the end of Prohibition nearly a century ago. The cannabis opportunity is perhaps the most unique investment available given current market conditions. Of course, as The Daily Bell's chief editor Anthony Wile pointed out in his recent editorial, investors should be very careful about how and at what point they enter the market.
The Daily Bell was priviliged to conduct an interview with Gerald Celente recently for publication at TheDailyBell.com. If you have not done so already, we encourage you to subscribe now to The Daily Bell Newswire to be sure you receive notification as soon as the interview is published.