If You Thought the Fed Was Bad Today, Just Wait
'Trade war' tensions are rising again... If you thought the Fed was bad today, just wait... The 'stealth bull market' in gold continues... Your chance to watch a replay of Doc's market briefing ends soon...
Don't believe the hype...
While the White House shamelessly teases markets with the promise of an imminent trade deal with China, real evidence suggests tensions continue to rise.
The latest evidence arrived last night, when the U.S. Department of Justice formally charged Chinese tech giant Huawei with a laundry list of serious crimes – including bank fraud, wire fraud, conspiracy to defraud the U.S., and theft of trade secrets, among others – just days before trade talks are set to resume. As the Wall Street Journal reported last night...
In the cases unsealed Monday, federal prosecutors accused Huawei of violating U.S. sanctions on Iran and of stealing trade secrets from a U.S. business partner, portraying the company as a serial violator of U.S. laws and global business practices.
The actions included charges against Huawei's chief financial officer, Meng Wanzhou, who is being held in Vancouver after Canadian authorities arrested the executive because of a U.S. extradition request.
The charges are the latest to accuse the Chinese government or Chinese companies of stealing intellectual property from U.S. firms through a combination of cyberattacks, traditional espionage and other means. U.S. officials have warned that China's corporate raiding of secrets, which some government estimates value into the hundreds of billions of dollars in damages annually, represents a pre-eminent national- and economic-security threat.
For its part, a Huawei spokesman said the company denies all allegations. Meanwhile, the Chinese government called the indictment "unfair" and "immoral," and urged the U.S. "to stop the unreasonable suppression" of the company.
Now, before you send us any angry e-mails, let us be clear...
We aren't implying that the company – or the Chinese government, more generally – isn't at fault here. As we've noted before, they're almost certainly guilty of all this and more.
But if you believe any of this increases the chances of a trade deal between the U.S. and China, you're likely to be disappointed.
Buckle up... It could get far worse before it gets better. And that's anything but bullish for stocks or the global economy.
Yesterday, we noted that Federal Reserve officials are now close to announcing an end to their quantitative tightening ('QT') program...
And this follows a similar decision earlier this month from the Fed to prematurely halt its interest rate hiking cycle, as well.
This is a huge shift...
Remember, as recently as October, Fed Chairman Jerome Powell stated that short-term interest rates remained "a long way from neutral." This meant the Fed would continue to raise interest rates at least several more times before stopping.
And just a few weeks ago, at the Fed's December policy meeting, Powell reaffirmed that the Fed's QT program was on "autopilot," implying that it would continue at a minimum until the end of 2019 as scheduled.
But all it took was a 10% stock-market decline in December for the Fed to abandon its plans and return to its easy-money ways.
We're not surprised...
While the Fed's official mandate is to "promote maximum employment and stable prices," the reality is that the central bank's M.O. for decades now has been to ease monetary policy at the first sign of stock-market or economic weakness.
The result has been rampant asset-price inflation and three consecutive bubbles over the past 20 years, each bigger than the previous one.
But if you thought the Federal Reserve was 'dovish' now, just wait...
If the White House gets its way, the Fed's policies could soon become even more extreme. From a separate Wall Street Journal report late last week...
A top White House economic adviser said Thursday President Trump will seek to fill two Federal Reserve Board vacancies with nominees who don't believe a rapidly expanding economy has to fuel faster inflation.
"The White House wants highly capable, competent people who understand that you can have strong economic growth without higher inflation," White House National Economic Council head Lawrence Kudlow told reporters...
Mr. Trump has repeatedly criticized the Fed in recent months for raising interest rates. He wondered aloud last year if he could fire Chairman Jerome Powell, whom he had picked for the job, though advisers weren't sure if he was serious.
In other words, the president wants to appoint new Fed members with an even easier approach to monetary policy.
Two voting Fed members already share a similarly dovish view: New York Fed President John Williams and Fed governor Lael Brainard... which means adding two more could immediately shift the central bank's policy decisions in favor of even more inflation.
It's likely no coincidence that gold has been moving higher...
A little more than a month ago, we noted the strongly bullish price action in the metal. As we wrote in the December 20 Digest...
For the first time in nearly three years, all the necessary requirements for a massive rally have fallen into place. And while it may not feel like it, gold has been moving higher.
Since its bottom in mid-August, gold has quietly rallied more than 6%. And as you can see, as of today, it has now broken back above its 200-day moving average for the first time since falling below it early this year...
The 'stealth bull market' has continued since then...
This morning, gold broke out to a fresh eight-month high of more than $1,300 an ounce. And yet, most investors still haven't noticed – or simply don't care.
To borrow a phrase from our colleague Steve Sjuggerud, gold is "cheap, hated, and in an uptrend." Meanwhile, the fundamental reasons for owning it have never been stronger.
In short, if you still haven't taken our advice to put a small portion of your savings in gold, what are you waiting for?
If You've Ever Wanted to Make a Living Reading, Writing, and Thinking, We Want to Hear From You
Stansberry Research is hiring an assistant editor for the Stansberry Digest. We're looking for someone with an eye for quality content and a passion for investing.
This is an opportunity to communicate daily with one of the largest lists of financial readers in the world and work closely with Digest editor Justin Brill and the rest of the Stansberry editorial team.
The ideal candidate lives and breathes the world's markets, is a voracious consumer of financial news and analysis, and can think and write clearly. Formal experience is preferred, but may not matter, depending on the candidate.
Please note... We're located in Baltimore, Maryland, and this position will be full-time and on-site. If you're not hardworking and curious, don't apply. If you don't love finance and investing, don't apply.
If you're interested, please send us an e-mail at digesteditor@stansberryresearch.com. The subject line should read, "I'd like to join the Digest team." In the e-mail, please include the following:
- A basic resume. Tell us what you've done before. We admire people who aren't afraid of hard work or odd jobs.
- A writing sample. Tell us about an investment or trading opportunity you like today. Please note, we're interested in the fundamentals of your best idea, not something that's based solely on charts. Macro ideas are welcome.
No other information is necessary. And if someone you know would be a great addition to the Digest team, please feel free to forward this posting.
New 52-week highs (as of 1/28/19): Essex Property Trust (ESS), Kirkland Lake Gold (KL), and Nuveen Municipal Value Fund (NUV).
In today's mailbag, one subscriber shares a "boots on the ground" report on the economy... while another is "conflicted" about what Steve and Doc are saying about the market today. What are you seeing out there? Let us know at feedback@stansberryresearch.com.
"On Sunday I flew from Denver to Ft. Myers on United and the flight was only 2/3 full. I flew down the first week of January and that flight was basically full. As 'Doc' Eifrig has pointed out previously, when flights are no longer full, that can be a sign that the economy is slowing." – Paid-up Stansberry Alliance member Rick R.
"So, we're conflicted, do we bail on Steve's Melt Up and become a prepper (bury cash in the back yard) for the bear market on the horizon, or do we hold on to the Melt Up and sideline Doc for now. We're so confused, 'Calgon, take me away!'" – Paid-up subscriber R.W.
Brill comment: As both Steve and Doc have explained, it doesn't necessarily have to be an either/or decision. Assuming you can afford to take a little bit of risk, there's no reason you can't bet on the Melt Up with a small portion of your portfolio, while still getting "defensive" with the bulk of your savings.
Doc explained this idea in further detail during his online briefing last week. If you missed it, you can still watch a replay for a limited time right here. But don't delay... This video will only be available until tomorrow at midnight Eastern time.
Regards,
Justin Brill
Baltimore, Maryland
January 29, 2019