New Fed and 10 Surprises

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New Fed Chair

The big news last week was not that the Federal Reserve kept interest rates unchanged, but that President Trump showed Chairman Powell the door. He named Kevin Warsh as the next chairperson. On the same day the precious metals began their decline. On last Friday, the descent continued, but neither gold nor silver approached their 50-day moving average. What the media failed to mention was the tech and AI stocks also fell. In fact, the market corrected so much that it almost wiped out the months gain.  

With that said, the market showed a positive month and the January Barometer was up. There was no Santa Claus rally, but the first five trading days of the new year was positive. The market registered gains in 2 of the 3 indicators. As for the metals, Marsh is considered a hawk on inflation. We saw the decline as an attack by the fiat gang. We mentioned this point in our last piece. Goldman called for gold to hit $5400. No one saw it happening in one day. Maybe the target price was the signal for the attack? Speculation is just an opinion like we all have a butt crack. 

Anyway, we turn our attention to Mr. Marsh. He stated in the past that inflation is due to money printing. He declared that tariffs are a one-time mark up. We disagree on the latter. We agree on tariffs. We just disagree on the application of the tariffs. We stated that tariffs need to address one important industry. We cannot correct overnight the decades of errors. You go one step at a time. In 2010, Warsh gave a speech on the Fed's Independence. He backs the concept. This may have caused him being named the chairperson when Trump became president? President Trump chose Powell. Now, the president says that was a mistake. President Trump has stated that he wants 3% target for inflation and rates at 3% would make a neutral point. When we look at how the Fed has operated recently, this could be a tough target. Nevertheless, this number could emerge as the new Fed target?

Fed Dilemma

Last year the Fed purchased 84% of all T-bills to finance the economy and back government debt. With $10 trillion coming due in 2026 in maturing bonds, the Fed needs lower interest rates to keep the national debt from ballooning. The conundrum is that lower rates makes the dollar fall in value and that makes inflation surface. If reports show inflation picking up, Marsh may raise rates. If he does, he will feel the president's anger. This tells us the rally in the metals is far from over.

10 Surprises

Every year the Bank of America publishes a list that they call "10 surprises" for the new year. This bank is more honest about the economy and metals than the fiat masters, JP Morgan and Goldman. Here is a look.

1) US growth could surge in 2026.                                                                                                                2) China will allow their currency to strenghten. (3) This will help global economics. (4) However, this      aspect could cause the US dollar to be reevaluated.                                                                                5) Market indexes will get a mix of stock leaders beside the mega caps.                                                      6) Energy, defense, infrastructure gain traction.                                                                                            7) England wins the FIFA World Cup.                                                                                                          8) Gold will rise another 17%.                                                                                                                      9) Global ETF assets grow fast to $24 trillion in value.                                                                                10) Money flows to emerging debt markets in fix income assets...Peace