Markets May be Tied Too Close to the Fed
The Federal Reserve has signaled that it may be done cutting rates, for now at least. Of course, the central bank could change its mind, and quickly, if the economic data stream shows further deterioration or if a U.S./China trade deal appears to be a no-go. Thus far, the Fed appears to be trying to maintain its patience, and the central bank could also see good things ahead for the U.S. economy.
Another matter could be speaking to investors right now.
The Fed has been pumping in billions of dollars into the market in recent weeks following a liquidity problem. Bank overnight lending operations, commonly referred to as Repo, have benefited from injections from the NY Fed for several weeks now. The injections are, by design, intended to assist in keeping the key interest rate within the Fed’s currently desired target of 1.5% to 2%.
The Fed has, thus far, injected some $175 billion into the repo market for a total allocation of about 4.5 percent of the Fed’s balance sheet. This repo injection could potentially coincide with the recent rise in the S&P 500 of nearly four percent. The Fed has, however, suggested that its liquidity injections and the rise in stocks are not related. In fact, the Fed has discussed on more than one occasion how the effects of its repo operations and the three rounds of easing it has formalized in and around the Great Recession are very different.
Many market participants, however, may see a lot of similarities, not only in the operation itself but in the net effects of the operation. The Fed’s most recent actions could potentially be called QE4 by some investors, and could keep stocks and risk assets on the offensive in the months ahead.
Whatever the case may be, however, stocks are not likely to continue going up indefinitely. At some point, the dam will break and the bears could see a significant rush lower in price. For those that got into the decade-long rally early, this may not be a big deal. For those getting in now or recently, however, it could potentially be portfolio- shattering.
Now is not a time for guessing.
Now is rather a time to be allocating funds to alternative asset classes that have the potential to outperform during the next global recession. Now may also be the ideal time to add assets that can potentially hedge against rising inflation, a weaker dollar and the large amount of economic and geopolitical risks currently being seen. Now may simply be the right time to add a large allocation of gold. This alternative asset class not only provides investors with significant and unlimited upside price potential, but it may also provide an effective hedge against accelerating inflation or a sharply weaker dollar. Given its long history and reliability, an increasing number of investors may look to gold to protect their wealth as the next recession takes hold.
Now, right now, may be the ideal time to add physical gold to your portfolio. Adding this key asset class has never been easier, and perhaps never been more important than it is currently. Just pick up the phone and speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have and can even walk you through the process of buying gold using an IRA account.
Don’t wait for the next major stock market collapse or for gold to take off without you before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started right away.Tags: central bank, economic data stream, Fed, liquidity problem, repo market, rounds of easing