Are The Wheels Coming Off The System?
By: Dave Kranzler
GoldSeek.com
Thursday, 17 May 2018
The dollar is said to be “soaring,” though I take issue with that characterization for now (see the chart below); 10-yr Treasury yields are also rising, though the yield on the 10-yr is only up about 67 basis points if you measure from January 1, 2017. What’s really going on?
Ten years of money printing by the Federal Reserve has removed true price discovery from the markets. The best evidence is the inexorable rise in the stock market despite the fact that corporate earnings have been driven largely by share buybacks and GAAP accounting gimmicks. Measuring stock values on the basis of revenue and revenue growth multiples would reveal the most overvalued stock market in U.S. history.
Now that the Fed has stopped printing money used to buy Treasury issuance and prop up the banks, the system is vulnerable to relatively small increases in interest rates. 20 years ago, when I was trading junk bonds on Wall St, a 60 basis point rise in the 10yr or a 200 basis point rise in the dollar index would have be a non-event. Now those types of moves permeate the current market and policy narrative.
In fact, the Fed is terrified by the Frankenstein stock market is has created to the extent that, since the sharp decline in August 2015, the Fed steps in to prevent the inevitable crash when a draw-down in the Dow/SPX approaches 10%.
With the dollar moving higher, gold is has been sluggish. Now the price is being attacked aggressively in the paper gold derivatives market. The propaganda is that a rising dollar and rising rates are negative for gold. However, gold had one of its best rate or return periods from mid-2005 to mid-2006 while the dollar was spiking higher. More troubling, the trading pattern in gold and the dollar reminds me of the same pattern in 2008 – just before the de facto financial system collapse hit the hardest (click on image to enlarge):
The Rest…HERE
