KINGSTON, NY, 10 JANUARY 2019—On September 19, 2018, two days before the S&P 500 peaked, we warned Trends Journal subscribers to prepare for an "Economic 9/11" terror strike.
Beyond our forecast for a slowing global economy that was artificially inflated, as were equity markets with negative/zero interest rates, plus $26 trillion of central bank Quantitative Easing policies, there were signals from the U.S. Federal Reserve that they would raise interest rates in December, which it did, and three to four times in 2019.
The financial world was hooked on unprecedented injections of monetary methadone that central banks injected into the system following the Panic of '08 that created a $250 trillion debt bubble.
Thus, with rates expected to rise, not only would the cost of servicing the debt, much of it dollar based, increase, but the cheap money flowing into equities that artificially inflated the bull markets, would dry up.
Within weeks of our forecast, markets across the globe continued their downward dive and U.S. equities, which were riding high, would fall into bear and correction territory.
With U.S. equities falling deeper into correction territory and the tech-heavy Nasdaq plunging into bear territory, down over 20 percent from its high, Treasury Secretary Steve Mnuchin on Sunday, 23 December, called the CEOs of the nation's six largest banks to get their assurances that they were liquid and able to make loans.
But rather than Mnuchin boosting up confidence, the stock market tanked the following trading day, with the Dow losing 651 points.
Later that Monday, Mnuchin hosted a call with President Trump's Working Group on Financial Markets, known as the "Plunge Protection Team," and markets then began their resurgence.
FEDERAL RESERVE HYPOCRISY
Back in February 2018, with the U.S. equities still on a sharp upward drive, there was a sudden reversal following favorable U.S. jobs and wages reports, which prompted the Fed to signal it would aggressively raise interest rates.
Subsequently, in our 6 February Trend Alert, we warned of the one key factor that would crash the artificially injected markets: "It's interest rates, stupid."
And throughout 2018, as U.S. interest rates rose and the markets gyrated, President Trump ratcheted up the rhetoric calling the Fed policy to raise rates "crazy" and "out of control."
Either bowing to Trump pressure or being two-faced, on 4 January, following the most upbeat jobs report in over a year and the strongest year-on-year wage growth since the Panic of '08, rather than signal a rate increase, as he did last February following a strong jobs/wage report, Fed Chairman Jerome Powell did an about face. He said the Fed would be "patient" in raising rates and was "listening carefully with sensitivity to the message that the markets are sending."
Yes, as we had long forecast, "It's interest rates, stupid."
TREND FORECAST: The "Economic 9/11" has been postponed, but not eliminated. As world economies sink, central banks will inject more cheap money into the system. As the economic health of these money-drugged induced economies worsen, demand for gold, the ultimate safe-haven asset, will increase. We maintain our forecast that gold prices' bottom range is around $1,200 per ounce and prices will not spike until gold solidifies above $1,450 per ounce.