gold party

WELCOME TO THE GOLD PARTY

After being speechless and in a mild state of shock for the past 5 hours I have some thoughts on today’s market action:

  • Today’s FOMC announcement was a tacit admission by the Fed that the economy is not nearly as strong as it appears to be using certain widely lauded data points (consumer confidence, housing starts, etc.)
  • The economic projections really sealed the “dovish deal” (the no taper headliner was simply an appetizer….) http://www.forexlive.com/wp-content/uploads/2013/09/Economic-projections.pdf – FOMC members are still seeing sluggish GDP growth and persistently low inflation
  • The Fed now appears to be targeting a 6% unemployment rate which means QE for longer than markets had been pricing in, and no rate hikes until well into 2015
  • Yellen appears to have locked up her status as next Fed Chair today (I believe this is what caused gold to get going a few minutes before the 2pm release of the Fed announcement)
  • Bernanke continues to play a clever game of poker with the market as he ensures that he will go out on top with a market making new highs and plenty of animal spirits flowing all around

The unintended consequences (side-effects) of today’s Fed decision will be far reaching, and likely quite disastrous. However, we must play the cards we are dealt and trade the market that is in front of us.

Gold/silver and the miners are clearly the go to space for the next several days (most upside potential due to highly negative sentiment before the announcement):

Sector_sentiment_9.17.2013

Shortly after the FOMC announcement I mentioned to Tommy “GDX was the most hated sector heading into today, could easily be up 10% today“…..and it shortly was! I see GDX heading back to the 31-32 area within 1-2 weeks:

GDX_9.18.2013

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Gold will likely run into some slower going between $1375 and $1400, however, I view $1425 as a minimum short term objective.

Meanwhile, US Treasury bonds likely have a bit more upside over the near term. However, the short end of the curve was the real beneficiary of today’s Fed decision. The long end is likely to hit a floor in the 3.6%-3.7% yield area on the 30-year:

image (1)

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As far as equities are concerned the best insight I have is that it looks like Bernanke is hell bent on blowing the biggest bubble in the history of world financial markets. Don’t fight the Fed and be humble about your market opinions…….