Bernanke Leaving Just In Time – January 3, 2014

Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Bernanke Leaving Just In Time

The calendar year may have changed, but the game remains the same. As we head into 2014, another orchestrated (debt-driven) miracle will be required of the Fed and/or the U.S. government to keep the U.S. economy on the move – even if the results are a repeat of the economic mediocrity witnessed in 2013.

Why another miracle? Interest rates are on the rise, cramping the consumption of a widely accepted U.S. staple: credit. Rates are creeping higher – not by choice (certainly not the Fed’s), nor by economic improvements, as some have proffered. Excessive borrowing and lack of foreign creditor support are the more likely culprits. The Fed’s appointed task will be to manipulate rates back to more stimulating levels, introduce an alternative means of liquefying consumers pocketbooks, or face the consequences. Whatever the path chosen, an inflationary debacle coupled with a sizeable check to the optimism in stocks is not out of the question.

MWM 14, 1-3 Box ScoresIn the first days of trading this year, stocks shed a token of their recent gains. The declines were perhaps a consequence of profit taking, which would be putting it mildly. Gold rallied in response to either the slide in stocks or their pre-existing oversold condition. Bonds were flat, unable to rally from fresh interim lows, and the dollar index managed to stage a rally off of the pivotal 80.0 level. That’s a level for the dollar – a tolerance level, if you will – that European organizations have chosen to defend. In essence, they maintain an artificial cap on exports from the region to the U.S. It will be only a matter of time before their “jawboning” makes the transition to more direct forms of euro debasement (i.e., either debt or legislated monetary fixes).

Aside from these macro issues, a more immediate development should turn a few heads – U.S. holiday sales. At best, sales rose a reported 3.5%, year over year. Online retailers once again stole market share from the brick and mortar chains, and now comprise a little over 25% (up from 20%) of overall sales. But, with consumers cut off from incrementally larger amounts of credit due to the rate situation, not to mention bloated inventories (largely responsible for 3rd quarter GDP gains), severe discounts of anywhere between 40% and 75% were needed to attract shoppers. These in turn threaten U.S. corporate profits. This is a condition that will worsen, to the chagrin of stock operators, if the Fed can’t finagle the means liquefy consumers. Given that fact, it’s going to be an interesting few months as we start the year – for both the markets and the precious metals.

Best regards,

David Burgess
VP Investment Management
MWM LLLP

2014-09-26T16:55:14+00:00