In today's Morning Newsletter, I wrote about what I think happens next in the market. The answer is simple. I don’t know.
Sometimes, “I don’t know” is the right answer. Be wary of snake oil salesmen selling “certainty”—they are selling something that isn’t certain at all. Time will reveal their true stripes.
With that said, we are faced with two fundamental scenarios right now. It’s essentially a binary proposition.
The first scenario is that our unelected Fed Overlords do the right thing and decide to taper.
In this case, the US Dollar likely strengthens and we get more of what has occurred over the last six months. Gold prices would continue to collapse. Oil prices would come down. It would basically be a pro-growth tax cut on consumption. US growth would continue to accelerate. It would clearly be a good thing for this country.
The second scenario is the Fed pulls a Charlie Brown, misses the football altogether, and decides against tapering.
If the Fed chooses to go down this road, I would obviously expect the US Dollar to weaken. Commodity prices would head higher. It would resemble what we’re witnessing in today’s trading with higher oil and gold prices.
Of course, this would all be a big negative for the US economy. We would see growth slow again, as we have seen multiple times over the last decade. We’re basically left with these two options. I have no idea which way we’re going to go. No one does, with the possible exception of Jon Hilsenrath and Ben Bernanke.
Unfortunately, there are huge constituencies who are on their knees right now, begging and pleading with the Fed not to taper. This anti-tapering cabal includes big bond managers like Bill Gross and charlatan editorialists like Paul Krugman.
For the record, I don’t think it’s possible for Bill Gross’ Easy-Money-Forever! campaign to be anymore public than it already is. It’s actually become nauseating. Nevertheless, the failure or success of this begging cabal is beyond my personal control.
Here’s the bottom line: I want to see a strong US Dollar here in America. I want to see rising interest rates. I want to see confident US consumers carry the day in this country. It would be a very sad sign if we get back in a position where Gold pawn shops and other regressive, dollar debauchery indicators start gaining momentum.
Look, Bill Gross and Paul Krugman can beg Bernanke & Co. all they want. It's their right as Americans. In the end, they may even “succeed.” But you can be sure any success they find would be a Pyrrhic victory.
As I recently wrote, the biggest threat to American Purchasing Power and sustainable US economic growth remains our unelected, omnipotent Central Planners at the Federal Reserve devaluing our currency. Dollar destruction has never and will never put America on a sustainable growth trajectory.
Enough ranting. It’s Canada Day. I’m just a man in a room overlooking a lake in Thunder Bay doing my best to manage risk for my firm’s clients, employees, and my family.