It seems that the de-escalation of the trade war—and perhaps the prospect of an orderly Brexit—have Mr. Market convinced that it’s clear skies and calm seas for the rest of the year and on into 2020. It’s “risk on.” Wall Street indices are hitting new highs. Talking heads on financial media are grinning as they say things like, “Welcome to the melt-up.”
All of this could turn 180 degrees on a tweet.
There are so many black swans flocking around the global economy, I can’t describe it as anything but unbelievably stupid for an economist to say “buy, buy, buy,” because there is no risk in equities today.
That said, I have to say that for now, the party on Wall Street does look set to carry 2019 to a spectacular climax in the few trading days left in the year.
But there’s more than one way to make money on a melt-up.
I don’t think most investors in the US and around the world agree that there’s “no risk” in the markets. I think most are well aware of how fragile the highly interconnected global economy is.
Not only does this mean that the party on Wall Street can end abruptly, it means that safe-haven demand should remain strong.
Yes, the conventional wisdom is that risk assets and safe-haven assets should move in opposite directions. And we are seeing some knee-jerk selling of gold on days when the Dow and S&P 500 soar. The belief among the paper gold traders in New York that happy days on Wall Street are supposed to be bad for gold prices could become a self-fulfilling prophecy. But…
We’ve also seen that both stocks and precious metals moved sharply higher in 2019.
That doesn’t mean that a “Santa rally” in the major US stock indices couldn’t push gold prices down in the weeks ahead. I’m not predicting that, but it could happen.
What I am saying is that the easy-money policies of central bankers around the world—including the Fed—are a far more important and durable fundamental than the trade war, Brexit, or other such factors.
We saw evidence of this when the actual, so-called “phase one” trade deal was announced last Friday and gold prices rose.
That tells me that the most important trend I’m speculating on remains intact, strong, and likely to last.
This time, it’s the gold bears who are “fighting the Fed.”
That’s why I’ll be happy to buy more excellent gold and silver stocks this Tax Loss Season, should I be given the chance to do so.
And I’ll be even happier if a perception on Wall Street that there will be nothing but peace and joy on earth throughout 2020 causes a major gold retreat. I may finally get some of my stink bids filled.
That’s my take on this crazy year-end market action we’re seeing.
Caveat emptor,
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