The Fed decided to not raise rates today. Smart decision in my opinion. Reasons:
A. The U.S. economy is not yet strong enough.
B. Overseas economies, namely Europe and Japan, are too weak.
And …
C. The U.S. dollar is too strong, due to capital inflows from the above weaker economies, not to mention due to geo-political strife in other parts of the world, which in turn, is sending capital fleeing into our dollar.
But what does it mean for the markets? Right now, just knee-jerk reactions. There are NO trend changes.
By that I mean stocks are still headed lower, after a brief euphoric rally today … gold is headed higher … and ultimately the sovereign debt crisis is still on track to start enveloping the globe, and soon.
Interestingly, even though the Fed did not raise rates, interest rates on all debt maturities from the very short-term T-bill and Eurodollar rates (rates for dollars on deposit in European banks) … and Treasury notes and 30-year bonds – are all creeping higher!
That’s a testament to the sovereign debt crisis that looms directly ahead. After all, why aren’t rates in the free market falling on the Fed news?!
Unfortunately, however, you should have just been stopped out of your ProShares UltraShort Dow30 (DXD) position on the markets’ knee-jerk bounce after the Fed announcement. Not to worry. If not out, for whatever reason, exit your DXD shares as soon as possible.
Same for ProShares Ultra VIX Short-Term (UVXY), which was stopped out moments ago. Not to worry here either. You will get back in UVXY and DXD soon, for mark my words: Once the bounce in the equity markets is over – and it should be over very soon – we should see the start of a very violent leg lower in the stock market.
Gold is starting to firm up nicely, so hold UGLD, with your stop in place. Also hold your long position in UNG.
Stay tuned and best wishes,
Larry
