Fed Nonsense, Dumb Money, and a New Reco!

SCT Issue #239

Note: Please read this issue in its entirety – Larry

It seems that once again, the majority of investors are waiting with bated breath to see what Fed Chairwoman Janet Yellen will say about interest rates later today after this month’s policy meeting concludes.

Let me be perfectly clear then: Whatever Yellen says will have nothing but a very short-term impact on the markets. Reason: The Fed does not control interest rates and it certainly doesn’t control any of the free market trends that are already in motion.

Perfect example: Long-term interest rates have been creeping higher for months now, in anticipation of an eventual Fed rate hike.

But short-term rates have been ignoring the Fed and falling. Sliding in fact to record lows!

Why? Because the market for short-term rates is acting on the winds of the strong trends already in motion: Deflation and flight capital. There’s a lot of scared money in Europe and a good deal of it is seeking safe haven in Eurodollar deposits and U.S. Treasury bills, avoiding European debt and the long end of the interest rate curve.

That is pushing short-term rates lower and has been for some time now, even as more and more investors come to expect a Fed rate hike later this year.

So that right there tells you who is in charge. And it’s not Yellen. It’s the markets themselves.

So will there be any new developments when the Fed issues a press release later today? I doubt it. Whatever Yellen says, you’ve heard it before. There will be no surprises.

Will there be a Fed rate hike come September or October? I’m mixed on that. My models tell me there will be, but if Yellen is smart, she will not raise the Fed’s short-term rate until next year.

Why? It’s simple: If the Fed raises rates this year …

A. It will send the already strong U.S. dollar further into orbit, and crush the euro. That in turn will …

B. Hasten the collapse of Europe and …

C. Put deflation on steroids, increasing the amplitude (intensity) of the supercycles that are soon about to converge in October.

If, on the other hand, she ends up delaying a rate hike, the trends will remain the same. A strong dollar, a weakening euro, and increasing deflation.

In other words, the trends are the trends, and what the Fed does or doesn’t do can only – at most – affect their amplitude. The Fed can never change the trends or the cycles already in motion.

I tell you this because I don’t want you to be part of what I call “the dumb money” – the analysts and investors who hang every trading and investment decision on what policy makers do or don’t do …

Do that, and you are guaranteed to end up underperforming the markets at best, and far more probable, end up in the same class as the “dumb money,” with losses that will flood right over you.

The trends in the markets right now are intact, and will be intact after today’s Fed meeting. Those trends are …

A. For the precious metals and most commodities, lower – much lower in the weeks and months ahead. Sure, there will be occasional rallies, but the trend is firmly lower.

The only exception is natural gas, which I’ll get to in a moment.

B. For the U.S. dollar, much stronger going forward. The reasons should be obvious to you by now.

C. For U.S. equities – they are topping short-term – but long-term remain very robust for a dramatic move higher heading into 2017.

The Fed cannot change those trends. At most, all they can do is react to them, and cause some wild short-term moves in the wake of policy announcements, as the “dumb money” tries to figure out what the Fed is saying or desiring.

Now, let’s turn to gold: It’s still acting very heavy, unable to rally much at all. Short-term cycles point lower into August 4. But I cannot rule out a reaction rally up to roughly the $1,130 level at this time, due to how oversold it is and how many shorts are in the market.

Either way, I am happy with the current positions. If gold falls, fine, I will look to bag profits as we approach an August 4 cycle low. If gold rallies instead into August 4 – a short-term cycle inversion – then I will simply recommend that you add to existing positions.

Either way, gold’s downtrend is intact and substantial new lows lie ahead.

NEW SUBSCRIBERS: Wait for my signals to enter any new position in gold.

For the Dow and S&P 500, everything tells me our markets are getting ready to roll over. But here too I cannot rule out one more short-term rally.

You have inverse ETFs on the Dow Industrials and the S&P 500. Hold them with your protective sell stops in place, good till cancelled.

NEW SUBSCRIBERS: Wait for my signals to enter inverse ETFs on the broad stock markets. Also keep in mind that whatever correction we see will be temporary. As noted above, the long-term prospects are for the Dow to more than double heading into 2017.

In natural gas, you should be long the United States Natural Gas Fund (UNG) with a protective sell stop good till cancelled at $11.64.

ALL SUBSCRIBERS: If you own UNG, it is time to add to this position. If you do not own it yet, it is time to buy. See the specifics below.

Natural gas now has solid support at a multi-pivot line just below current prices at the $2.80 level. Meanwhile, cycles and other technical patterns tell me natural gas’s next move should be to the $3.15 level. Clearly, that would be very positive for the United States Natural Gas Fund (UNG).

Here are the specifics of what I recommend:

Best wishes and stay tuned …

Larry