US Stocks/China Growth: Risk off for Grains?
Jun 20, 2013
US Federal Reserve kept monetary policy on "hold," but presented an optimistic economic outlook, that will keep the debate alive about "tapering" the $85 billion a month in asset purchases. In a nutshell it seems if "inflation" rises to the 2% Fed target and "unemployment" falls to 6.5%, the Fed will at that juncture start to discuss RAISING short-term interest rates. As of right now however that seems to be a million miles away. More nearby however may be the "tapering" of the $85 billion in asset purchases each month. Since the Fed can no longer take the Fed fund rate much lower it has opted to use "asset purchases" to further stimulate. When will these monthly purchase STOP has become the topic of heated debate. From what I heard from Bernanke, in a perfect world, monthly asset purchase will be no more by the time unemployment falls to 7% and the inflation rate has stabilized around 2%. Bottom-line, the Fed wants to take their foot off the gas pedal as the car is picking up speed...but by no means do they want to put their foot on the brake. And if "consumers," for some reason elect to hit the brakes (stop spending) on their own accord then the Fed may be forced to once again hit the gas pedal. As you can see, this has become a very tough juggling act, and just how the Fed plans to get the proverbial "Genie" back in the bottle will remain the topic of great speculation and the driving force of the market for several weeks to come. Moral of the story, we have seen severn consecutive days of triple digit swings in the US stock market...expect extreme volatility to continue in the coming weeks as the Fed tries to shift gears. I should also point out that Chinese manufacturing data released overnight fell to its lowest levels in the past nine-months. The thought of Bernanke and crew easing off the throttle and the Chinese economy continuing to struggle is causing a "risk-off" mode across the board: Crude Oil down $3.00; Gold down over $90 per ounce to NEW 2-year lows; Silver down $2.00+ to levels not seen since late 2010; the S&P down $30, US dollar higher!!! To get my detailed report, CLICK HERE, Thanks.