The first meeting of the Federal Open Market Committee (FOMC) on Wednesday 2022 is a critical event that, if the wrong message is sent, could be remembered as the watershed moment that catalyzed or averted a financial crisis.
As economic and stock market indicators urgently turn red in unison, the Fed’s response is essential.
the VIX (INDEXCBOE: VIX) The Expected Volatility Index climbed to 34 yesterday, on par with February 2020, preceding this 30% downside correction.
S&P500 (INDEXSP: .INX), NASDAQ (INDEXNASDAQ: NDX) and DJI (INDEXDJX: .DJI) futures all point to declines greater than 1% ahead of this morning’s open.
The Fed has pegged the value of cash to near zero through its interest rate policy, so the massive liquidation of assets if the market perceives rates to rise and the withdrawal of stimulus will insulate the Fed from its relevance if it tries to raise rates.
Especially since the imminent end of mortgage forbearance already puts 10 million owners on the verge of foreclosure and eviction, at a time when rents have skyrocketed.
Conversely, if the Fed succumbs to the petulance of the market’s taper tantrum and announces any sort of deviation from the “end of easy money” commitment, its credibility takes a serious hit, and the proverbial box is pushed back a little further down the road – for the umpteenth time in more than a decade.
To say that the Fed is between a rock and a hard place is not too dramatic. Proceed with the withdrawal of stimulus and rate hikes, and both Powell and Biden are branded as the architects of what is sure to be an acceleration in the fall of stock market valuations. Proportionate bombing in the next election will ensue and Democrats will suffer.
Stay the course, damn the torpedoes, and the only question is how far can valuations dip into negative territory?
Unlike in 2008, Fed policy is now likely to catalyze a mortgage and housing crisis, and one can only speculate what tools remain in the rusty old box?
Not only that, but if the Fed’s stock market guarantee is withdrawn, then the extreme overvaluation of US tech stocks will soon become evident even to schoolchildren, and the Great Liquidation of 2022 will intensify.
And where will all that money go if stocks and their derivatives become a higher risk than even mining exploration?
Sustainable assets become the logical answer if history is to repeat itself. But this time around, the fantastic bull market of the past decade has been accompanied by a healthy injection of imaginary assets, like NFTs and Cryptos, which is paving the way for a second wave of financial mayhem among that ilk.
That’s why early indications are that gold and its associated metals, both precious and industrial, show little sign of valuation degradation, even during the most intense selling of the day on Monday, when the Dow Jones was down more than 1,000 points.
Like all of my fellow fossil-monetary gold boomer dinosaurs (better known as “goldbugs”), I am, of course, stupid and living in the past.
History, in the current configuration of the metaverse, does not repeat itself.
Except for the inconvenient reality in which it inevitably happens.
I know I’m not the only one silently supporting the collapse of this monstrous, ethereal, and utterly bogus financial house of cards.
I have always preferred difficult and unpleasant realities to imaginary utopias. And it would be nice to see a return to a higher degree of democracy than the sham we currently have in the developed world.