What Happens WHEN Central Banks Lose Control?

 

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                                         What Happens WHEN Central Banks Lose Control?

The two questions I am hearing the most are, “What is going to happen when Central Banks slow down or stop their printing?  What is going to happen when markets (the stock market, bond market, currencies market and the physical asset market) are allowed to discover the REAL price for things?”

Since the end of 2009, we have been in a manufactured, Central Bank-driven economy and market.  That is what I want to discuss in this week’s Market Situation Report.

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The thoughts this week:

Are Central Banks losing control?  Did Japan lose control of their markets in the past
25 trading days?

What might happen if QE is turned off?  I’m having fun with the word ‘if’, because
eventually it will.

What assets will be the hardest hit? 

– Lastly, I want to understand where the money might be flowing, so that we can get there
before all of the money pushes into it.

Let’s take a look at some research that I’ve pulled together over the past 25 days.  This will give us some insight on what might happen.

Something significant happened on May 22nd.  The world was introduced to the word ‘taper’.  It was the idea that the Central Bank of the U.S. may start to taper the amount of money that they print to buy treasures and mortgage-backed securities.

I wanted to see what has happened since May 22nd in the market.  I checked municipal bonds first, because most people consider those to be low-risk and low-volatility.  It’s the place where you want to put your money if you are 60, 70, or 80 years old, because it’s going to be there.  Right?

However, look at the chart below.  Municipal bonds got crushed.  They went from 110, down to 107.  Although it may not seem like much, when you lose 3% in one month, and you’re only making 4% for the year, that’s a significant move.  People clearly moved out of municipal bonds thinking that the Fed may pull back on its money printing.

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Next, I wanted to look at what happened to mortgage rates.  Real estate is absolutely sky-rocketing here in the Silicon Valley, Manhattan, and other places around the country.  Although it is not happening evenly, it is happening.

What is going to happen when rates go up?  Look at the vertical blue line on the chart below, which represents May 22nd.  This price chart shows the rate of an average 30-year fully amortized mortgage, which sky-rocketed up.  That is not a good sign, as it is going to make housing more expensive.

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Then, I wanted to look at some of the major assets of the world.  I looked at the S&P 500, the U.S. Dollar, Bonds, Commodities, and Gold.  Look at the chart below.  The blue vertical line is the day “tapering” was introduced to the world; the price chart below shows that stocks did go down a bit.  The Dollar really moved down, though.  People moved out of Bonds, and those went down, too.  Interestingly, Commodities moved up a tiny bit from May 22nd.  The same was true for Gold. 

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The next thing I wanted to review, were all major stock markets from around the world.  I checked the U.S., Europe, Africa, Asia, and Latin America.  The results are shown in the chart below.  The U.S. is still the best looking horse in the glue factory.  Although it fell, it wasn’t by much.  The second best was Europe.  It also fell, but it wasn’t that bad. 

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Africa fell hard, Asia fell harder and Latin America got crushed.  Leveraged gains are no longer found in Latin America.

One of the last places that I researched was currencies.  I looked at the U.S. Dollar, the Euro, the Yen, and Gold.  I understand that Gold is not one of the larger currencies of the world, but I have it on the chart below because the world is moving quickly towards Gold, and not away.

How do I know the world is moving toward Gold?  As the price of Gold falls, the demand goes up.  There is a very clear correlation with the two.

As the chart indicates below, the Dollar fell.  Interestingly, the Euro went up.  As bad as Europe seems to be, people still moved back into the Euro over the U.S. Dollar. Take note people.

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The Yen also went up.  Lastly, people moved into Gold a little bit.

Where does all of this information lead?  It leads to the question of, “What are you going to do when you have to invest without Central Banks?”

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It has only been 33 days since May 22nd, but it gives us some insight to where you might want to move your money and where you might want to take your money out of.

On Wednesday, June 19th at 5 PM PDT, I will spend a great deal of time looking at where money is flowing into, where money is flowing out of, and you might expect when printing slows. It is coming and you may want to be prepared when Central Bank printing slows.

I know I want to know. If you want to know too, you may want to register for tomorrow’s Special Webinar titled, “When The FED Loses Control”.

Click here to find out if seats are still open.

Together, we are growing and protecting your wealth,

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A word from RC – Investing since March 6, 2009 has been easy.  Just buy the S&P 500 and forget about it.  But what happens when Central Banks stop printing?  Who is going to buy the market?  Join us for this exclusive Webinar to find out if your money is safe.  You can do that here.

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