This article is a guest contribution from David Rosenberg, Chief Market Economist, Gluskin Sheff.
THE DOW-GOLD RELATIONSHIP
That is what the chart below displays … and: (i) if this ratio ends up retesting the two fundamental lows that it has achieved in the past; and, (ii) if we are correct in our assertion that gold goes to $3,000/oz, then what we would be talking about here is a Dow 5,000 trough at some point down the road.
FED ON HOLD FOR A LONG, LONG TIME
“Many predict that the economy will take years to return to full employment and that inflation will remain very low. If so, it seems likely that the Fed’s exit from the current accommodative stance of monetary policy will take a significant period of time.”
That was the conclusion from the just-published San Francisco Fed newsletter – titled The Fed’s Exit Strategy for Monetary Policy. Indeed, when you go to the rule-of-thumb that reveals statistically the relationship between the funds rate, inflation and the output gap, we estimate that the equilibrium policy rate right now is -5%. Yet it is 0.25% and we have many a Fed bank president clamouring for rate hikes. And remember, bonds do not go into bear markets unless either the Fed is tightening monetary policy or threatening to do so.
A CALL TO ARMS — PART II
A few Fridays ago, I blasted out a ‘Call to Arms’ diatribe and I apologize for ruining anybody’s weekend with it. So, I thought I would send out Part II. If truth be told, a weekend with Gary Shilling, Nouriel Roubini, Marc Faber, and Fred Hickey does one thing – it sharpens one’s wits and at a personal level it gets my wheels spinning prompting me to get more of my macro and market thoughts down on paper.
