........Originally posted March 18th - Written by Nathan McDonald for Sprott Money [8]
Stocks are pulling back ahead of a greatly anticipated FED meeting. Investors are holding their breath as they wait for news from Janet Yellen on whether or not the FED will give more indication of future interest rates.
It is widely anticipated that the FED will remove a key word “patient” from its statements. This is in reference to the timing of an interest rate hike and the FED’s previously dovish stance to raise them.
The market believes that the FED will begin more strongly indicating that a hike in rates is on the horizon. Of course, levels will still be historically low, even if a rate hike was to occur, as they are now resting at 0.25%.
That is a big “if”. Although the FED is likely just jawboning and pandering to Wall Street, they themselves have said time and time again that they would only raise interest rates if the economy was recovering and firing on all cylinders. Clearly, despite what the mainstream media would have you believe, it is not.
One of the key indicators that the FED bases economic recovery on is the housing sector. The new American Dream as some call it, others consider it a nightmare.
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US housing starts have recently collapsed, shattering the false belief that the housing market was indeed recovering. Housing starts for February collapsed by 17%, the biggest month over month drop since February 2011.
In addition to this, we saw a decline of 184K units, the biggest nominal fall since January 2007.
As usual, the spinmasters are chalking this up to a historically bad winter. Granted, the east coast did see an unusually bad winter. Yet, how do they explain western housing starts which fell 18.2%! 1.2% greater than the average.
The answer is, they can’t. This simple fact will be swept under the rug and the MOPE will continue on as it always does. Perhaps some investors have become wise to this fact and this is the reason why gold and silver experienced such sharp gains as of recently.
Gold experienced a huge $1.2 billion bid [9], causing it to spike higher, bringing silver along for the ride. While at the same time, crude crumbled, showing the true surge, as gold is typically connected to the price of oil.
Despite a falling housing market and a weakening underlying economy, the FED will very likely do just what Wall Street wants and remove the word “patient” from its guidance. Despite this play on words, the FED knows the true state of the economy and they know that if they were to raise interest rates in any meaningful way, then it would rapidly undo all that they have worked towards since the economic crash that began in 2008.
Perhaps this is the right thing to do, since it would finally cause the market to swallow its medicine and begin the much needed recovery phase. However, if history has taught us anything, it’s that the FED will do anything and everything in its power to keep the game of musical chairs going.
A bigger and greater crash, than we’ve ever seen before is on the horizon. How long until we reach our destination is the true question and unknown, but reach it we will.
........Originally posted March 18th - Written by Nathan McDonald for Sprott Money [8]