* Mario Draghi of the ECB sent shockwaves through the foreign exchange and currency markets today * He didn't deliver the stimulus traders expected * The big question is, will Janet Yellen surprise the market by failing to raise rates? * The ECB did slightly lower interest rates, and extended QE if it will be needed * Draghi's goal is inflation * He equates 2% inflation to "price stability", when prices in Europe are stable now * The big divergence that everybody is trading on a tightening in the U.S. at the same time Europe continues to ease * The reality is more likely to be the reverse * If anything, the European recovery is just getting started, and the U.S. recession is just getting started * As a result of Draghi's decision to hold off on stimulus, the euro was up more than 3% on the day * The dollar was weak across the board * The stock market, including the DAX, fell accordingly * Both U.S. stocks and bonds experienced a selloff * Cheap money has been fueling rallies all over the world and when the ECB did not deliver it triggered a selloff in the U.S. assets * The Dow rallied over 2000 points off its September low based on rate hike expectations that did not materialize * We also got a key reversal in gold * Overnight it made a new low, but closed substantially above that level * The euro is still weak, it is just not as weak as the market expected * The best environment for gold when the weakest currency is the dollar * I wanted to address Janet Yellen's testimony today responding to questions * Yesterday, Yellen referred to Q4 GDP forecast consensus as 2-1/2% * She did not even realize that on that same day the Atlanta Fed reduced their forecast down to 1.4% * I think the real shocker will be that the Europea Q4 GDP will realize greater growth than the U.S. * Yellen was asked about Citibank's recent projection that the U.S. will experience a recession in 2016 * Obviously, she can't agree with the projection, as this runs contrary to the Fed's rhetoric * Asked as a followup, what tools the Fed would use in the event we did experience a recession in 2016, Yellen responded that the Fed would all the tools it has always had * She said, if we did raise rates, then we would lower them * Plus, she said it could use the asset purchase program (QE) that "has worked so well in the past * If QE worked so well in the past, we would not experience a recession in 2016 * You can't call QE a success until rates are normalized and the balance sheet shrinks back down to pre-crash levels * If the Fed finds that it has to launch QE4 in 2016 because it failed to reach "escape velocity" * How many QE's does the Fed have to initiate before it admits that it doesn't work, and is actually impossible to end without a great deal of pain? * This loss of credibility in the Fed will precipitate a dollar crisis * Anther thing that was ignored by Janet Yellen and the press was the six-year low in the ISM number * The market is focusing on the service sector, yet the most important jobs are the goods producing jobs * Lat month, we got a higher than expected jump in the non-manufacturing number:59.1 * This month we wend all the way down to 55.9, which is dangerously close to contraction * If we get the service and the manufacturing sectors both in contraction, that will be a total recession, supporting Citibank's 65% probability forecast may look optimistic * Since 2016 is an election year, a recession will not bode well for the Democrats' economic success narrativeOur Sponsors:* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Ask this episode

“What did the council decide on item 42?” — answered with the speaker and the moment.

Transcript

Related