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The Doc has been sitting back and watching for a few months as, despite a lot of jawboning over economic slowdowns, trade wars and Fed policy, not a whole lot has changed on the big picture.  One major point we’d like to stress is kudos to the Federal Reserve, who maintained a cool head in the midst of this seemingly high volatile time.

In one of our more recent write-ups, we did criticize the Fed for being too aggressive on their tightening policy and forward guidance of continued hikes (and this criticism was warranted given that the Fed ended up reversing their hawkish stance and eased just a week ago).  The Fed regained its credibility by not over easing (e.g. 25 bpt cut instead of the highly expected 50 cut) at this juncture and adopted a wait and see forward policy. 

We have consistently stated that trade issues were not a short term phenomena but would continue to a point of volatility over the long run.  So here’s the scoop…trade issues will continue to offer negative volatility to a highly over valued Equity market.  The US economy is showing signs of cooling but remains robust and global economies are depicting significant weakness.  At this point, the Fed is right on the curve and has played the situation well.

Unfortunately, rates have entered the near zero return for investors zone, so there’s not many opportunities to acquire yield except for “risk on” in an overvalued equity sector.  Trade will dictate market moves where, significant declines in equities and any weakness in economic activity will quickly be met by aggressive easing by the Fed. 

Because of global easing in monetary policy and rising uncertainty in global commerce…gold should continue to be an attractive alternative.


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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