Happy St. Patrick’s Day. Apologies for not posting yesterday, life got in the way.
So yesterday, Janet Yellen basically told everyone who listened that the US will not see any meaningful economic growth going out to 2019-2020. That really means we have become Japan with at the very least a lost decade.
The Fed chief says growth will be averaging 2% for the foreseeable future, just as the Fed predicted for the last several years, but the actually growth was much less than that.
The confirmation of this being a horrible report is that gold prices soared $40 and silver was up $0.55 after Yellen’s press conference.
While institutional equity buyers bid up the stock market after the announcement on the premise that no rate hike equals a rate cut as the Fed said there will only be two rate hikes this year instead of the projected four hikes prior to the meeting.
The move in stocks assumes the Fed is confirming that all of the world’s central banks will more than likely have to create more QE to goose the “wealth effect” since there will not be any growth.
The Fed is the only central bank not actively injecting cash into the markets on a daily/monthly basis. The Fed is rolling over some debt from its previous QE operations. So the thought is they will have to get active sooner rather than later.
It’s my belief we will see more panic selling in equities as institutions need to liquidate what they can to pay off credit instruments that will be called in by the banks and other lending institutions.
Look at Pershing Square’s Bill Ackman as the poster boy for this move. Ackman’s hedge fund lost more than $1B in value via his Valeant holdings on Monday. The drug company stock fell more than 50% on fears the company would need to file for bankruptcy due to defaulting on its huge debt load.
I do not believe this is a one-off and it shows it’s more widespread than the energy sector, which many see as the canary in the coal mine for high-yield debt.