Dancing to the Music

Early this morning our time the US Fed’s FOMC released their minutes of this month’s meeting.  As with previous announcements, analysts and markets around the world were hanging on any change in wording.  With all the poor recent economic data and rupturing of financial markets last month, next to no-one expected a rate rise this month.  Regardless, the all-important wording was scrutinised to determine when (if) they might do it.  And with the omission of a few key words the odds of a December US rate rise jumped from 34% to 47% and predictably shares and gold tumbled whilst the US dollar soared.  Interestingly this time though, shares resumed what was already a strong day, largely off Apple stocks, to shrug off concerns of the rate rise and finished higher (don’t forget 53% still think it won’t happen).  Also the silver spot price rebounded almost back to where we finished yesterday afternoon after a big surge before, and drop after, the Fed announcement.

With US and global economies still weak there remains no growth/inflation/employment reason to raise (listeners to the Weekly Wrap podcast know full well).  This could still just be a case of the Fed knowing at some stage you have to rip off the bandaid even if the wound hasn’t healed because you just make the underlying issue worse and worse.  But for now the free money continues.  There is an oft repeated quote from the then (now former) CEO of Citi, Chuck Prince made in 2007 immediately before the GFC crash which saw Citi, and most other, shares plunge and the world come perilously close to a complete financial meltdown:  

"The music is still playing, so we're still dancing."

Global central banks (Fed, ECB, BoJ, PBoC, RBA etc) are desperately cranking the handle of their ‘free money’ music boxes and the financial market monkeys continue to dance.  Ironically a rate rise could well be the trigger for the end of the music, but regardless when the music gets as out of control as it currently is, it will stop.  It always does.