I'm trying to think of the last time the Fed had an emergency weekend announcement. I can only think of the one on October 6, 1979. This was perhaps the most important announcement in Fed history. For those who understood it, it marked the end of the inflationary 1970s, and put into place the building blocks of the stock and bond bull markets that would be soon beginning, and may still be with us. (Or are they in the process of ending?)
Then there was the Sunday evening TV announcement by President Nixon, shutting the gold window and ending the last tie between the USD and gold. This was on August 15, 1971.
So, weekend announcements by the Fed are very rare. Last night, Powell announced a cut to nearly zero in official rates along with hundreds of billions in new bond purchases on the open market, starting today, Monday. "We're going to go in strong", Powell announced. There are no longer any limits to purchases. You can see this as an act of panic on the Fed's part.
If the October 1979 Fed told the markets that they would work to end inflation, last night was the opposite. They'll do whatever it takes to be as monetarily loose as possible. The 1971 and 1979 announcements took months to make their effects felt. This should be the same. I would expect continued volatility over the short term. But over time, I'd look for the bond market --the long end-- to finally enter a bear market. We may have already seen the lows in the 30-year yields.
For stocks, we may have seen the peak of this sector. Old people told me when I was young: "Stocks will never boom in times of high inflation". Since inflation started down in the early 80s, the stock bull market ruled. But remember, the stock market didn't start to turn up until August of 1982. This was nearly three full years after the October, 1979 Fed announcement. It took a while for the market to truly believe the Fed policy was the real thing. It took almost exactly two years for the bond market to begin its bull market, which is also still with us.
So I'd expect more volatility for the foreseeable future. I'd keep my eye on two assets: the 30-year bond yield and the gold price. Both are set to rise, but how long this takes is unknown.
This past week was the worst for gold since 1983. That year was one in a process of a deeply changing trend. While gold hit its highs in January of 1980, for a few years afterwards we saw high volatility. This was part of the overall change from the 70s bull market to the bear market that took hold in the 80s and lasted until 2000/01.
I think we are still seeing gold working its way out of the post-2011 correction and into a renewed bull market. I think we'll look back on this time and see it as the turning points of the 40-year-old stock and bond bull markets. These have been going on so long that nearly all investors can only remember stocks and bonds in great bull markets. As for timing, it probably won't happen all at once, but I'm betting that both these bulls are on their last legs. They are transitioning from bull to bear, over time.
There is one other asset sector I want to see recover: mining stocks. Will we have a repeat of the trend which started in the mid-1960s, with rising mining shares alongside of falling or stagnant general stock averages?
Every major change in trend is accompanied by tremendous volatility. This is what we've seen in every sector. It's what we'll most likely continue to see.
One Last Message: There is a limit to how low interest rates can fall. But the price of gold can soar to infinity.
Chris is a money manager and he has been sharing his insights with clients and readers since 1974. He regularly writes and publishes The Weber Global Opportunities Report, a subscription-only newsletter. With a focus on precious metals investing, the Weber Global Opportunities Report covers a variety of topics that should be of interest to Global Gold subscribers and clients as well.