The central bank driver world macro structure is in full can-kicking mode. The fuels that have built up are almost too numerous to mention, though some issues continue to be recycled as if they were needed to explain the latest potential spark.
The New Boss Same as the Old Boss
Janet Yellen was on tap this week to lead her first official open market committee meeting as Fed Chairwoman. The perception of Fed confidence is crucial at this time in particular. In light of the recent policy tapering and the recent volatility in the emerging markets, her script will be watched carefully by all.
In terms of emerging or developing markets the volatility has been intense, to say the very least. Argentina has defaulted once again on its sovereign obligations, devalued its currency, and caused a painful split between the official and street value of its currency.
For precious metals investors, the lesson from the Argentinian currency discrepancy foreshadows the likely future of precious metals valuation as the physical or street value divorces from the official paper price.
Middle Eastern Europa
We have also seen massive undertakings in Forex, most notably the shock overnight in the revaluing of the Turkish Lira. While the Lira may be a small market relative to the U.S. dollar, it lies central, almost as a mini reserve active in the Middle East and, of course, immediately adjacent to Europe.
Not to mention the recent recommendation out of the Bundesbank that European peripheral sovereigns should be expected to bail in themselves on the backs of its citizens. The Cyprus bail in template is being applied in lieu of the politically unacceptable austerity tourniquet.
In the U.S.
The debt ceiling redux is back and will once again pit US policy makers up against the Federal Reserve. Although the two entities are connected politically, they must maintain the appearance that they are not. We should look for jawboning from the Fed, which in turn could offer some support to gauging confidence for the new Fed Chair.
Housing is Rolling Over Again
Housing is cooling off by a host of measures. Prices have begun to soften, mortgage applications are down. Also, murmuring about huge shadow inventory estimates have begun again, ultimately putting more pressure on central bank policy decisions.
The president has just announced a new Treasury IRA, the myIRA, by which citizens will be given the "option" to save via these Government and, therefore, faith-based instruments. It is truly surreal that something like this has come to pass. The ramifications are truly ominous, if not genius, from a propaganda standpoint. Could a central bank that directly, arbitrarily, and selectively determines the rate of interest on bonds be any less independent?
China Rolling Listing
The "China issues," ranging from massive ghost city expansion, inflation and domestic lending bubbles, have been pervasive. Also, despite recent listing in their repo markets it is like most of the issues above - just one more "convenient" narrative to float when the time is right.
These are Not Black Swans
They are some of many possible trigger points, though none of them are truly random. And therefore, they are capable of inducing the kind of inferno the financial system is fragile to. A true black swan would be devastating.
Response will ultimately be more stimuli, more than likely in the form of a bank bailout or perhaps a European bail in.
The dollar could gain in value before a flood comes back in.
Stuck in a Range
In the absence of a true black swan, prices for gold and silver remain firmly range-bound. However, one potential positive is the latest stable performance on recent equity volatility and a few recent financial data releases.
Nevertheless, the price action dictated by the big commercial banks painted a huge upward resistance at $1270 for gold and $20.60 for silver. Until these levels are breeched, the speculative and momentum chasing community will be largely absent.
Because of the bearish options structure, precious metals investors should not be surprised if and when we get another washout before prices move higher.
At the end of the day, it is important to remember that the success of intervention comes directly from its credibility. And this requires that participants or investors be convinced that the lender of last resort is always ahead of the game.