Fed Hints that Economic Downturn May Be Reaching the Bottom
In a meeting today with The Federal Reserve Board and Chairman Bernanke the topic of recovery from this most recent economic crisis was discussed at length. All parties agreed rather quietly that the worst may be over, given that GDP contraction and other figures are beginning to show signs that the descent is slowing and perhaps beginning to reach a floor. Early indicators show that this news is being taken quite well in other regions of the world, as it should be, but it’s easy to wonder just how much of this is truth and just how much of it is fluff intended to keep the American consumers, and other investors around the world, from seeing that the emperor has no clothes.
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In early trading the Nikkei is up over 4% as news of the meeting and the Fed’s sentiments about the economic situation. Given that Japan sees this announcement as a bright spot, US stocks will likely rally well into the later part of the week. I would imagine that the markets will open tomorrow with a good amount of momentum built up overnight and carrying over from the Asian markets. It will be interesting to see if the European markets will follow suit, since they have some very strong ties with the US economy in other sectors that Asian markets may not have.
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If the Asian market rally hold steady for the rest of the day and other global markets react similarly, it’s likely that a continued US rally will further deflate precious metals prices, especially gold, which is used worldwide by investors looking to hedge against economic downturns and woes. Perhaps this recent news and simultaneous global market reactions are the beginning of the gold dump that is typically seen in the early part of May and historically extends through the summer and into early fall. I wouldn’t expect silver to really see too much of a drop, even if gold does fall, because the gold to silver value ration is already so high. It would certainly however be an excellent opportunity for silver to shine and prove that it really has an independent personality and behavior pattern that’s not tied to gold like it has been in the past. Perhaps silver will really be given an opportunity to do just that in May and throughout the summer.
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All in all, while it may be too early to say, the general global reaction to the Fed’s meeting and announcement is quite interesting. Instead of banking on real profits and dividends, investors are now getting excited and pumped up over the idea that we may be close to a bottom, and stocks and other investments are earning them returns on this same premise. Before this global economic crisis occurred, stocks would usually only gain ground if the company was doing well and the earnings reports reflected their success. Nowadays, in this most unique global economic climate, companies that just barely hit or exceed their earnings predictions, even if they are reporting massive shortfalls compared to previous years, are really performing well for investors. The new definition of “good” performance is what used to be called “not as bad.” This idea seems to have taken hold worldwide, and it will be interesting to see just how this view of the market and the economy works out for investors in the mid and long terms.
