The BOJ (Bank of Japan) apparently understands that this economic recovery is nothing but rubbish as they lowered rates into negative territory. The currency wars are now raging, and the race to the bottom is gathering momentum; one nation after another debases its currency in the hopes of gaining a competitive edge. All this does is to buy a little extra time. The markets can continue trending higher even though economic conditions are far from optimal as the main driver is hot money. Everyone witnessed the monster rally the markets experienced after the BOJ lowered rates. While many will state the Fed has run out of bullets, it still can create money out of thin air and use that to prop the markets up. Central bankers worldwide have now embraced this strategy. The masses are nowhere near revolting so that this game could continue for a very long time. In the “devalue or die era”, most nations have no choice but to follow the leader. At some point, there will be a divergence, but on the same token, you might not be around to see that day.
The Fed is already backpedalling from the strong stance they took last year. It is hot money that saved this market by creating an illusion of stability, and it’s only hot money that can maintain this illusion. The Fed is fully aware of this, they have two options, maintain an environment that propels companies to take on more debt and use this money to purchase even larger amounts of their shares; this artificially boosts the EPS and also helps drive the market as the funds corporations are allocating to share buybacks is monstrous. In fact, it is set to surge over $1 trillion in 2016; a sum that is larger than the GDP of many nations. The second option is to take an even more aggressive stance and come out with another stimulus program.
The dollar pulled back quite a bit recently, and Gold is trying desperately to indicate that a bottom is in. In the long run, Gold makes for a good investment and the currency wars are going to pick up steam. Mass psychology and contrarian investing dictate that one should start paying attention to markets when they are out of favour. And the entire precious metals sector is out of favour with the masses right now. Until Gold close above $1200, it is going to be tied in a trading range, with the possibility that it could still trade down to $1000. Only a monthly close above $1200 will indicate that a bottom is likely in place. As the currency wars intensify, the primary beneficiary is going to be the stock market as the markets will readjust and price in the inflation factor. The astute investor will thus, use strong pull backs to open positions in strong stocks, some examples are COST, MCD, RTN, OA, CALM, etc