Federal Reserve: Willingness To Tolerate Higher Inflation

I want to talk about what happened with the Federal Reserve this week because I think that is the most significant news of the week. In fact, I think it's the Federal Reserve's statement on Wednesday and the comments from today that's the real reason we had the 300 plus point rally in the Dow Jones Industrials Average today that's why we had the 400 plus point turnaround in the Dow on Thursday. I think it's all about the Fed and its willingness to tolerate higher inflation.

Are Rising Rates Bullish For The US Dollar?

I know people say that rising interest rates are good for the US Dollar. That's rising short-term interest rates which in theory are good for the dollar not rising long-term interest rates.

Gold & Gold Stocks

Gold continues to pullback. Remember we got above 1350 briefly and we couldn't break out and now here we are going back down to 1300 but one thing that looks good to me are the gold stocks.

US Dollar Strength: The Current Drivers

The strength of the US Dollar I think again is being driven by the rise in bond yields. The yield on the 10-year US Treasuries is back up to 2.97 percent, still below three percent but I don't think it will remain below three percent for long.

Stocks: Sell In May And Go Away

There is an old Wall Street adage sell in May and go away and the reason for that saying is that seasonally the market tends to produce better returns in the first four months of the year January through April and then historically beginning in May and throughout the summer the market could generally go down and I think the time to buy back in is typically September , October.

you know there's a lot of big down days down in September, October so kind of get out of the market in May, go away and then come back later in the year and buy back what you sold.

Well today was May 1st and it looked like a lot of people weren't gonna wait that long and they were quick to sell.

The Only Thing That Can Stop A Bear Market

I do think there's a good chance that in February we began a long overdue bear market. Technically we haven't gone down 20 percent so Wall Street still calls it a correction and recently we've had a bit of rally which to me looks like the correction in the bear market.

The only thing that would stop the bear market from actually materializing would be a change of policy by the Federal Reserve which I wouldn't rule out because I do expect the Fed to change policy.

I expect the Federal Reserve to reverse the rate hikes and to go back to zero interest rates. I expect the Fed to launch another round of quantitative easing, QE4. So if they do that before we're in an official bear market then we may never have an official bear market so I just don't know how long the Fed is gonna wait before showing its hand.