Thursday, January 23rd, 2020 MST

A major recession on the horizon?

Warren Buffett is considered the most successful investor of our time.  One of the indicators that he follows is the stock market’s total valuation  to GDP, which is now flashing red.  Buffett’s Berkshire Hathaway currently holds in excess of $128 billion in cash.

The vertical grey lines in the chart are major recessions.  Note how Buffett’s indicator peaked a year or so before the last two severe economic downturns.  Now, though, the stock market’s valuation to GDP is at an even higher level.  Is there a major recession awaiting about a year out?

If there is, we can expect the Fed to begin massive money printing to forestall it or at least to soften its effect.  Past money printing binges by the Fed resulted in bull markets in gold and silver. Wait! The Fed has already swung into action with repurchase agreements, reverse repurchase agreements, and its $60 billion monthly T-bill purchases.

Repo and reverse repo operations are used to adjust the supply of banks’ reserve balances and to keep the federal funds rate around the target level, which now is 1.55%.  When the fed funds rate shot above 10% last September, the Fed swung into action.

As of January 1, the Fed had injected $255 billion with repos alone, more than double what it supplied during the 2008 World Financial Crisis.  The Fed has said that it will continue repo activity through February, but there is speculation that it may be extended to April.

It should be kept in mind that the September 2019 fed funds rate surge to 10% caught the Fed by surprise.  So, we really don’t know how much money will be created as the Fed “handles” this development.

Meanwhile, gold and silver are holding steady as the world seems to suddenly remember that they  have been money for 6,000 years and are likely to remain money.

 

 

 

A major recession on the horizon?

Warren Buffett is considered the most successful investor of our time.  One of the indicators that he follows is the stock market’s total valuation  to GDP, which is now flashing red.  Buffett’s Berkshire Hathaway currently holds in excess of $128 billion in cash. The vertical grey lines in the chart are major recessions.  Note how

Gold breaks out of bullish flag pattern

On October 24, 2019, I posted a bullish flag pattern, wherein gold appeared ready to break out to new highs, above the $1500 level.  It did not. Prices fell from there.  However, as prices fell, they did not violate the flag pattern.  They merely extended the pattern.

An interesting parallel 

Although the Fed denies that it has begun QE4, it continues to inject freshly printed money into the markets, supposedly to keep the fed funds rate in the FOMC desired range of 1.5% to 1.75%.  The Fed used three QE programs to avoid an economic crash in 2008.  Still, the 2008 crisis is commonly referred

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