The Flynn Effect

Gold prices staged a dynamic rally, rife with extreme volatility, as news emerged revealing that former national security adviser Michael Flynn has pled guilty to lying to federal agents. Much more concerning is the fact that he will be providing help with the current investigation regarding the administration and Russian collusion.

According to Bloomberg Politics, Flynn will be “providing cooperation that promises to take special counsel Robert Mueller deep into Donald Trump’s administration.” Michael Flynn describes a series of “conversations with the Russian ambassador to the US, Sergey Kislyak, in late December as the Trump team prepared to enter the White House. The talks were instigated by a very senior member of the Trump team.”

The repercussions of this morning’s news were market shattering with the Dow Jones industrial average quickly losing almost 300 points before staging a modest recovery. As of 2:30 PM Eastern standard time, the Dow is currently off by only 70 points. This event naturally moved the focus away from current legislation and attempts by Congress to convert the tax cut proposal in the law.

The beneficiaries of today’s event were safe haven assets such as treasuries and gold. Gold traded to a high of $1292 per ounce, before leveling out for the trading session. February gold is currently trading up seven dollars at $1283 per ounce.

Quite obviously what traders and market participants witnessed today was the proverbial “knee-jerk” reaction at its best. The immediate and overdone selling pressure that entered U.S. equities markets, as well as the sharp spike up in treasuries in gold, were dampened as cooler minds began to prevail.

Of course, the initial and real concern is that information might be forthcoming that could significantly harm President Trump and that he most certainly could be in serious legal troubles. This of course, if it is proven that he did collaborate with the Russians regarding the U.S. presidential campaign.

Traders, investors, and market participants will have the entire weekend to gauge the information and glean any new details that come out of Flynn’s cooperation with the special prosecutor who is overseeing the Russian probe.

While it is still too early to come to any definitive conclusions, the fact is that the special prosecutor now has an “inside man” that can shed real light as to the actual account of what transpired between the current administration and the Russians.

Despite the fact that nothing tremendously substantial could come out of Flynn’s testimony, it seems more likely that the prosecutors believe that he has damaging information. This would be the type of information that would warrant cutting Flynn a deal.

The only certainty here is that this investigation is going to be a root cause for much upheaval and volatility within the financial markets. It could also remove the focus of a major tax cut from the immediate future. Those two facts together could spell the end of the Trump Rally.

Wishing you as always, good trading,