Profit-Taking: The Fed, Housing and Ukraine
It was a good day for profit takers, since they are facing a pair of unresolved matters and the climb up in the gold price has been long and strong.
The FOMC begins its meeting tomorrow in Washington, and it is a foregone conclusion that tapering will continue. Nevertheless, there is always a certain percentage of unbelievers that will hope for the absolute best or fear the absolute worst, depending on their nature.
The Fed must taper now, even if it slows the pace (which we do't believe it will). Investors do not like uncertainty. They'd rather know actual bad news is happening than to wait and wait and wait in fear. Franklin D. Roosevelt was so spot on when he said "We have nothing to fear but fear itself.
As we said in recent emails, look for very specific, strongly composed forward guidance. More than anything, that's what the investing public and institutions need. Janet Yellen has promised it.
Housing starts were reported marginally down in February although housing permits rose significantly. It's easy to assign that discrepancy to the awful winter weather in the northern two-thirds of the country.
We think the real figures to watch in housing will be April, May and June. If those are positive and sales are reasonably brisk, it means we have a viable recovery.
Two Ukrainian servicemen were killed in the Crimea today. One has died. This is the sort of thing that sets off wars. Yet gold hasn't responded as a safe haven on the news.
Rather, the market is looking at Comrade Putin's statements that Russia will make no further incursions into Ukraine. Although it is tempting to picture Putin holding his fingers crossed behind his back.
"As long as Putin seems to be satisfied with what he has, that's the key," said Joe Quinlan, chief market strategist for U.S. Trust. "It gives the markets less to worry about in terms of an escalation of the crisis."
There has been much clamoring from certain circles that the United States "do" something about Crimea. Do we want to, really?
An article in today's New York Times would seem to indicate that we should be waiting on the waiting game. Crimea will be a fiscal drain on the big Eurasian bear; perhaps Ukraine is concretely better off without it?
The U.S. and Europe also need to define what their strategic interests are in Crimea. After all, Russia did have a lease on the naval ports on the peninsula for another 27 years when these ham-handed tactics were executed.
As we said in prior fundamentals analyses, the escape route for Russian ships through the straits runs directly through Turkish real estate. So, either your ships can't get out or they can't get back in during a real crisis. The U.S. and Europe can also arm Ukraine or they can begin to mess with Syria again.
Weigh it up: The U.S. + E.U. GDP combined is almost $35 trillion. Russia's GDP is less than $2.5 trillion. If there is an economic war of attrition, guess who loses?
As always, wishing you good trading,