Will Politics Decide The Future of The Financial Markets?

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Published : July 19th, 2018
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Category : Opinions and Analysis

Written by Chris Marcus for the Miles Franklin blog

Does it ever feel like the financial markets have become heavily intertwined with the current political arena? Where in many cases natural supply and demand have become irrelevant, and instead asset prices often revolve around the latest gossip about potential Fed or government actions.

Unfortunately today’s markets have evolved to the point where the latest political decree can significantly impact what happens. And along those lines, there’s been ample speculation that the powers that be may be planning a financial reset. With many feeling that gold and silver will be reset higher, while perhaps much of the global debt is somehow cancelled out (keep in mind U.S. president Donald Trump does have extensive experience with the bankruptcy code).

So while you could look at all of the factors one might rationally consider in regards to the profile of an asset, amazingly they can often all be wiped out by a Fed or political action at any given time. And with the stunning underlying developments that are taking place at a rapidly accelerating pace, the probability that some sort of market shifting event arrives soon is rapidly increasing.

Which creates an environment where you may well be right that a company is going to post better than expected earnings. But because the market moves so significantly on a macro level, it just won’t matter.

One of my primary memories from trading equity options on the American Stock Exchange in 2007 and 2008 as the market was collapsing, was how on many days the market was somewhat stable until around 3 p.m. After which the major indices would rise or fall by 2-4% on an almost daily basis. Often it felt like the first 5 and a half hours of the trading day just essentially meant nothing.

Which is similar to why understanding what’s developing at this very moment has never been more important.

I do believe the system was close to completely collapsing in 2008, until the government and Federal Reserve guaranteed a lot of the assets. Which certainly is something they may attempt to do this time around as well. How this all plays out (whether there is a political reset, or if eventually natural market forces reset prices on their own) will be one of the most truly fascinating events in the history of finance.

If Deutsche Bank fails and creates a cascade of defaults, what will the governments do? No one outside of those directly involved really knows for sure. Although my best guess is that truly shocking amounts of money will be printed and guaranteed.

However I believe it will be more difficult this time around for the banks to get away with some of the tricks they pulled off a decade ago. As a lot more is known and has been exposed about how the game really works, and the public sentiment for more banking bailouts is seemingly low.

Yet in either case, the actions and interest rate policies of the Fed, as well as the political developments will provide fascinating insight into the monumental shift that’s occurring.

Perhaps there’s never been a time where the markets have been more influenced by politics than now. Or maybe this is just the latest form of how it’s always worked behind the scenes.

However, the good news is that regardless of how the theater plays out, because the can has been kicked so far down the road, any government or Fed action at this point will likely only strengthen the case for gold and silver.

Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).

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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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