Adrian Day | The Fed Blinked — Expect Easier Monetary Policy

By Remy Blaire

 

Adrian Day, CEO of Adrian Day Asset Management.

 

Wall Street waltzed into the New Year with unlikely bravado. After a dismal end to the year the stock market rebounded and pushed the U.S. equity averages to notch nine consecutive weekly gains. In fact, the Dow Industrials is having its best start to a year since 1987.

March is a critical month for the first quarter of 2019 and may bring answers to the questions about the current rally: Is it a bear market rally or bull market? Global risk events that were left unanswered in December could be resolved next month.

U.S. President Trump postponed the deadline for slapping tariffs on Chinese imports but has not set a new date. The Federal Reserve is set to end its balance sheet reduction program on March 20. The Brexit deadline on March 29 could be extended so that lawmakers could reach a deal.

Ahead of this year’s Sprott Natural Resources Symposium, Adrian Day, CEO of Adrian Day Asset Management and editor of Global Analyst, joined Sprott’s Rick Rule to discuss the investing landscape. The countdown to the annual gathering in Vancouver is on. The Conference is only five months away but between now and the end of July there is risk and opportunity on the horizon.

STOCK MARKET VIGILANTES

Federal Reserve Chairman Powell testified before the Senate Banking Committee and the House Financial Services Committee this week. The Fed Chair reiterated the central bank’s “patient” approach to interest rates and noted that policymakers are getting closer to announcing its balance sheet plans but decisions still need to be made on the new approach.

Adrian Day emphasized that the most important distinction in recent Fed action is that the policymakers “blinked.”  The central bank reacted to volatility in the U.S. equity markets at the end of 2018 and “capitulated to the market.”

As a result of the Fed “blinking,” Adrian believes that this will result in the following:

  1. Easier monetary policy.
  2. Increased likelihood of inflation staging a return.
  3. The potential for a negative USD should investigations into President Trump result in the initiation of impeachment proceedings.

What is apparent is that traditional investors are edging away from the domestic stock market and flowing into cash and bonds. At the same time corporate buybacks could continue to prop up the bull market rally that kicked off in March 2009.

MESSY BREXIT — POSITIVE FOR GOLD

Adrian Day is from London, England, and graduated from the London School of Economics and Political Science (LSE) where he studied British History. As a newsletter writer and money manager he believes that the best managers don’t necessarily study business in university — having a degree in psychology or history is quite useful when it comes to investing.

The British Parliament endorsed PM Theresa May’s concession of a possible postponement and voted against a plan proposed by the opposition Labour Party for a soft Brexit.

When Rick asked Adrian about the impact of Brexit and the implications on the U.K. economy, he was met with an intriguing insight.  Adrian shared that he voted on the Referendum on the European Community (Common Market) over four decades ago. The first national referendum took place after the U.K. became a member of the European Communities in 1973.

Adrian states that if Brexit turns “chaotic” and there is no agreement, the British currency and FTSE could fall in the short-term. In a ‘no-deal’ Brexit scenario he expects gold prices to get a boost. While the risk of a hard Brexit has neighboring countries working on contingency plans, the headwinds to economic growth for the G7 country remains a reality.

ROADMAP FOR THE NEXT 12 MONTHS

The bull market may be getting tired and retail investors wary of current levels. Rick asked Adrian about investing strategies in the current market and received tried-and-true investing insight.

For those familiar with Adrian’s strategies, his breakdown of trades and positions may come as no surprise. He discusses his long-term positions in gold, gold stocks and copper and his preference for individual stocks and assets. But his sage advice for trading is, that “you have to decide if it’s a long-term position versus a simple trade.”

He also emphasizes the importance of timing and being in the right sector of the market. Furthermore, Adrian states how vital it is to be in the right stock within a sector and to employ strategies and tactics that befit the individual investor.

To get further insight and details of Adrian’s top picks in the current market, listen closely to the interview segment. You’ll learn why he thinks China-related Hong Kong stocks are among his “top picks,” as developments in the U.S.-China trade talks are awaited.

BLACK SWANS VERSUS WHITE SWANS

Rick and Adrian also took a stab at identifying possible “black swan” events on the horizon. While the fear of such an occurrence may rear its head every so often, the hindsight bias can creep in for discussions on past black swans. Yet the short discussion on black swans and white swans appearing on the proverbial lake in the next 12 to 24 months is an engaging one.

 

Listen to Rick Rule’s interview with Adrian Day, CEO of Adrian Day Asset Management