The point of no return is a phrase that is often used without restraint, but it is one that is increasingly deserving of use in regard to Central Banker policy decisions. The reason that we are on the verge of the Bubble of Everything that exists in developed markets now collapsing is because, even before the manifestation of the 2008 global financial crisis more than a decade ago, as I explain here, US Central Bankers decided to cross the point of no return with their interest rate policy decisions.
Often, markets react in the exact opposite manner to how they should react immediately following a Central Banker announcement. For example, the last time US Central Bankers cut the Fed Funds interest rate, such a maneuver was obviously one that weakened US purchasing power, yet the US dollar index strengthened significantly that day, immediately following the announcement. However, in the following days, sanity was restored, and the dollar fell quite significantly, reacting as it should have done so immediately after the Federal Open Market Committee (FOMC) announcement.
Why do markets react in the opposite manner they should at times? Two simple words – market manipulation and artificial intelligence. Banks employ AI trading programs to scan headlines constantly and to immediately react to headlines in order to try to exploit any tiny advantage they can find over their competitors. However, the problem with using this methodology is that AI programs consequently often execute trades that use incomplete information and create momentum trades that move in the opposite manner as full information would indicate. After the programs are able to absorb complete information, then the initial reaction reverses. This is the reason we so often observe false moves higher and lower in many different stocks, commodities and currencies immediately in the seconds and minutes after US Central Bank FOMC announcements, with a sharp reversal sometimes happening within minutes that completely wipes out the initial gain or loss, with a much stronger move in the opposite direction of the initial one. In addition, if any confusion exists over the language and interpretation of the announcement, then it may take a day or a couple of days for the initial move to reverse.
Because so many people are often confused and misled by what I call “white noise” – the immediate knee-jerk reactions of markets to Central Banker monetary policy decisions, I am presenting to you one simple chart of the point of no return for the US dollar below. Once the USD index violates the point of no return, on a weekly close, we should expect rapid further declines in the purchasing power of the USD and continued rapid rises in the prices of gold and silver.