The market is getting used to the Fed injecting cash into the repo market. Because repo rates are trading in the lower end of the fed funds target range, cash has gone to other markets. Stock equities keep making new all time highs. The problem is the longer the Fed avoids removing the repo liquidity band-aid, the larger the fall will be when the bubble bursts. The question is whether Fed chairman Powell can keep propping up markets until the November election without spiking inflation?
Another problem with market stability is geo-political tensions in the Middle East. Iran is on pace to cross Benjamin Netanyahu's nuclear weapons red line this summer. Netanyahu has said Israel would take a pre-emptive strike if Iran reached a point when it was 90 percent along the path of having sufficient weapons-grade material. An article in the Jerusalem Post said Ali Akbar Salehi, head of Iran's atomic energy, reported Iranian production of enriched uranium was now at 5 kilo grams per day. Salehi said Iran is now operating 60 IR-6 advanced centrifuges which enrich uranium 10 times faster then the old IR-1 centrifuges. They are about to add new IR-9 centrifuges which will enrich 50 times faster then the IR-1 centrifuge models. By the summer of 2020, Iran is projected to have more than enough 20 percent enriched uranium to make a nuclear bomb. It would only take a short time to move to 90 percent enrichment for a bomb. If President Trump cannot bring Iran to the negotiation table, many believe Israel will be forced to make a pre-emptive strike.
In 2012 Netanyahu could not obtain a vote from the Israeli security council to approve a strike on Iran. In 2018 the law was changed and now allows the Israel Prime Minster to order a pre-emptive strike on Iran. In 2012 Israel did not have fighter planes which could travel to Iran and back to Israel without refueling. Now Israel has F-35 stealth jets which can make the round trip and avoid Iran radar. In 2012 Israel did not have bunker buster bombs capable of destroying under ground centrifuge equipment in Iran. The Israeli firm Rafael has developed new air-launched ballistic missiles which use GPS guidance systems. Planes can stand-off and send in ballistic missiles with 2,000-pound bunker buster warheads from a distance. In 2012 President Obama refused to give Israel a green light to attack Iran. In 2020 President Trump has said Iran will not develop nuclear weapons on his watch. President Trump supports the nation of Israel. Iran is at a fork in the road. If they do not stop enriching uranium, they are on a course towards a pre-emptive attack by Israel.
The Fed is also at a fork in the road. If it continues printing money it risks a spike in inflation. If it reduces its balance sheet it risks a market drop. I am long Gold Resource Corp. (GORO)