The "Wednesday" in question is, of course, Wednesday, November 6. This is the day after the US mid-term elections, and the day when the FOMC meets to decide on US interest rates. Depending on your evaluation of the present state of the US economy and financial system, you are waiting for Wednesday for entirely different reasons.
If you are a Wall Street pundit, or simply a long suffering investor who has not yet given up hope (you certainly have nothing else left) that the US economy and especially the US stock market are on the "road to recovery", you are waiting for Wednesday because you expect the Fed to lower rates by at least 0.25% and preferably by 0.50%. This, if it happens, will be the first Fed rate cut in almost a year and you are "confident" that it will kick start the economy, and more important, the markets.
If, on the other hand (no one armed economists here), you are watching the US economy with your eyes wide open and your mind in gear, you are waiting for Wednesday because it IS the day AFTER the US mid-term elections, and you know that US markets have been held up by main force in the lead up to these elections. You are also waiting to see what the Fed does. You know that if the Fed cuts rates, it will be admitting to anyone with eyes to see that all the talk about US "recovery" was so much hot air. WHY CUT RATES IF THE US ECONOMY IS IN RECOVERY AND IS GROWING? You also know that if the Fed cuts rates, the chances are VERY high that the U.S. Dollar will fall, quite possibly precipitously.
Of course, this week, the US Dollar DID fall, fairly precipitously. And Gold, in $US terms of course, recovered. Over the week of October 28-November 1, Gold rose 1.85% in $US terms. But in Euro terms, it FELL 0.30%, while in Yen, it rose 0.18%. In other words, in terms of the world's other major two currencies, the $US fall almost EXACTLY mirrored the $US Gold rise. A European or Japanese could have hedged against $US exposure by buying Gold, or simply by NOT buying US Dollars. The outcome would have been the same.
But many Europeans and Japanese and many others are starting to see an increasing risk in holding onto any US Dollars that they presently hold. Between the end of January and mid July this year, the $US index fell 13.4% (120.59 to 104.42) on July 19. It has not recovered from that fall. This week (Oct 28 - Nov 1), the $US index fell 1.92 points to 106.25. Another 1.92 point fall next week would put the index at 104.33 - just below the 2002 low it set back on July 19. Many investors, both inside and especially outside the US, expect that to happen - ESPECIALLY if the Fed lowers rates on November 6.
So, there are two big indicators of the expectation that the Fed will cut rates. One is the $US dive this week. The other is the simple fact that Treasuries are discounting a cut. Three and six month Treasury paper closed the week on November 1 yielding 1.41%. This is 34 basis points (0.34%), below the present fed funds rate of 1.75%.
One would have to be wearing very rose colored glasses indeed to truly believe that a Fed rate cut can perpetuate what is at present a rally in an entrenched bear market, let alone lead to any GENUINE economic "recovery" in the US. The empirical evidence to the contrary is overwhelming, just in the form of financial data. One would have to be on a first name basis with the tooth fairy to believe that a lower Dollar and lower rates can "help" the US economy. How is the ABSOLUTELY NECESSARY foreign investment upon which the US depends to be lured by the prospect of LOWER returns in a DEPRECIATING currency?
It is now increasingly likely that the US Adminstration will not attack Iraq until next year. There is a growing possibility (although it is still tiny) that it might not attack at all. Mr Bush is now campaigning with unprecedented ferocity - especially for a mid-term election. On the day before the election, he is expected to visit SIXTEEN states.
He is NOT running on the performance of the US economy, he is ratcheting up the scare campaign which has been relentless ever since 9/11. The economic policies which HAVE been coming out of his administration and the Fed are certainly starting to scare foreign investors in the US - as witness the Dollar dive this week. "Wednesday" (November 6) will tell whether they have also scared US investors. So will the previous day, November 5, when those same investors get to vote - if they so choose.
Foreign investors certainly understand that a Fed rate cut is an admission of defeat. If enough Americans realise it too, then "Wednesday", and the days and weeks after "Wednesday", will see the resumption of the bear market on Wall street to which can be added the resumption of the bear market in the US Dollar which has been "on hold" since July.
It will also almost certainly see the resumption in the Gold Bull market, beginning with another challenge of $US 330. There are many different reasons why the world, especially the investment world, is "waiting for Wednesday", but they all are. It won't be long now.