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EXCLUSIVE INTERVIEW: Forexlive.com's Editor Adam Button on Tapering, the Fed and Gold

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Benzinga Pro analyst Matthew Kanterman sat down with Forexlive.com's editor Adam Button for a radio interview.

The Fed, the ECB and Japan took center stage while the analysts discussed further the recent drop in gold concurrently as the yellow metal plunged through the $1,200 per ounce level for the first time since 2010.

No Tapering Any Time Soon
After Ben Bernanke spoke last Wednesday about the state of the economy and future tapering of the Fed's asset purchases, several Fed officials have since come out and have seemingly backtracked on Bernanke's comments. As a result, the markets have started to reverse themselves as they realize that they may have overreacted to Bernanke's statement.

In regards to Bernanke's announcement of upcoming tapering plans, Button felt that, “the market took it and ran with it as if tapering was imminent, rather than tapering was conditional.”

This seems to precisely be the case. Perhaps Bernanke wasn't clear about the Fed's tapering plans, but the various Fed officials that have spoken since Bernanke's initial announcement, such as Dallas Fed president Richard Fisher and St. Louis Fed president James Bullard, have made it more clear that the Fed's tapering is not imminent.

In fact, “it isn't going to happen unless the economy is stronger, and ultimately a stronger economy means better corporate profits, it means higher stock prices,” said Button. "Tapering is not a matter of when, but a matter of if the economy sees larger growth and if inflation reaches two percent. It's currently around one percent, so deflation is still a concern among the Fed and it still may be some time before we see tapering."

Inflation Fears Overdone
“It's very difficult to manufacture inflation in the current global economy with production in China so cheap for consumer goods. Manufacturing profit has such a constant downward pressure on inflation and it's very difficult for the fed to muster up an argument where we can have two percent inflation or higher at any time in the next number of years,” Button stated.

After Wednesday's announcement, this recent clarification that tapering will continue has been a large factor in why the S&P 500 and Dow Jones indices have seen 3.48 percent and 3.31 percent rallies, respectively, since this Monday's lows.

Europe Looks “Soft”
Jumping across the pond, Button discussed the deteriorating state of the European economy and of European markets. “The euro especially right now looks very soft and just broke through the 200-day moving average, and the 55-day and 100-day all in the last couple of days.”

The rise in peripheral bond yields in Europe is also worrisome as Spanish 10-year bond yields have crossed back over the dreaded five percent level while bond yields in Italy are on the rise. “Uncertainty in Italy in regards to politics, with the leader of the country being charged with criminal cases and the lack of coherence in policy makes it difficult to see where growth will come from.”

“Europe has been relying on the ECB to create growth,” he continued, “but that's just going to weigh on the euro.” He also reiterated his skepticism to the concept of the euro as a single currency zone by saying, “The euro really doesn't make sense. You're not going to move a factory from Germany to Portugal.”

He concluded with some harsh words as Button says that the risk of a nation leaving the euro has not disappeared. “Eventually, the risk is, that if the economies continue to flounder, that a member tries to leave the euro.”

Japan Stimulus Efforts Risky
“Trying to create inflation by devaluing the yen is risky,” he said when discussing the ambitious easing plans of the Bank of Japan led by new Governor Hairuhiko Kuroda and Prime Minister Shinzo Abe. “The move might be helpful for companies like Sony if these companies can come back to life but they won't be the booming, cutting-edge global leaders that they were.”

The Japanese yen is already off some 10 percent this year against the dollar and has declined nearly 25 percent from the lows of last August. Meanwhile, Japanese stocks have been on a tear from the lows with the Nikkei Index rallying nearly 50 percent as the government and the central bank look to bring the economy out of its lost decade.

“That's what the Fed is really worried about as well,” warned Button, “this ingrained stagnation,” where markets expect deflation only to make it a reality. However, recent election results in Japan could be a vote of confidence from the Japanese people for the authorities to continue with their ambitious plans to double the money supply in two years.

Gold Tumbles
As Button began to talk about gold, the yellow metal plunged below $1,200 per ounce for the first time since 2010. Button reiterated his bearish view on the yellow metal as inflation expectations remain low globally.

“That's a major level at which some major gold miners become unprofitable,” said Button of the drop below $1,200 per ounce. “The momentum downward in gold, you just can't fight it. The people enamoured with gold can only take so much pain.”

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