The High Priestess of the Money Masters will hand down her committee’s decree at 2:00 PM on Wednesday January 27th. What will they do? I have no idea but I have no doubt that in the short term markets will react violently in one direction or the other. However, I am fairly certain that in the intermediate term that asset markets are headed much lower.
There is a misconception amongst many participants that the Fed has power over the markets. The Fed has the power to stretch out a cycle but it can not avert a business cycle downturn. Credit markets are deteriorating because there is not enough cash flow to service existing debt on the margin. When that happens spreads widen, bond markets seize up and a business downturn commences. The bond markets always lead the Fed not the other way around. Why are they raising interest rates then? Basically because they waited too long and they are at risk of folks realizing they really don’t have the power that many think the have. If they didn’t raise rates market’s would be collapsing anyways and folks would realize that the emperor has no clothing. The Kabuki Theater you have witnessed over the last year concerning economic dot plots and a recovering economy are a grand illusion. The truth of the matter is that the Fed as an institution has has run out of magic tricks to fool folks into believing that the US economy is on solid ground. Since the 2000 Dot Com bust the velocity of money has been collapsing and the true unemployment rate has been rising. The credit engine has run out of steam and since the 2008 shadow banking crisis all we have done is plug that hole and put it on the US balance sheet and in the Junk bond markets. The piper must be paid and I am afraid this collapse will be swift and violent. There will be bear market rallies but by Summer/Fall markets will be much lower as margin calls and defaults pile up.
Could the Fed do QE4? Sure but what would that accomplish? QE has been proven to cause mal-investment and ultimately deflation which the Fed has been fighting since 2000. I am afraid we are in the Central Banking end game. I will remain flexible but I believe the Fed’s fight against deflation is over. It is time for the markets to clear.
Below is a video of a scene from the movie Apocalypto which shows Mayan human sacrifices during a solar eclipse. What I love about this scene is watching the elites knowingly laugh their heads off as they pull off this grand illusion to fool the masses into believing they have the right to rule over them. The difference between them and the slaves is their occult knowledge of how astronomy works. Today’s belief system by the investing crowd reminds me of this dynamic. If one thinks that the Fed can save us from the business cycle you must understand the Fed has the knowledge that they can’t stop it but they don’t mind investors having that belief system as it serves the continuation of the institution. Additionally savvy speculators like Soros and Drukenmiller have this occult knowledge of cycles and the fallacy of central bank omnipotence. They have made fortunes better against Central Banks.
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