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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Banks cause crashes. Their energy exposure is the tinder for the fire. Once participants realize the Fed can’t save them – look out below.
Blue…Like Duh, we already know….HILSENRATH told us already. That is why the market will bite until the BoJ meeting. Us Bears like our sell offs. Told you ECB was something we had to watch out for in our jawboning analysis, ouch.
The fed can do lots. This is not the end game, unless the Fed decides it doesn’t want to participate. Everything is or has fallen against the US dollar, bond rates have inverted. The Fed is too tight and it had better understand this quickly.
I go with the Fed Fund Futures
Nothing happens tomorrow
Call me a conspiracy theorist, but let’s all understand what is at stake here. There is simply no way that governments, especially ours [USA], are going to let the efforts of the past 7 years get tossed in the garbage. This does not assume that the Fed has control over the markets, this assumes that governments [or Fed + Federal] can and do intervene. They will do whatever is necessary to prevent another 2008/09.
Markets are too important to global and domestic stability to leave to the random barbarians sitting at their computers. This is without a doubt the government’s belief and the basis for the actions they conduct in the markets.
All the CB intervening has created a once in a lifetime powder keg around the World. All the FX shenanigans and money printing stimulus has put them in a position to keep stoking the flames with no exit strategy. Well here the Fed looks like they can head for the exit by letting the markets “do their thing” even if it means a violent correction. The 25 basis point hike was window dressing to try and bluff the World in to believing that things are great in the US. They have an opportunity here to just leave well enough alone by telling the World no more QE and no more ZIRP, or heaven for bid NIRP. Just leave rates alone for now and snuff any thoughts of more QE.
Blue,
I like that you keep an open mind. I do too because I have not been able to visualize a system other than what has transpired since the breaking of Glass Steagall. I am 51 and I believe I will have a crash and recovery in the stock market to bailout my end of the baby boomers just as we have had to bail out the first half of the boomers age 61 – 71.
Thus I am leaning towards crash and bail out. Millennials, if you wanna stop this shit, please let me know ahead of time !!!!!
Good post, and true we need to clear the markets. Too many zombie corps treaded water under ZIRP. As always Joe Retail will be left holding the bag as they reached for yield to generate income. It will be interesting to see how low this could go. We can only blame CBs and ourselves if we fall off the cliff here, this could decimate many via pensions and 401K.
My research indicates the central banks (en masse) have now stepped back, they have bought sufficient time for the ECB to implement banking supervision/resolution across Europe, the lair of the eurodollar.
They have been slowly killing big banks via FSB regs for years, now they can pull the plug and let the water out.
Many banks will fail.
The world will be cleansed.
Don’t blame the CBs for what comes next (fiscal QE), blame your govts, blame your fellow voters.
Get gold. Now.
Almost
When QE4 doesn’t come… “Sell 30 April at 142!”