At the end of the day, the Fed led central bank money printing spree of the past two decades resulted in what is functionally a massive dollar short. Once the Fed stopped expanding its balance sheet when QE officially ended in October 2014, it was only a matter of time before all the “near-dollars” of the world would come under enormous downward pressure in the FX markets. Our Keynesian witch doctors believe that sinking currencies are a wonderful thing, of course. They claim making your country poorer is a good way to stimulate export growth and a virtuous cycle of spending and growth. But there is another thing. It is also a good way to generate capital flight and the ensuing chaos that creates.
2015 has witnessed several events that had, and will have, negative repercussions on individual freedom. Orwellian totalitarianism is increasingly creeping into our everyday lives. How much more intrusive will the violations of our liberties become and for how long will the establishment get away with this? With regards to the financial system, no real solution was found to issues such as those in the euro zone. Furthermore, the financial system as a whole once again got deeper into debt. For how much longer can central banks and governments continue kicking the can down the road without any real reform?
With the market now back to oversold conditions and redemptions complete, it is now or never for the traditional “Santa Rally.” Statistically speaking, the odds are high that the market will muster a rally over the next couple of weeks. While the short-term trends are indeed still bullishly-biased, the longer-term analysis (monthly) reveals a more dangerous picture emerging.
The first Fed rate hike in seven years was supposed to trigger a powerful equity rally as the bulls expected money to pour out of bonds into stocks; especially into the cyclicals. Unfortunately for the equity bulls,, as Mizuho's Steve Ricchiuto notes, this time things are different and instead of the Fed rate hike triggering the traditional Santa Claus rally; it looks like the FOMC is actually the Grinch. The key message delivered by the Fed though the SEP, the DOTS and the Chair’s post meeting press conference is that this is the best the economy is going to get.
"...Unfortunately, we don’t see conditions improving and only becoming more acute as liquidity continues to deteriorate, asset valuations become increasingly stretched, and the Fed navigates the unwind of the greatest policy experiment in history."
The artificial lowering of interest rates sets a trap for businessmen by luring them into unsustainable business activities that are only exposed once the central bank tightens its interest rate stance.
While the fear and loathing of gold by the "smart money" and central banks has been extensively documented in recent years, another asset class is emerging as the "most hated" within the speculator community: treasurys, or rather, duration.
So there you have it: a riskless "profit" handout for foreign banks, subsidized by the most famous US "public" institution - the Federal Reserves - amounting to approximately $11 billion in just one year.
If a person is unable to earn enough to save, and is unable to compete with financiers and corporations for productive assets, that person is a modern-day serf, a debt-serf indentured to banks and stripped of opportunities to own the sort of assets the Financial Nobility use to accumulate ever-greater wealth and income. The injustice of this central-bank enforced neofeudalism cannot be suppressed like interest rates.
The Fed seems to have been operating on the theory that their own views on the economy determine its path. But recently the Fed has taken the principle to an extreme never seen. Yellen may well have just hiked rates expecting, hoping, that the mere act of showing confidence in the economy would produce an economy worthy of confidence. The Fed has dominated the narrative for years now, investors and traders hanging on every word. Last week that started to change, the market repudiating the Fed’s outlook over a 48 hour period that must have produced some second guessing at the Fed.
I would imagine any ancient Roman wise enough to make this same prediction back before the Empire collapsed as the great city fell from a population of one million down to 12,000, would have sounded like a real KOOK.