"On the current trajectory, we doubt the market can stay stable beyond a few quarters, especially if some SOE and/or LGFV bonds indeed default."
- Bank of America
Since either NIRP, or QE, or most likely both, are about to cross the Atlantic and make landfall in the US before the Fed is forced to launch the monetary helicopter, those who want to know what is really coming - no, not rate hikes - are urged to read this.
Oil companies have sold $61.5 billion in stocks and bonds since January as oil prices have tumbled. However, the fees geneated are a tiny fraction of the bank's real exposure to the energy sector, at over $150 billion. So have the banks learned their lesson? "The bankers have gone through this before,” says Oscar Gruss’s Meyer. “They know how it works out in the end, and it’s not pretty." Then again, perhaps banks are just sailing on an ocean of liquidity allowing them to postpone the day of Mark to Market reckoning, especially since this time, everyone is in it together....
"...pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to." That’s false - Negative interest rate proponents ignore the basic tenets of double entry accounting. We know that it is categorically false the negative rates are working in Europe. So what has happened to European bank deposits since the ECB instituted negative rates? They have shrunken. Has one single mainstream economist or proponent of negative rates mentioned that, ever? I suspect not. But facts have a way of eluding mainstream economists and central bankers.
"We believe the US will be in recession before the end of 2016 and then things will be really interesting. How will the public receive news of more QE, NIRP, forward guidance, cash bans and capital control in a time when faith in central bank omnipotence disappears?"
According to the Fed, there is about $60 trillion of US Dollar credit or claims for US dollars. Also according to the Fed, there are about $12 trillion US dollars. So, the data show plainly there are five times as many claims for US dollars as US dollars in existence. Does this matter to investors? Well, yes, it matters a lot.
Did Goldman just hand out the blueprint to crush the next "Lehman" and unleash the next global bailout? Read on to find out.
And just like that Weimar 2.0 is born.
While the Federal Reserve has chosen to keep the Federal Funds rate near zero, it is merely delaying the inescapable and inevitable result of its own monetary policy – another needed economic correction that its actions will have generated but which it will, no doubt, blame on the supposed “failures” of the market economy.
For those of you who don’t want to take the time reading through the ponderous 7000-word transcript of yesterday’s FOMC press conference, we bring you the shorter Janet Yellen, translated from Fedspeak into plain English. Enjoy!
It is time for a radical denationalization of money, a privatization of the monetary and banking system through a separation of government from money and all forms of financial intermediation. That is the pathway to ending the cycles of booms and busts, and creating the market-based institutional framework for sustainable economic growth and betterment. It is time for monetary freedom to replace the out-of-date belief in government monetary central planning.
"As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly. This is exactly the opposite of what happened when short-term interest rates skyrocketed in the late 1970s: people then wanted to delay making payments as long as possible and to collect payments as quickly as possible.... if interest rates go negative, we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation."
"Every day brings another reason why the Federal Reserve should hold off before raising interest rates... First and foremost there was the recent plunge in stock prices."
In short, activist Fed policy is both ineffective and reckless (and the historical data bears this out), and that the Federal Reserve has pushed the financial markets to a precipice from which no gentle retreat is ultimately likely. Similar precipices, such as 1929 and 2000, and even lesser precipices like 1906, 1937, 1973 and 2007 have always had unfortunate endings. A quarter-point hike will not cause anything. The causes are already baked in the cake. A rate hike may be a trigger with respect to timing, but that’s all. History suggests we should place our attention on valuations and market internals in any event.
The market has delivered a warning shot in August, but it seems investors aren’t taking it seriously yet. This could turn out to be a costly mistake. If (or rather when) faith in the omnipotence of central banks crumbles, we could see an unusually severe market dislocation.