Federal Reserve

Free Corzine!!!  Hasn't he already served enough time?

When will we know that the United States is really close to “normalizing interest rates”? The U.S. dollar will no longer exist, and (hopefully) neither will the Federal Reserve – the entity which promised to “protect” that dollar.

Over the past few days we have repeatedly heard the following statement: "China isn’t that important as it is only 7% of the U.S. economy." While that may be a true statement in relation to the economy, it is a far different matter when it comes to the financial markets. With financial markets so closely correlated, what happens in China has a direct and immediate impact on U.S. markets.

"When 63% of all Americans can’t handle a $500 emergency, and 46% of households making over $75,000 can’t handle a $500 emergency, then they are just plain stupid, frivolous, and incapable of distinguishing between wants and needs. Delayed gratification is a trait almost non-existent among Americans today."

Just as we saw in the August collapse, US financial stocks appear to be facing the harsh reality that other markets already recognize. While US financial credit markets have been anything but exuberant for weeks, equity options markets have now turned their bullish backs on the banks as Bloomberg reports the ratio of bearish to bullish options on the S&P Financials ETF has climbed to the highest level in a year this week, reflects rising demand for protection against losses as NIM hopes collapse and Fed "error" probabilities increase.

"Though the decision to raise rates was unanimous, some officials expressed concern about lingering low inflation and the stifling effects on the U.S. economy of a strong U.S. dollar and slow growth overseas."

Many of us are wishing to be bold, and maybe even revolutionary.  But we are far too comfortable, and also too afraid. 

See For Yourself ...

Many people start a new year with renewed optimism. However, "New Year, Same Problems" is the meme of 2016... and recent trading has dashed some of that optimistic 'This time it's different' hope.

Taking away from the government its power of compelling the citizenry to accept money that it monopolistically controls and abuses may serve as an important legal and economic change to force the government and those who live at its spending trough to face the reality of the welfare state’s ideological and fiscal bankruptcy before it is too late to avert a complete collapse of the society.

We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever. The butterfly effect - the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part - is on center stage.

Fed policymakers seem to be of the view that the almost zero federal funds rate and their massive monetary pumping has cured the economy, which now seems to be approaching a path of stable economic growth and price stability, so it is held. Yet, manipulations by the Fed could not bring the economy onto a path of stability and prosperity but, on the contrary, set in motion the menace of the boom-bust cycle. This raises the likelihood that the elimination of bubbles as a result of a tighter stance while good in the long-term for wealth generators is likely to trigger a severe economic slump in the near to medium term.

Derivatives like credit default swaps turned a mere bubble in the US housing market into a global financial catastrophe... 

The one thing executives should have learned in 2015 is that Wall Street can for long periods of time remain disconnected from fundamentals and can swing to extremes. Another lesson from 2015 is that OPEC can no longer be relied upon to set prices. Thus, the debt fueled financing boom in the shale space will most likely never return.  This is especially true now that there are clear signs that the U.S. economy is weakening while the Fed chose to raise the federal interest rates in December. As we move through 2016, expect a rash of bankruptcies tied to this transition to lower leverage, and towards the latter half of 2016 there will likely be a steep fall off of production.