Federal Reserve

"Things are crazy," says Charles Biderman summing up this bizarre situation. "We’re seeing the impact of the global slowdown on the US and that’s going to continue" adds the TrimTabs founder, and, in contrast to the mainstream view on Wall Street, he doesn’t think that the Fed is going to raise interest rates (and is more likely to start a new stimulus program). "Ultimately there will be a major correction," he warns and any new stimulus will merely serve the drug-addicted market.

The cries for going totally crazy are growing louder... the lunatics are running the asylum. One shouldn’t underestimate what they are capable of. The only consolation is that the day will come when the monetary cranks will be discredited again (for the umpteenth time). Thereafter it will presumably take a few decades before these ideas will rear their head again (like an especially sturdy weed, the idea that inflationism can promote prosperity seems nigh ineradicable in the long term – it always rises from the ashes again). The bad news is that many of us will probably still be around when the bill for these idiocies will be presented.

The funds have flowed in a torrent into stocks, bonds, and real estate, just as 1940's NY Fed President Allan Sproul predicted. That flood of easy-money created the delta of plenty in which we live today. Unfortunately, it’s not likely to continue, because funny things happen when you do funny things to money.

"After many years of ultra-accommodative polices, it is clear that ongoing interventions have failed to boost actual economic growth and only exacerbated the destruction of the middle class. It is clear that employment growth has only been a function of population growth, as witnessed by the ongoing decline in the labor-force participation rates and the surging levels of individuals that have fallen out of the work-force. While we will continue to operate to foster maximum employment and price stability, the reality is that the economy overall remains far to weak to sustain higher interest rates or any tightening of monetary policy."  

"The truth is, the debt ceiling doesn’t actually limit government spending. It’s a farce. Every time government debt gets close to the debt ceiling, Congress just raises it.”

"We are expecting that to happen. It would be normal, and that would not indicate poor macroeconomic performance.”

• Dollar at three-month high as payrolls paralysis sets in (Reuters)
• 5 Things to Watch in the October Jobs Report (WSJ)
• China to Lift Ban on IPOs (WSJ)
• ArcelorMittal Is Latest Victim of China's Steel-Export Glut (BBG)
• 'Hope to see you again': China warship to U.S. destroyer after South China Sea patrol (Reuters)
• Giants Tighten Grip on Internet Economy (WSJ)
• Questions Surround Valeant CEO Pearson (WSJ)

Until recently, the consensus assumed a strengthening of the global economy in 2016. It won’t happen. If the global economic growth manages to reach 3.1% next year, as forecast by the IMF, it will be a miracle. We are close to the end of the current economic cycle. The outbreak of a new global crisis in the coming years is inevitable.  The Fed and other central banks are in a dead-end having fallen in the same trap as the Bank of Japan. If they increase rates too much, they will precipitate another financial crisis. It is impossible to stop the accommodative monetary policy.

This is the fifth time in the past three years that the VIX rose 2% of more on a day the S&P 500 also rose, and short-term volatility expectations were at least 10% below longer-term volatility expectations. Those dates were: September 14, 2012, January 21, 2014, August 25, 2014, and May 18, 2015. Over the next month, the S&P 500 was not able to gain more than +1% at its best point, and suffered a loss averaging -3.2% at its worst point. Quite a negative reward-to-risk ratio.

Zero Hedge first revealed the contingency plans that libertarian online retailer Overstock has implemented "in preparation for the next collapse" ten days ago. Today, the strategy outlined by Overstock Chairman Jonathan Johnson has resonated across the Atlantic and this morning as the Financial Times catches up to the story of an "online retailer hoarding gold as crisis defense" in which it calls the retailer a "redoubt of doomsday conservatism" adding its policy to prepare for the loss of central-planning control is "redolent of the small band of US survivalists preparing for the end of civilisation."

• BOE Stays Cautious on Rate-Hike Timing as Inflation Outlook Cut (BBG)
• China Enters Bull Market (WSJ)
• Britain says Islamic State likely brought down Russian plane (Reuters)
• Dollar jumps as markets fix on December rate expectations (Reuters)
• Activist Investor Bill Ackman Plays Defense (WSJ)
• BOJ Survey Data Reveals Signs of Growing Inequality in Japan (BBG)
• UAW Warns of General Motors Strike If Workers Fail to Approve Contract (WSJ)

Following this morning's basic admission by Janet Yellen that "no matter what" The Fed is raising rates in December (which was then solemnly supported by an obedient Bill Dudley who "100% agrees with Yellen"), Fed Vice-Chair Stan Fischer, speaking tonight, reaffirmed this belief by, as we detailed previously, telling investors to ignore weak inflation. After San Fran Fed's Williams admission that "there's something going on here we don't understand," Fischer tonight admitted "US inflation is not as low as you think," at once contradicting Yellen's earlier comments and the various market-based measures, while confirming our previous detailed solving of the mystery of the hidden inflation.

You don’t actually have any savings. When you make a deposit, you’re trading your money for a banker’s promise to repay you. And there are countless regulations giving them the authority to break that promise. (If you want to test this premise, try withdrawing $25,000 just to see how your bank reacts.) That’s the system that controls your wealth today. It’s almost entirely digital. And it’s run by unelected bureaucrats whose interests are not aligned with your own. This is not a free system. And any rational person should consider parking at least a rainy day fund outside of this system.

In one of four speaking appearances by high profile Fed officials on Wednesday, Donald Trump's favorite "politicized" central planner Janet Yellen is set to testify before the House Financial Services Committee this morning.

"In my opinion Janet Yellen is highly political and she's not raising rates for a very specific reason: because Obama told her not to because he wants to be out playing golf in a year from now and he wants to be doing other things and he doesn't want to see a big bubble burst during his administration."