Will they, won't they, should they or shouldn't they? Those are the questions being hotly contested by the mainstream media on a daily basis. Of course, the reality is the Federal Reserve faces the huge obstacle of weak global growth and deflationary pressures which could very well keep them on hold well into 2016. The potential loss of credibility in the Fed by the markets could be the bigger issue to be concerned with. For now, we wait.
While the U.S. equity markets, until the last few days, seemed unconcerned about the prospects of the rate hike, the so called canaries in the coal mine are once again sending troubling signals, as the consequences of a reversal of Fed policy after 7 years of crisis management are significant, and the stresses are amplified as policy change looks likely to occur while most other central banks are taking the opposite monetary policy tact.
Inflation expectations are collapsing in the EU, Japan and the US. Is another deflationary spiral about to hit?
Good Thing Debt Doesn't Matter! </sarc>
"This will most likely drive a drawdown much like the one we saw in 2009 and 2010."
Watching Hilary Clinton debate Bernie Sanders- or like lastnight, Jeb Bush against Donald Trump - doesn’t strike us as too different from when Hulk Hogan faced off against Andre the Giant in Wrestlemania. In fact, it’s essentially the same with elections today, it's "political entertainment." It’s all fake. It’s sound bites, jabs and jibes, and pointless banter completely devoid of any real substance. But the truth is, none of it really matters, the United States objectively speaking is far past the point of no return.
Today’s dilemma – for financial markets and central bankers – is that pushing back against nascent “risk off” unleashes another forceful bout of “risk on.” At this point, it’s either Bubble on or off – destabilizing either way. The global Bubble has grown too distended and the market backdrop too dysfunctional. Central bankers over the past 25 years have created excessive “money,” while incentivizing too much finance into financial speculation. There is now way too much “money” crowded into the securities and derivative markets, and the upshot is an increasingly hostile backdrop for leverage and speculation.
- GOP debate winners and losers (Hill)
- European Stocks Rise as Dollar Weakens; Metals Decline on China (BBG)
- Global shares shrug off mixed China data, copper teeters near six-year low (Reuters)
- Fed's Evans: Looking forward to time when Fed can raise rates (Reuters)
- Alibaba’s Global Ambitions Face Counterfeit Challenge (WSJ)
- China Rebalancing Takes Hold as Output Slows, Retail Jumps (BBG)
There is “a barbarous relic” in our global monetary system. It is the U.S. dollar: the worthless, monetary relic of an empire in decline.
There is little evidence currently that the rally over the last couple of months has done much to reverse the more "bearish" market signals that currently exist. Furthermore, as noted by Jochen Schmidt, the current market action may be more indicative of market topping process. Not unlike previous market topping action, the markets could indeed even register "new highs," as witnessed in both 2000 and 2007 before the major market correction begins. This is typically how "bull markets" end by providing false signals and sucking in the last of those willing to "buy the top." The devastation comes soon after.
As we noted previously, for the first time ever, primary dealers' corporate bond inventories have turned unprecedentedly negative. While in the short-term Goldman believes this inventory drawdown is probably a by-product of strong customer demand, they are far more cautious longer-term, warning that the "usual suspects" are not sufficient to account for the striking magnitude of inventory declines... and are increasingly of the view that "the tide is going out" on corporate bond market liquidity implying wider spreads and thus higher costs of funding to compensate for the reduction is risk-taking capacity.
While the market may still rally to new highs, the late August free fall in stock prices and spike in volatility served as a wake-up call for investors. In the past ten weeks, major equity indices have recovered virtually all those losses, giving investors an unusual second opportunity to position their portfolio for an important inflection point in monetary policy as the Fed likely starts raising interest rates. Simply put, investors who were not properly positioned and frustrated by their performance in the late August swoon are being given a do-over.
Another Former Goldmanite Becomes Fed President: Neel "Chump" Kashkari Replaces Uber-Dove KocherlakotaSubmitted by Tyler Durden on 11/10/2015 10:58 -0500
Goldman Sachs -> Treasury -> PIMCO -> The Fed
Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system, highlighting “continuing gaps between industry practices and the expectations for safe and sound banking.” They identified a huge jump in risky loans due to overexposure to weakening oil and gas industries. Make no mistake; this is not chump change. The total exceeds $3.9 trillion worth of risky loans that US banks made with your money. Given that even the Fed is concerned about this, alarm bells should be ringing.