Janet Yellen

Moments ago, in its latest Q4 GDP revision, the Atlanta Fed just pulled the rug from under the economy (and the market now that bad news for the economy is bad news for stocks), and slashed its latest quarterly forecast by another 50%, from 1.3% to a barely positive 0.7%.  In other words, according to the Atlanta Fed, Janet Yellen launched a rate hike cycle in a quarter when GDP will be just 0.7%, and which when averaged across the prior 3 quarters, would mean that the US will have grown at just 1.8% in 2015, a 25% drop from the 2.4% GDP growth in 2014.

Following China's disappointing drop in Manufacturing PMI overnight, this morning started off poorly with Canada's PMI crashing to its lowest reading since records began at 47.5. Then US Manufacturing PMI tumbled to 51.2 - its lowest print since October 2012 (with US factory orders collapsing to weakest since 2009). But The ISM Manufacturing crashed to 48.2 (deep in contraction) - the weakest level since June 2009, with employment bumping along at its lowest level since September 2009 and imports (reflecting domestic demand perhaps) crashed to levels only seen twice in 20 years.

Another possible step would be to reduce short-term interest rates below zero if needed to provide additional accommodation... Could negative interest rates be a policy response that the Federal Reserve could choose to employ in a future crisis? ... these are transitional problems, but they might be sufficient to make a move to negative rates difficult to implement on short notice.

In a guest article for Handelsblatt, Christine Lagarde warns that 2016 is likely to be a disappointment as the Fed hike and China's transition to a consumer-driven economy continue to weigh on global growth prospects. Sorry Janet, it looks like the IMF doesn't agree with your justification for liftoff.

My overriding theme and the central drama for the coming year is that unexpected events can take on greater importance as the Federal Reserve ends its near-decade-long Zero Interest Rate Policy. Consensus premises and forecasts will likely fall flat, in a rather spectacular manner. The low-conviction and directionless market that we saw in 2015 could become a no-conviction and very-much-directed market (i.e. one that's directed lower) in 2016. There will be no peace on earth in 2016, and our markets could lose a cushion of protection as valuations contract. (Just as "malinvestment" represented a key theme this year, we expect a compression of price-to-earnings ratios to serve as a big market driver in 2016.) In other words, we don't think 2016 will be fun.

Two weeks ago we said that "those who have savings at US banks, please don't hold your breath to see any increase on the meager interest said deposits earn." We were wrong: some should certainly have held their breath, because as the WSJ reports today, "some bank customers won’t have to wait much longer to reap benefits from the Federal Reserve’s decision to raise interest rates." Some, such as clients of J.P. Morgan, which will begin raising deposit rates for some of its "biggest clients" in January. "Biggest" clients, of course, is a universal euphemism for "wealthiest."

This is what happens when the Fed’s academic-based nonsense collides with economic realities: perversions of capital that lead to massive bubbles and eventually even more massive crises.

Firefighters have reportedly “gained the upperhand” in the battle to contain a California blaze that started at around 11 p.m. local time on Friday near Ventura. The following dramatic video depicts one family’s terrifying trip through the inferno.

The situation is clear: the 2008 Crisis was the warm up. The next Crisis will be THE REAL Crisis. The Crisis in which Central Banking itself will fail.

The only way to restore economic stability and avoid a major economic crisis is to end the Fed, or at least allow Americans to use alterative currencies. Some economists and policy makers claim that the way to stop the Federal Reserve from causing economic chaos is not to end the Fed but to force the Fed to adopt a “rules-based” monetary policy. Adopting rules-based monetary policy may seem like an improvement, but, because it still allows a secretive central bank to manipulate the money supply, it will still result in Fed-created booms and busts.

On Dec 16, Federal Chair Janet Yellen announced the Fed was raising the federal funds rate by 25 basis points. She will have to take it back.

We now enter the “discovery” phase of financial collapse, where things labeled “capital” and “credit” turn out to be mere holograms. It’s not just the Federal Reserve; everything around us is backed into a corner as the rude discovery that capital is not what it has appeared to be is now underway, with the power to derail political systems and societies.

Taken together with the rather steep drop in US industrial production, the risks of a full-blown and perhaps severe recession have undoubtedly grown. Unlike what the FOMC is trying to project via the federal funds rate, a rate that isn’t being fully complemented, either, at this point, visible economic risk is not just rising it is exploding.

“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey

In the short term, increases in interest rates can be negative for gold. But, in the medium to long term rising interest rates are positive for gold as they were in the 1970s and the 2003 to 2006 period.