Janet Yellen

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.

One would think that the Criminals, themselves, would not have the audacity to use the same Script (with just minor plot variations) every eight years. But here we go, again.

The Fed pricked the financial bubblethis week as expected. Janet Yellen’s press conference couldn’t have been more perfect as it confirmed that the money printers have come to a stark dead end. The fact is, the global economy is deflating rapidly and the U.S. is sliding into recession. But our Fed chairman is clueless about what’s happening. She and her posse of money printers are going to get bushwhacked by reality in the year ahead.

"In a worst case scenario, the real economy effects of the oil sector and the earnings slowdown hit the frothy commercial real estate and REIT sector, which in turn begin the widening of the contagion begun by energy high yield. Combine this with the sudden stop to lower quality energy credits I believe is inevitable and you likely have stall speed – or even recession. And that’s where subprime auto ABS, student loan securitization and US munis come into the picture for the US domestic economy. Those markets get hit in recession."

In a move that defines the word 'irony' better than the dictionary does, the Federal Reserve raised rates just five hours after their own Industrial Production series was released showing an almost certain entry into a US recession. The Federal Reserve's hidden role as banking lobbyist won out over their populist role as counter-cyclical policy provider and they raised rates for the wrong reasons, putting them in the US-1936 and Japan-2000 policy mistake club.