The Fed’s crusade to pump-up inflation toward its 2.00% target by hammering-down interest rates to the so-called zero bound is economically lethal. The former destroys the purchasing power of main street wages while the latter strip mines capital from business and channels it into Wall Street financial engineering and the inflation of stock prices.
In the run-up to June, financial markets continue to be trapped within multi-month trading ranges: GT5 1.2-1.8%, DXY 92-100, ACWI 380-440, SPX 1850-2100, VIX 12-20. So what are the catalysts & “trades of the unexpected” should risk assets finally breakout or breakdown?
There has never been a more destructive central banking policy than the Fed’s current maniacal quest to stimulate more inflation and more debt. That’s what is killing real wages and economic vitality in flyover America - even as it showers prodigious windfalls of unearned wealth on Wall Street and the bicoastal elites who draft on the nation’s vastly inflated finances. Indeed, Fed policy has had a double whammy effect on the flyover zone economy. It drove inflation up when down was needed; and its strip-mined capital from American business when increased capital investment was of the essence.
The Fed’s paint-by-the-numbers Keynesian incrementalism leaves it blind to the underlying rot in the US economy and to drastically over-estimate its capacity to maintain a stable growth equilibrium. In fact, corporate America is being strip-mined by Fed-fueled financial engineering and flyover America is sinking irretrievably into debt, dependency and shrinking living standards.
With stocks soaring on the heels of oil's miraculous resurrection, the new normal narrative appears to be that higher oil prices are now "unequivocally good." However, one glance at the following two charts and it's clear Main Street feels anything like ebulient about the state of the oil industry in America...
The global financial system is in the eye of an unprecedented hurricane. While central bankers are congratulating themselves on their god-like mastery of Nature, and secretly praying to the idols of the Keynesian Cargo Cult every night, the inevitable consequence of borrowing from the future, the obsession with "growth" at any cost and financialization /monetary stimulus, a.k.a. the rich get richer thanks to central banks is systemic collapse.
The broadest measure of the stock market has risen by 125% since 1999. The real median family income has fallen by 7%. Stated differently, the bicoastal elites who own most of the nation’s financial assets or who feed off the financial system and a debt-swollen central state in Washington, believe themselves to be in the pink of prosperity. They do not understand, of course, that this is all a giant bubble which at length will burst in spectacular fashion, causing their own unearned windfalls to shrink in the process. In the meanwhile, they may come to understand that the flyover zone of America has been left behind. The main street insurgency fueling Donald Trump’s shocking rise to the top of the Presidential race proves that much in spades.
When it came to sports, the “wussification” of America came to fruition with the idea there should be no “losers,” and keeping “score” was simply a means to discriminate against those who were “athletically challenged.” Everyone gets a trophy. Unfortunately, the same has become true with Wall Street. In the latest earnings season related nonsense, we have seen the “wussification of Wall Street.”
With banker bonuses set to drop this year, it should be no surprise that things are not all sunshine and roses on Wall Street. After 30 years of dramatically outperforming Main Street, Wall Street wages may be set for some mean-reversion as JPMorgan analysts take an ax to the biggest global investment banks' earnings. As Bloomberg reports, "quiet trading floors" are set to depress global investment banks’ second-quarter revenue 24 percent, with weakness across equities, interest rates, currencies, with a regionally-driven weakness from Asia.
"...my husband, who I will put in charge of revitalizing the economy ’cause he knows what he’s doing."
Actually, he doesn’t. In truth, it was the doing of Alan Greenspan, and not in a good way.
Wall Street bonuses are predicted to fall across the board, according to estimates from compensation consultant Johnson Associates Inc. who warns that fixed income trading and investment bank underwriting will be hardest hit, estimating that bonuses for those roles will fall as much as 15 percent to 20 percent from last year.
The artifice of corporate totalitarianism has been exposed. The citizens, disgusted by the lies and manipulation, have turned on the political establishment. But the game is not over. Corporate power has within its arsenal potent forms of control. It will use them. As the pretense of democracy is unmasked, the naked fist of state repression takes its place. America is about—unless we act quickly—to get ugly. “Our political system is decaying,” said Ralph Nader. “It’s on the way to gangrene. It’s reaching a critical mass of citizen revolt.”
There is a growing fear in financial and monetary circles that there is something deeply wrong with the global economy. Publicly, officials and practitioners alike have become confused by policy failures, and privately, occasionally even downright pessimistic, at a loss to see a statist solution. It is hardly exaggerating to say there is a growing feeling of impending doom. In short, growing evidence of price inflation and stagnant production can be expected to materially increase the risk of a global banking and currency meltdown. The best escape-route is ownership of anything other than purely financial assets and fiat currency deposits. No wonder the price of gold, which is the soundest of moneys, appears to have entered a new bull market.
This Is What The "Main Street Serving" Fed's Wall Street Advisors Told It To Do About Future Rate HikesSubmitted by Tyler Durden on 05/10/2016 15:57 -0400
"U.S. economic recovery remains fragile, and downside risks to the economy are still present. Provided the data improve, the Council believes one or two well-timed and well-communicated increases in the federal funds rate between now and year-end would be prudent to accomplish the Fed’s mandates, enhance central bank credibility, and create policy latitude in the event of an unexpected economic downturn."
Just recently we warned that thanks to Obamacare, insurers would be unveiling enormous premium increases to the public, ironically just one week before the presidential election. As the Wall Street Journal reports, Oregon and Virginia are the first two states to make insurers' premium proposals for 2017 public, and we are now able to see a glimpse of what will be coming regarding insurance premiums for next year [Spoiler alert: it's ugly].