The Federal Reserve has pursued the unprecedented monetary policy of lowering rates to zero and increasing their portfolio from 500 billion to over 4 trillion. But as the Fed reminds us, there is a cost.
European, Asian stocks and S&P futures all fell in another quiet, low-volume early session. With oil entering a bull market yesterday, and set for its longest run of gains in 4 years after, overnight crude stumbled, and reversed early gains, falling for the first time in seven days driven by rebound in the dollar which gained versus all G-10 currencies with commodity currencies underperforming.
"Without growth, a credit-based economy ultimately devolves into Ponzi finance, and at some point implodes..... I don't like bonds; I don't like most stocks; I don't like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."
"The most shocking hole that will be blown through people’s portfolios is if discount rates rise again fairly quickly. Even if the circumstance is one in which the global economy is doing well, the impact of a 1.5% increase in the discount rate on equities from here is a fall of over 30%, which would almost certainly be enough to swamp the earnings impact of the decent growth."
The crucial thing to understand about credit bubble dynamics is that borrowing money from people desperate to lend and using the proceeds to overpay for assets requires only monkey-level intelligence. So while a bubble is inflating it’s impossible for most of the media, banking and political communities to tell the legitimate operators from the hopelessly corrupt and/or extremely stupid. That’s the world we’ve created by handing monetary printing presses to governments, and by extension to corporate CEOs.
We believe Hillary Clinton lost the Presidency this past week. While the explosive DNC leaks will undoubtably have a long lasting effect, this post will barely reference the leaks. Rather, it will explain how recent decisions by the Hillary campaign played right into Trump’s hands by essentially waving a gigantic middle finger to the 73% of Americans who think the country is headed in the wrong direction.