recovery

"I am pleased the Federal Reserve under the leadership of Chair Yellen has chosen to exercise a prudent and cautious approach to safeguarding our economy by carefully weighing the full range of economic data in assessing whether to raise interest rates.  Moving to prematurely raise rates will endanger the critical economic progress we have made, and threaten any gains minorities have only begun to make on the tail end of this recovery. "

As BofA notes, the lack of hike is an admission that Wall Street threatens to reverse the recovery on Main Street... if the Fed’s failure to hike does not lead investors to completely abandon hope on growth and scurry into gold, cash & volatility, then look for the “barbell of 1999” to reemerge.

The long awaited day is finally here by which we, of course, mean the day when nobody has any idea what the Fed will do, the Fed included. Putting today in perspective, there have been just about 700 rate cuts globally in the 3,367 days since the last Fed rate hike on June 29, 2006, while central banks have bought $15 trillion in assets, and vast portions of the world are now in negative interest rate territory.

With a complex and disaster-prone system of interdependence causing social strife and chaos, why not just simplify everything with a global currency and perhaps even global governance? The elites will squeeze the collapse for all it’s worth if they can, and a Fed rate hike may be exactly what they need to begin the final descent.

News That Matters

"Every day brings another reason why the Federal Reserve should hold off before raising interest rates... First and foremost there was the recent plunge in stock prices."

The Fed may have noble mandates to help the real economy, but it will in the end always decide to do what’s best for Wall Street banks. And these banks could well make a huge killing off a rate hike. They can profit from trouble and volatility in emerging markets as well as domestic markets, provided they’re well-positioned. Given that they’ve had ample time, and it’s hard to answer the question who else is in a good position, we may have an idea which wind the wind will blow. Increasing credibility for the Fed and increasing profits for Wall Street banks. Might be a winning combination. And if Yellen is realistic about the potential for a recovery in the American economy, why would she not pick it?

At this moment, president Obama is taking to the Business Roundtable where as noted previously he will discuss "the turnarounds in the stock market, housing iprices [sic?] and job growth." Here are some things Obama will not discuss.

The OECD is well aware of the possibility that a Fed hike could plunge emerging markets into chaos. Nevertheless, the time to hike is apprently now...

Who would have thought that decades of ZIRP, an aborted attempt to hike rates over a decade ago, and the annual monetization of well over 10% of sovereign debt would lead to a toxic debt spiral, regardless of how many "Abenomics" arrows one throws at it? Apparently Standard and Poors just had its a-ha subprime flashbulb moment and moments ago, a little over 4 years after it downgraded the US from its legendary AAA-rating which led to angry phone calls from Tim Geithner and a painful US government lawsuit, downgraded Japan from AA- to A+.  The reason: rising doubt Abenomics is working.

Remember when Hewlett-Packard announced it would fire 58,000 in February just so the company could spend even more billions on stock buybacks to make its shareholders filthier rich? Alas, since then things have gone south not only for HPQ stock but also for the company's buybacks activity and so Meg Whitman clearly needed to spend even more on buybacks. But where to get the money? Wait, here's an idea: lets fire another 30,000!

"It’s fairly obvious that we reached peak trade in 2007"...

The data continues to suggest that the Fed is contemplating actions inconsistent with those they have taken in the past. It is possible the Fed is motivated to increase interest rates to support the illusion that their higher interest rate projections and rosy economic forecasts are finally coming to fruition. It is incumbent upon investors to separate illusion from reality. Investing in such a misunderstood and distorted economic environment is fraught with risk especially for those failing to grasp this reality. While current Fed monetary policy is clearly unsustainable, the Fed runs the risk of severely damaging asset markets with any deviations from such policy.

It is quite likely - given current valuation levels, deterioration in earnings growth, and a slower economic environment - that forward returns will be substantially lower. In other words, the "risk-reward" ratio for being an aggressive investor at this point in the market/economic cycle suggests that the "house will likely win." It is Deja Vu all over again...