The public idea of collapse comes predominantly from Hollywood, and not from personal experience. For the masses (and some preppers, unfortunately), a collapse is an “event” that happens visibly and usually swiftly. You wake up one morning and behold; the television and phones don’t work anymore and zombies are at your doorstep! Yes, it’s childish and cartoonish, but anything less than a Walking Dead/Mad Max scenario and many people act as if all other threats are benign. This is the driving reason why many Americans are absolutely oblivious to the economic instability that is rampant and blatant within our system the past few months. Well, the problem is that social and economic collapse is not a singular event, it is a PROCESS.
Contrary to those blaming the Fed for causing stocks to fall by “raising rates” (which Joe Salerno reflects on here) we want to stress the fact that, in raising rates, the most that the Fed could do is unravel previously made mistakes. In other words, there is nothing praiseworthy in the first place about artificially propped up stock market levels. We have no interest in lauding the longevity of the bubble, because the bubble is the enemy of the healthy economy. The collapsing equity markets reveal where bubbles were formed and that our alleged prosperity is an illusion. And this is precisely what former Dallas Fed Chairman Richard Fisher stated in a conversation on CNBC last week when he confessed: “We frontloaded a tremendous market rally to create a wealth effect.”
“What The Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect… and an uncomfortable digestive period is likely now.” – Former Dallas Federal Reserve Governor Richard Fisher – January 5, 2016.
Deeply concerning to us, and apparently now to Mr. Fisher, is the degree of excessive optimism embedded in current prices.
When the FOMC is deliberately manipulating asset prices and credit spreads... collateral damage is inevitable.
As the towering forces that are prevailing against failing global economic architecture and the pit of debt beneath that structure, as laid out below, it is clear that the 'Epocalypse' - encompassing the roots "economic, epoch, collapse" and "apocalypse" - is here, and it is everywhere. The Great Collapse has already begun. What follows are the megatrends that will increasingly gang up in the first part of 2016 to stomp the deeply flawed global economy down into its own hole of debt.
It's not China, stupid... It's The Fed. "What The Fed did, and I was part of it, was front-loaded an enormous rally market rally in order to create a wealth effect... and an uncomfortable digestive period is likely now." Simply put Fisher concludes, there can't be much more accomodation, "The Fed is a giant weapon that has no ammunition left."
August's regional Fed survey collapse was unanimous... Dallas, Richmond, New York, Philly, Chicago, and even Kansas City all flashing recessionary warnings. And so now we begin to see September's data and Dallas Fed prints -9.5 - the 9th negative (contractionary) print in a row. While a small beat (against -10 exp.) and rise from August's -15.8, under the surfacxe the data is a disaster with wages lower, employees contracting drastically, and average workweek collapsing. Having noted that "the quantitative easing hangover is starting" in August, it appears - judging by the biggest plunge in Capex in 5 years.
The real risk for the Federal Reserve is keeping interest rates at zero and the deflationary feedback from the collapse in commodity prices, and the Chinese economy trips the U.S. into a recession. Given that "QE" programs have no real effect on boosting economic growth, the Fed would be left with virtually no "effective" monetary policy tools with which to stabilize the economy. For the Fed, this is the worse possible outcome.
This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates. It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.
While Fisher, among others, believes that the recent fall in inflation is solely due to collapsing energy and crop prices, the issue of weakening economic data on a global scale, particularly that of China, may suggest much less transient nature. As we stated previously, we think the Fed realizes that we are likely closer to the next recession than not. While raising interest rates may accelerate the pace to the next recession, it is better than being caught with rates at zero when it does occur.
It's shaping up to be a rough year for CEOs at Europe's most notorious rate rigging, scandal laden investment banks. Just three months after Brady Dougan left Credit Suisse and barely 30 days since Anshu Jain and Jürgen Fitschen tendered their resignations at Deutsche Bank, Barclays has shown CEO Antony Jenkins the door.
Spin revolving door, spin...
If the United States and China are supposed to be such “great friends”, why are both sides acting as if war is in our future? There were years of diplomatic troubles before Japan finally made the decision to launch a “surprise” attack on Pearl Harbor. Right now, it appears we are moving into a similar period of diplomatic trouble with China.