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Global Markets To Fed: No Rate Hike, The Strong Dollar Is Killing Us
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Global markets are puking at the prospect of higher yields in the U.S.
There are many reasons for global markets to melt down, but one that doesn't get enough attention is the strong dollar. In effect, global markets are telling the Federal Reserve: don't raise rates--the strong dollar is killing us.
Here's the dynamic that's killing emerging markets' currencies and stocks, the China Story and U.S. corporate profits. In the glory years of a declining U.S. dollar (USD), a vast global carry trade emerged as speculators borrowed money in USD and invested it in high-yield emerging market assets such as stocks, bonds and real estate.
This carry trade was a two-fer: not only were yields much higher in emerging markets, the appreciation of local currencies against the USD provided a currency gain on top of the higher yield.
As the yuan strengthened against the USD, an enormous river of capital flowed into China to take advantage of the revaluation and higher yields in China. How much of this money was borrowed USD is unknown, but it's estimated that Chinese corporations alone borrowed $1 trillion in USD to profit from higher yields in China.
The virtuous benefits of a weakening USD extended to U.S. corporations, which reap 40% to 50% of their total profits from sales overseas. As the USD weakened, U.S. corporations reaped the currency gains every time they reported overseas sales in USD.
Everybody won with the weakening dollar, except the U.S. consumer, who paid more for imported goods.
But a funny thing happened in late summer 2014--the USD started rising against other currencies--by a lot. Suddenly all those profitable carry trades reversed.
Emerging markets remained in a trading range for much of 2011-2015, but the strengthening dollar was eating away at the carry trades beneath the surface.
Meanwhile, over in the S&P 500, stocks rose steadily from mid-2011 to mid-2015. But beneath the surface strength of the past year, market technicians noted a deterioration of indicators. Commentators started noting the rising dollar's negative impact on U,S. corporate profits.
Now the carry trades have been abandoned, and market participants are looking at a Fed rate hike with fear and loathing. Why? The USD has already strengthened by 20%. A tick up in U.S. yields would only make the dollar more attractive globally, as traders would get the currency appreciation and a higher yield.
Global markets are puking at the prospect of higher yields in the U.S. The damage delivered by the rising dollar has been severe; a move higher from here might prove fatal to emerging markets and faltering U.S. corporate profits.
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Look out below
Dead kitty bounce looks like it's almost over now
The close will tell us, rampfest or sell Mortimer,sell.
Strong dollar. . .gigglesnort.
King Doelarr!!!! RAH RAH RAH!
Mr Lennon Hendrix
Thanks for the flashback...must've gargled his own puke or got shot by some bloke or sumfin.
The fed could care less, I'm convinced they want a crash this time around. The St. Louis fed has come out and said that QE is ineffective. The situation has the feeling of the fed going in another direction, a tightening bluff to regain support so they can try some new policies.I think what the global markets are saying is "STFU about a rate increase you know you aren't doing."
"Find a new line of BS. Sort of like; 'We may do QE or we may not do QE.'"
and why wouldn't it be called anything other than strong... it used to take $100 to buy a barrel of oil, now it only takes $39... if that's the definition of a weak dollar then lord help you all when it becomes stronger than it is now...
Use the same math, but with beef, cocoa, fish, or food in general and tell me the dollar is strong.
Today was the first time in a long time I heard all three guests on the finance radio talk show agree: 1) the merican economy is slowing; 2) the strong dollar will slow it lots further; and, 3) wage stagnation and high joblessness of highly paid STEM workers will be a be a big hit to energy cities like Denver, Houston, etc.
<- - - Rampfest
<- - - Sell Mortimer! Sell!
The Emperor has no close.
VIX down ver 12 point.
There's a sucker bet.
Yep, just prop it up and hope shit doesn't happen...again. I just wonder what will happen when all those EM loans and bonds start defaulting?
KILLJOY !
I blame it on my tequila hangover... :-)
Rate Increase Trial Balloon ..... check
33 Liberty stop buying stocks .... check
Market crashes .... check
Float Bullshit China story .... check
33 Liberty start buying again .... check
Nothing to see here....rates will not rise .... check
Dude
All one needs to see is the fed balance sheet vs s and p going back to 2008
You meant the one that says:
Account: Miscellaneous Miscellaneous....4T
That balance sheet?
Love your avi HB
Three cheers for a strong USD and fuck the BRICS...
Intentional, which is why the FedRes will raise rates.
Alls fair in love and war.
Intentional, which is why the FedRes will raise rates.
From Janet's lips to the rest of us worthless peons ear(s)...
I'l believe it when I see it but I wouldn't want to put anything other than Grade (quality not quantity in question) U.S.D.$$$ on that bet!
They don't have to raise. The intention part and such is right though.
If they raise rates by .25, those not working are going to have to start working again.
No more free struff.
Fed To Global Markets: exactly as designed!
Its not the dollar its the yen.
Matt Miller from Bloomberg just called out ZH for the continuing to state that these manipulated fucking markets r RIGGED while talking to some brwd from Schwab....
I'm not a big fan of Mr. H-S, but this time I think he's provided a useful perspective regarding the external pressures contra a Fed rate hike.
What he is in effect saying is that a rate hike would be net beneficial to the US economy vis-a-vis the other economies of the world and thus cannot be allowed to happen for fear of the ruin it will visit upon the Democratic Republic of Bumfukistans of the world.
I'm so sick of the America Last crowd that runs this country. Away with them all.
As William F Buckley once said: I would prefer to be ruled by the first 100 names in the Boston phone book than by the Harvard experts.
And those mofos are Massachusetts liberals themselves. Still be an improvement.
Al-akbar, Al-barack, Al-...
This shows why the Fed won't do shit....yet.
US is bankrupt - so much for a strong dollar:
Economist Kotlikoff: 'Our Country Is Broke'To those who say that U.S. government debt is easily manageable, Boston University economist Laurence Kotlikoff has a sobering reply.
"Our country is broke. It's not broke in 75 years or 50 years or 25 years or 10 years. It's broke today," he told the Senate Budget Committee. "Indeed, it may well be in worse fiscal shape than any developed country, including Greece."
And what about official figures showing that federal government debt is "only" 74 percent of GDP? "Unfortunately, the federal debt is not an economic measure of anything, including our nation's fiscal position," Kotlikoff argued. "Instead, the federal debt and its annual change, the deficit, are purely linguistic constructs that reflect how members of Congress choose to label government receipts and payments."
For example, that figure omits the almost $750 billion the government is collecting this year in Social Security payroll taxes from workers and the future Social Security transfer payments these FICA contributions secure, he explains.
"Were we to go back in time and re-label all past Social Security taxes as borrowing, official federal debt held by the public would not be $13 trillion, but $38 trillion, which is 211 percent of U.S. GDP."
In reality we're facing a fiscal gap of $210 trillion, Kotlikoff proclaimed. That's 16 times larger than official U.S. debt, "which indicates precisely how useless official debt is for understanding our nation’s true fiscal position," he noted, and almost 12 times the current GDP of $18 trillion.
http://www.newsmax.com/Finance/StreetTalk/Kotlikoff-GDP-debt-deficit/201...
I don't see how Mr. Kotlikoff can hold a job at a university with talk like that.
Surprised that he has not been droned by the Nobel Prize Winner.
Truth is treason in an empire of lies
They Cassandra'ed him instead: she prophesied true things, she was not believed
Are you trying to tell us that the "cleanest dirty shirt" is itself too soiled to wear in public?
We gonna need a bigger NIRP.
Print baby, print.
FED rate hikes are military operations: economic warfare. Lloyd Blankfein is the main military leader against the nations of India, Brazil, China and Russia. WWIII is the world war against the NWO banksters.
By this you may know that QE never was for the US alone.
And by that you may know that the Fed is not a US organization, but an international one pretending.
>Global markets are puking at the prospect of higher yields in the U.S.
Er, so how do you say "tough titty" in globalese?
Oh wait, we can translate it into Trumplish: "Deal with it".
The US economy has to normalize or all the global markets will collapse anyway.
File this in my no shit file. Thanks for nothing CHS.
American markets, and many on ZH have said this, can NOT sustain any rate hike without puking up hundreds of billions of phoney market value. The market rose on Zirp and QE, it will fall through the floor without them. Very simple equation, related to simple physics. An artificial force [QE & ZIRP] is introduced to a system to stimulate it, when that force is removed, then the system {equity share prices] revert to the mean [lower share prices].
Why this requires degreed economists escapes me! Who pays all these fuckwit economists anyways? They are everywhere. Corporations, banks, universities, NGOs, governments, trading houses etc. etc. keeps a shit load of Economists on staff.
threatening to raise rates is the new bazooka
Who's holding all, all, all, that phoney market equity? The psychopaths. Wrothchild. Gelf. J-Me. Loid. The Tribe. And all the 1% suckers who friended them, everywhere.
The dollar is up on "exit."
The FedRes will raise rates this Fall or Winter.
Zion is a scheme, not an ethnicity.
US is bankrupt - so much for a strong dollar:
Economist Kotlikoff: 'Our Country Is Broke'
Just observing.
----------------------
You listen to economists?
Read this instead:
http://www.americaisnotbroke.net/
Get some perspective: Debts owed to yourself is the same thing as a joint account by a married couple. Do you bend over and yell at your left pocket for owing something to your right pocket.
Anybody that has read my posts know that I'm a staunch critic of the debt money system.
The real statement should be, "Debt instruments have grown exponentially, and are demanding money from the producers." and "Claims on the money supply exceed the ability to pay."
Of course the debts cannot be paid, because they are fraud, and also because their underlying mechanism is to grow with usury.
But, the reality is that the economy is not bombed out, there is labor energy, food is growing, minerals are in the earth, etc.
The money system can also be changed or modified by Law.
There are also ways within the 'debt as money" paradigm that can be deployed.
For example, MEFOBILLS were how Schacht put purchasing power into the German economy.
Only a few economists in the world actually know anything. Time spent in propaganda school has to be unlearned, a negative waste of a students time. Do any economists in the world know about MEFOBILLS. Maybe two or three to be charitable.
I'm kinda lame, so someone please explain this to me. Shouldn't a strong dollar help emerging markets? After all, that is why virtually every country in the world is currently devaluing their currencies, so that their "stuff" is cheaper for US to buy. Ergo, a strong dollar means we should be buying more of their stuff. I guess this article is saying that emerging market companies weren't making money from their real business (manufacturing), but from their side business of currency speculation (gambling). Well, serves them right then. Let them eat paper.
The US middle class is no more. Wormmart is dead. All students are doubly fleeced with debt and dead end jerbs. Who in the strong dollar zone is going to buy all your iShit? The top 10%? They don't shop wormwoodwarez, but if even if they did, they don't need 500 million flat screens.
The joke is, the 3rd world invaders brought with them that which they were trying to escape. The good news is, the libtards are all going extinct as the direct result of their own stupidity. The bad news is, Chomsky et al. already lived fully their evil lives.
guess it's all relative... declining dollar=good unless other currencies are declining faster w/ more momentum.
Of course, I've got kids to feed so the devaluing of our currency is robbing me blind.
Well a strong dollar is double edged sword. On one hand your export sector gets slammed and the corresponding drop in taxes; on the other hand it takes less dollars to feed the troops in Iraq, fill up the Harry S. Truman in the gulf, buy the chinese trinkets, go on european holidays, buy the mercedes etc etc. Americans are world class spenders and every point increase in the DXY means a increase in lifestyle for Joe Lunchbucket. Joe and his family vote for the good times - Booyah!
This strong dollar thing is a huge myth. ?t has been used another excuse not to raise rates. So called strong dollar couldnt even manage to become 1 dollar 1 euro. Strong against what really Russian ruble Turkish lira or Brezlian real. Give me a break.
The rates will go up in Sept, Dec, March 2016, June, Sept, Dec, NO WAIT REALLY AND TRULY, cross my heart and hope to die, It will be 2017 March, June.
Looks like the markets are pricing in the Fed’s rate hike. Tell them again Janet how you are getting near to lift-off. You have enough DATA from around the world. The rate rise will strengthen the dollar and we can get this thing finished with. HA, HA,HA _JOHNLGALT. p.s. There seem to be a lot of John Galt’s out there working toward the same end.
Don't worry! QE4 is just around the corner.
However, this will not help weaken the USD for long. $9.7 TRILLION has to be unwound in the carry trades.