Wednesday, September 9, 2015

What The Fed Will Do

Before I declare, let me share this market insight from 24 August 2015. The IVV, an ETF designed to smooth out volatility through diversification, a market mantra, plunged 38% at the opening bell. It went from $204 a share down to $164 a share in minutes. Steady and strong hands lifted it to $194 at the close. Dear reader, this safe stock lost a year of value in seconds and this closer look at the market reveals that all the engineering by the Federal Reserve and central bankers will be for naught.
Peter Schiff
gets bold letters and *s because he boldly stated back in the beginning of the year that the Fed has no intentions of raising rates and they will not raise them. He is right! He uses polite language, I don't.
Keep in mind the last BS artist at the Fed, Ben Bernanke said in 2007 that the financial system was safe. The housing crash would not spill over into the economy or cause global ramifications. He never accepted responsibility for his direction of the Fed which caused all of the above. Ben Franklin would have had him in jail. The Fed's only purpose is to allow the privatization of profits and if things go south, the socialization of losses. So, what is going to
happen now?
The Fed will take into consideration the present state of affairs. The US unemployment level reached the target of 5.1% which is a lie because there are ten million who gave up looking for meaningful work that pays a living wage. In addition, the weekly hours worked is 34 not 40. Also, there is a disconnect between unemployment claims and job layoffs. This year the oil patch laid off over 100,000 workers and yet, the total of the weekly claims for the year is nowhere near that number. Probably, Chinese accounting.
Speaking of China, that nation hopped on the devaluation bandwagon before the Fed's decision. By lowering their rate now, they still will enjoy a currency advantage if the Fed raises rates to which their currency would go higher. They want to keep their niche of those cheap exports. The ECB did a double down on printing. Mario Draghi extended QE bond buying in Europe whose economy has actually shrunk from the 1.7% in 2014 to 1.5% in 2015. Do you remember what the EU stated back in December 2014? They declared that 2.5% to 3% growth for 2015. They weren't alone as the IMF agreed with them.
half of the euro members are in recession along with Canada and Brazil. In addition, there are many nations on the fence like Russia and Australia. The Bank of Japan has doubled Japan's money supply. Then, China again. You ask, why is it slowing? China's debt over the last ten years has exploded to the point where household and corporate debt is over 200% of GDP. When you reach that level, you become a genuine member of the Greek "bailout" club.
of the above and other factors will effect the Fed's decision at their next meeting. I agree with Peter. They will do nothing. They will offer more BS and innuendoes that should make Peter Schiff a star, but won't because he is anti-fiat. They keep people like him and me on the outside looking in. However, because the Fed declared that they will raise rates this year and not to lose control of the market, I see them making a slight raise in December with another slight raise in January 2016. Even if they raise rates in September, the bottom line outlook will not change. The havoc that they created in the bond market will force them into the QE corner. You see, after the market tanks or I should say, resumes its slide, they will institute a new form of QE IV. They will try to spin the name to call it something else, but by that time the bond market will be reeling because the older, lower yielding bonds have crashed to which the Fed will be buying. Can you say a balance sheet of $10 trillion? I wonder how they will keep gold down at that point? This is yet another reason why I say, End the Fed!