The other day, Goldman Sacks(GS) made a public announcement on the market, specifically centered on the effects of rising interest rates. They stated that if rates rise to 4.2% on the 10-Year Note that equities would fall a minimum of 25%.
There are always opinions on the market and if one had access to the trading floor, one would hear of rumors all the time. Some of these stories can move the market, but most are just short term, knee jerk reactions. With that said, the big institutions like Morgan Chase, Morgan Stanley and Goldman can move the market or put thoughts on the influences that move the market like the Federal Reserve. Isn't it an opportune time to come "public" the day before the new head honcho, Powell speaks before Congress? It won't be the first time, but the media never calls out these phonies who benefit from a rising market with cheap money. Let's review.
*In 2014 when the 10-Year rate was 1.75%, Goldman declared that the recovery which was in its 6th year, could be threatened. Rates fell below 1.5% after their claim.
*In 2016. GS stated that 2.75% would be the danger level. When this level was within reach, GS raised its call to 3%.
*Then, one year ago, GS said 3.25% was the new danger zone. Lately, the 3% mark is within striking distance. So, the other day, they raised their warning level to 4.2%. So far, in all cases rising rates have not deterred the market.
Why 4.2%?
I'll tell you why. They benefit from rising equities and cheap money. Consider our economy in the 90s? We transformed from manufacturing to service orientated. The information age from new technology was beginning as well as personal computers. Things were better overall during that time as compared to today. Guess what? The rate on the 10-Year note averaged 6%. Savers were not punished like toady which GS could care less about. Even as late as 2005, the average rate was 5%. So, I ask again, why 4.2%?
Lies and more lies...
There is one index that with a quick glance that tells you all you need to know about the global economy. There is a difference with it when you consider an individual company or even an entire nation. Why? Because if history has taught us anything, companies and nations lie about their earnings and GDP. It is very difficult to fudge the BDI.
When these lies are exposed, the market reacts, and generally for the worst. If you look at an historical chart of the market, many corrections could be tied to news in the market.
China
This is the poster child for lying. When their market found out about the lies of their real estate situation, their investors ran for the hills. Their market was about to collapse. The Chinese instituted market controls and held off a meltdown. This did not stop world markets from joining the selling panic.
EU
The European Union faced a financial crisis in 2008 with the Greek economy and its excessive debt. They flooded the market with QE and other stimulus to stop the bleeding. Our market has its largest correction in August 2008.
How about our banks lying on NINJA loans? How about Enron? The list could fill a book and dear reader, I suspect this same lying is happening as I write this blog.
The Baltic Shipping Index(BDI) holds the key. It tracks world commerce by shipping on the high seas. Yesterday, it stood at 1185. What does this number mean?
Well, it is way below what would be classified as a normal economy. The way our stock market hits new highs as well as world markets, this index should be over 4500 on its way to 5,000. It is not. It is in a downturn from a not recoverable level. It reached its high in December of 2017 at 1750. This was an uptrend from a low in 2016 of 300 which is a depression level as well as the current level. Let me repeat that, we are still in a DEPRESSION LEVEL!
This index is telling us that the global economy has not recovered and the highs in the market is the result of cheap money and low interest rates. Earnings are masked by company buybacks This leads me to one conclusion, Goldman Sacks can never be trusted. I always fear whenever they talk about precious metals because they are for fiat currencies, but even with that said, I agree with them that 4.2% is as dangerous as a four-deuce attack by Charley back in the day. Continuing, I must clarify. I agree with them because by that time all the accounting tricks will be exposed. Housing will be negatively effected and oil will be hurt by electric cars. However, it is better to attempt to get the market back to normal levels than let fear keep us addicted to cheap money which destroys our standard of living and allows politicians to spend which also destroys our currency. If you have not earned it, you cannot spend it!
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