Economic recovery
We are going to address this very briefly because many will be concerned about what impact this will have on the markets going forward. Markets are forward-looking beasts and the mild reaction illustrates that the markets are not taking this hike seriously.
“All the (Federal Open Market Committee) participants recognize that there is considerable uncertainty about how economic policies may change and what effect they may have on the economy,” Yellen said
They spoke big after the 1st rate hike but did nothing for over a year, and now they raise rates again and talk even bigger. This economic recovery is a hoax, but if the economy starts to recoup, then a rising rate environment is bullish for stocks. In this instance, this economic recovery is a joke; it is all an illusion that is funded by debt. If the supply of hot money is cut, the markets will tank. The real estate sector is not stable yet, and most people already can’t afford a house, so raising rates is a recipe for disaster.
Our take is that the Fed has raised rates to give them more room to manoeuvre while making it appear that they are loathed to embrace negative rates. The Fed has to play a delicate balancing game; the US dollar has to look attractive to the world, as that is what gives the Fed the power to create unlimited money. The US dollar is the World’s reserve currency. If it were not, then the US would have followed Greece’s path long ago.
It is our ability to rob the world by creating money out of thin air at other nation’s expense that gives the US capacity to hold onto the top dog position precariously. It is precarious because China and Russia are both investing in their economies and eventually the world will realise that the emperor is naked and old. However, as there is still some time before this comes into play, we are not going to address this issue.
Economic recovery: Smoke and Mirrors?
We believe that the Fed will have no option but to embrace negative rates and this tactic is just a trick to make it appear to the world that our economy is healthy. Now the Fed can lower rates twice before they move to zero, but it will force the rest of the world to lower their rates even more; effectively making the US dollar the most attractive currency.
Lastly, the bond market which many have given up for dead is poised to make a miraculous recovery On the weekly charts it’s trading in the extremely oversold ranges and it is slowly moving to the oversold ranges on the monthly charts. The Downside from here is limited in the bond markets, and when it does eventually rally, we expect the rally to be furious in nature. Then all the experts predicting the end of the bond market will suddenly vanish and then magically change their tune.
One has to wonder why the Fed decided to raise rates so quickly after Trump won the elections given that they only raised them once under Obama’s reign of terror. It appears to be more than a coincidence, in light of the fact that this entire economic recovery is nothing but a joke supported by hot money. Had the Fed not injected billions of dollars legally and illegally into the system, this economic recovery would have never occurred. Only the rich made a killing during this recovery phase, while the working class moved closer to the dog house
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