As expected, the Fed lowered interest rates for the third time this year. As I also expected I almost threw up in my car as I listened to Jerome Powell (fed chair) mislead the public yet again about the economy.
All is well and the economy is “in a good place” according to Mr. Powell. I guess that is why he and his cohorts are needing to lend the banks a $100 billion per day, $60 billion in longer loans each week and why they need to buy $60 billion per month in Treasury bills. This is bigger than the original QE and yet Mr. Powell actually said in his press conference that these actions taking place right now “may not be enough”.
This explains a lot as Treasury Secretary Mnuchin has said that some of the rules for bank reserves (cash held aside in case of a crisis) may be eased going forward. Isn’t that something- taking away a cash buffer just when it is likely to be needed most? Of course, if the Fed determines it needs to do a trillion dollars a day in repos do you have any doubt they would? It appears to me that we have arrived at “anything goes”.
It appears to me that we are at the same place we were in 2008 with the financial system seizing up but instead of begging congress for $700 billion and handing out over $16 trillion in stealth (GAO) they are now just doing whatever it is they please. We are bailing out the banks yet again even as they are mostly recording strong earnings. What is wrong with this picture?
I was a bit surprised by reading many authors that I respect and read often that the Fed is using up all of its ammunition before a crisis hits. REALLY? Why on earth would anyone not come to the conclusion that a crisis is at least in the early stages when we see the actions being taken by virtually all of the central banks that are clearly being done out of desperation. After hundreds of trillions in money conjured up out of nowhere liquidity is tight to non-existent and the world economy, even with all of the faux demand created by “money from nowhere”, is collapsing based upon virtually all of the economic reports since the fall of 2018.
For those blinded by the surprisingly strong GDP print at 1.9% annualized as opposed to the expected 1.6% growth I will point out that the 1.9% is 35% LOWER than the same reading in 2018. Strong???
Germany is in a recession as exports continue to fall and the same thing is happening all over the planet.
We are not immune regardless of the musings of those in charge.
Not only are the economic reports horrible but there is strong evidence that the chasm between the “haves” and the “have nots” is becoming so great that we are seeing mass riots in many parts of the world. As a matter of fact there is not one continent (other than Antarctica which has virtually no population) that is not being affected by mass civil unrest. Actually, Chile had to cancel hosting the meeting where Trump and Xi were supposed to sign “phase 1” of a trade deal because of mass violent protests.
I was particularly appalled by Mr. Powell fantasizing about how those at the bottom are seeing the largest gains in income. Every chart I see shows that virtually all wage gains have been going to the top 5% and even more to the top 1%. Hence, the reason we are seeing civil unrest virtually everywhere and why we are likely to see it here in the USA in the near future. I’m not even taking into account the rage that exists between the Trumpers, never-Trumpers, supposed conservatives and supposed liberals.
I believe all of the financial and news game shows are doing their best to cover up the news that is really important to us and our future well-being.
It also appears to me that in this paradigm of “anything goes” it is likely that stock prices will be propped up for a bit longer. It appears that bond yields will be held where central bankers want them for a while longer. The problem is we don’t know how long is- a while longer. Where is the cliff?
As the central banks continue to manage all of the markets (full blown socialism already- capitalism would have none of this) the things that I have written are coming to pass.
Each and every action needs to be bigger to get the same results. Eventually, the central banks are lenders and buyers of last resort, and if current trends continue, they would own most assets in the world with no more than a mouse click.
I have also said watch what they do- not what they say. They say “all is well” but their actions speak LOUDLY- All is NOT well! They say gold is a barbarous relic as they buy in record amounts both last year (571 tons in 2018) and are on pace to set a new record in 2019.
Let me ask a question. Are you more comfortable buying assets that are on sale or those that you have to pay a premium for? Those assets trading at higher than normal valuations are likely to see a massive haircut when this unravels while those assets being artificially repressed are likely to rise meaningfully. If nothing else I would suggest that you hedge your bets.
It is my opinion that we are in a Virtually everything bubble. I also believe that a few assets are in an inverse bubble. That would include gold, silver and platinum where futures markets are being used to suppress the prices of those assets. Keep in mind what happens when bubbles burst.
One more important thing happening lately is the BIS (Bank of International Settlements- central bank of central banks) has come up with a plan to have central bank crypto-currencies being used by 2025. They have already set up 3 hubs in Switzerland, Hong Kong and Singapore to further this mission. The UK and USA are next up on their list.
To me, this means the US dollar has to be weakened and then replaced. If this is true, then we should likely be buying assets that will benefit from a weakening dollar (real stuff).
For anyone thinking that this is a good idea (central bank cryptos) keep in mind that this would allow those in charge to track and tax every single transaction as well as restrict your ability to buy and sell if you don’t follow their rules.
Anyone who thinks this is far-fetched ask the Chinese who can’t get on a plane or a train because their “social credit scores” are too low. It is ALREADY happening in China.
It appears to me that the entire economic system is on the cusp of major changes. It is likely that the advantages the USA has enjoyed since 1944 (“printing dollars and getting back hard assets and goods) may be coming to an abrupt end. I also believe anyone not prepared for this coming paradigm shift will be left behind and may take years to recover from it if they are able to recover at all.
Many may have to settle for a more austere lifestyle but when I think about that I have to wonder what the problem with that is. I saw a lot more happiness many years ago when there was less money, less “things”, less technology and less animosity.
In those days there was also a lot more respect for ourselves and others. We worked out our problems together. We had more time for family and friends- you know- the important stuff that we have been neglecting to “get ahead”.
Financial Advisor, Raymond James Financial Services, Inc.
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Pocono Summit, Pa 18346
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