Changing Economy… So What?

During the state of the union address a week ago, president Obama suggested that the economy of the United States is changing. He gave a forecast for economic “growth” as well as claimed job creation and claimed that the democrats pulled the economy out of the recession. Hillary Clinton did not leave any of this behind as she claimed that she was part of the administration that ended the great recession. They are either purposefully disingenuous or completely clueless. It reminds me of a Mark Twain quote, “Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.”

As I wrote earlier this month, the Stock Markets open is the worst in the history of the stock market. As we watch the markets drop our way into the new year, the IMF just released a new forecast where they had to cut global economic forecasts. The earnings in manufacturing is  now reporting that it is the worst earning season since 2009, as we watch the USD appreciate against commodities as well as foreign exchange. This shows that the entire rate hike of only .25%. Mainstream analysts are suggesting that we can maintain a profit recession outside the entire economy. Why would anyone invest in anything if there is a profit recession?

Well, there’s no doubt that we are in a changing economy, we are always in a changing economy. This is because people’s wants, valuations, as well as life goals constantly change. The question is how are we going to combat the downturn in the economy? Obama is assuming that he single-handedly fixed the recession caused by bush, all he did was prolong it. Today, the Chinese GDP report was released and it is the slowest growth in 25 years. Manufacturing is dropping in China, as the people’s bank decides over which stimulus to inject. The Chinese markets reacted to expected stimulus in the future. Yet at the end of the month the Fed will release their quarterly projections, and if it is negative that means the fed will have to admit we are in recession. Chinese exports are dropping  so there is really no point in the Chinese to devalue their currency. When the quarterly is released and the United States starts a stimulus on their currency, the Chinese might appreciate their currency which can lift the downward pressure on consumers in the emerging Asian markets, and re-adjust the Chinese manufacturing to domestic concerns at the expense of the dollar. Also, the Chinese will no longer buy US debt, so the trillions of dollars being soaked up by Chinese government will no longer occur; which suggests that the US economy will have a massive currency bubble pop, and if the Chinese appreciate their currency it will cause a restructure on the foreign markets. The inflationary pressure of the US combated with the appreciated Yuan will cause the Chinese long asked for Basked of currencies. This is a very likely future in the global economy. As Obama said, we are in a changing economy. Meaning, we are no longer the economic power house we used to be, and whether thats a good or bad thing, Obama’s economy definitely helped cause it

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Too Little Too Late?

As the year of 2015 dwindled down to a slow close the markets sought the increased interest rate as a measure that insured financial stability as well as an economic recovery. This increase, with the promise to slowly increase rates over 2016, was a long-time waiting. Finally as financial traders and political economists released a sigh of relief as the doom days of endless QE come to a close, right?

Logically one must admit that the FED sure waited a while before being able to actually raise interest rates a historic .25% increase. Historic!? After years and years of printing money and propping up the stock market with artificial asset swaps and purchases, an increase of a .25% interest rate from a 0.25% interest rate is still lower then the Greenspan years, will help slow down the possible inflationary trends?

So while major financial analysts are now taking the position that 2016 is a year of recession, the question is what are the indicators? Well for start we see the Chicago PMI closing q4 at a horrible 42.9%, and layoffs have already started. Dow Jones is down near 500 points on the year, and retail is having a horrible ending quarter as shares dump.

All of this screams recessionary trends, yet the FED raises interest rates? This is due to the fact that the FED wanted to act like the economy is not as weak as it actually is. Currently, we see levels of dollar devaluation getting to extreme levels, and the FED is pretending to use the tools necessary to combat the inflationary trends of the currency printing. So while Janet Yellen raised the interest rates, the question of motive is still in play. Why now? Simple, because the recession is already here and in a few months from now when the FED finally accepts that we are in a recession, Yellen can reverse the interest rates and simply say that the rising of the rates were premature. Again, to escape blame from the endless QE policies.

This recession will not be an easy one, and the question then remains; what can we do to reverse the recession in the most allocative manner to stabilize the economy? Raise rates even more! Feel the blow, take the hit, power through a hard recession and liquidate all the bad assets that had been propped up by the horrid fiscal and monetary policies. We need to pop the bubble. However, what can we do in the meantime to protect our financial assets? Invest in foreign equities and hard metals like Gold. This is because Gold and Silver tend to do well in recessionary trends as well as historically during times of QE. If you look at the NASDAQ 10 yr chart you can see gold prices spike up in times of instigated recessionary tools like QE, during the great recession years, and drop when times of market confidence. This recession is going to hit like a storm, and it might be a good move to re-adjust financial assets now because this year will be a bad year for the global economy.

The real speculation everyone should be asking is if the political motives can continue to prop up wall street speculation. Yellen does not want the recession to fall at the end of Obama’s presidency; its much easier for propaganda reasons allow recessions to hit when a new president enters office. Will the FED be able to prop up Obama’s false legacy of fixing the economy? One thing is for sure, 2016 will be an astonishing year.

 

Stock Market Crash… Again?

At the beginning of the week on the NYSE we saw another massive liquidation of assets, thus resulting in another “crash”. The question is, whether or not this is another crash or the long awaited hangover due directly to the easy money policy that has plagued us time and time again. Such as, when we hit the subprime recession, people initially decided to opt out of taking the hit and decided to go after the “Hair Of The Dog’ approach.

When you stay up all night drinking, the next day you will  pay the consequences of the night of partying. These consequences are being sick and possibly throwing up, in a sense it is your body rejecting all the alcohol that your body has retained. After a few hours, maybe the whole day, you will be regretting the night of drinking. When you hit the worst of the hangover, you begin to feel better and eventually get back to normal. What will make that hangover more harsh is when you resort to the hair of the dog, or the drinking of more alcohol to overcome the horrid feeling you have. In the long run, your body will reject more alcohol making the hangover last longer.

This is much like an inflationary boom and the consequential  recession, the night of easy money policy creates a sense of tranquility. That we can now live beyond our means in a stage of inflationary trends, and dollar devaluation. However, once the market creeps back up and decides that we really are not able to live outside of our means; we will hit a wall and have an asset liquidation. This liquidation acts as a hangover, in the same sense that our body is rejecting the alcohol, the market is now rejecting the bad assets created by an inflationary boom. The best way to deal with the liquidation of assets, much like the hangover, is to allow the bad assets to escape the market. Thus, after the grueling process of liquidation, we will be back to a state of stability.

The worse thing to do  in the case of asset liquidation is to expand easy money, because all it will do is prolong the “hangover” and, much like the hair of the dog, cause a longer harsher recovery. This is what we see happening in the stock market right now. What’s even worse is the market is rejecting the 0% interest rate the Fed decided to continue.

Since Q.E we have seen spontaneous price inflation in financial assets, resulting in liquidation, which has sent us into a perpetual stage of constant easy money and constant liquidation. However; now our fiscal tools are preventing the easy money policy. Plain and simple, there is such high leveraged debt in the market, no one trusts the fed and their interest rate scheme anymore. The stock market took a nose-dive, and things really are not looking up for the United States right now. Now, the bureaucrats are coming up with excuses for the constant easy money policy, though what really needs to occur is for us as a society to bite the bullet, take the hit, then re-establish tight money policy to offset the years of inflation. After such has occurred, we can start allowing long term investment to take place and reintroduce actual capital into the market, rather than over-valued assets.

Janet Yellen, and the Fed, will refuse to allow this to happen. Why? Because it is her job to lie to the people in an attempt to let them know the Fed actually benefits society, rather than causes harm to it. So in the next few days, while the liquidation continues, the people at the Fed and in Washington will scramble to figure out what caused it. Anywhere from the GOP possible Gov. shutdown, or looking to blame China or Russia, in the same manner an alcoholic will say “my neighbors upset me so I’m going to get drunk tonight”. Without realizing, the market has grown dependent on the easy money policy and is now at a stage of rejection; or as the alcoholic negates to realize it is due to their excess drinking that is causing alcohol dependency.

This, the liquidation, is because of the QE policies in place to respond to the inflationary boom and the continual recession of 2007. Just as the elongated hangover is a response to the hair of the dog. We can deduce, through sheer logic, that the biting of the bullet of 2007, as opposed to the bailouts and QE, would have already corrected itself and we would not be in the sense of market turmoil we are in today. I see, QE 4 looming around the corner. Which will only prolong the inevitable.

Big Week For The United States

At the beginning of this new week, again we saw a minor bear market in the NYSE. The DOW Jones only fluctuated roughly 100 index points within the span of the day, comparing the openings of the past few weeks it seems more stable. Is the market really “stable”? Was this past few weeks a minor liquidation of bad assets, that resulted in a crash in the markets, or is there a more serious underlying issue?

Considering the Fed is going to decide on whether to finally give some sort of “tightening” to the markets, might be the major role in this seemingly speculative stability. The question  is whether or not the 0.25% interest rate hike, if allowed, will actually do anything at all? As stated earlier this will not do any significant change, it might cause a speculative bubble at the most. This is because, now that interest rates have gone up a tiny bit, it will show traders that maybe there is still some value to the dollar after all. Considering the interest rate will only be a 0.25% rise, it will not be significant in its aims at contracting the expansions the Fed made in the rounds of QE.

But the underlying issue still remains on what is currently happening to the markets, its like a wheel falling off of your car, all the nuts and bolts are missing ,besides one last very loose one, and you decide to tighten it by cranking the tire iron a couple times. Will that honestly achieve any hopeful results?

The fact is that the monetary printing of the federal reserve has gone on for far too long, and is now in a stage where all of it’s assets are pyramided so tremendously that it can only end in a bust. It can only truly collapse, and it will be a bad collapse. This is because the United States has been leveraging loans continually, for free, for over 6 years straight, yet we have not seen any significant growth! Considering the PPI has not had any significant change over the past 5 years, compared with stagnate new order capital goods shows us that people are not spending money on capital goods. Also, not creating more capital goods where prices should be falling. In a healthy economy prices should fall! This is because over time technology will produce more of a given product, causing the supply to shift rightward, which will correlate to a fall in prices. The fact that the index has not had any significant fluctuations over the past 5 years, keeping supply constant and increasing the demand for capital goods, shows that the rise in asset prices has not gone to any real production, rather just an over-valuation of the asset prices.

If you look at the GDP we see a steadily rise, yet that is only the asset prices rising. Asset prices rising, without any increase in capital, means there is an asset bubble. This asset bubble, as stated before, comes from the strictly easy money policy of the Fed. Can the rate hike help? At best it will prolong the economic disaster for a while longer, and people will be duped yet again by the “omnipotent” cartel we refer to as the Federal Reserve.

Also, strangely enough, we will be tuning in to watch the Republican debate on September 16th. This debate will go along the same lines as every other debate, where politicians are capable of dodging questions, and not giving clear decisive responses. I doubt the actual cause of the stock market turbulence will even be brought up, as the politicians do their best to lie to the American public as to which one of them is better for the “job”. Obviously, for sound economic theory, I must support Rand Paul. The nationalists, like Trump, will continually blame the natural division of labor that brings us all the amazing things we use today, and it will be interesting to watch. This week will be a big week for the United States’ Political Economy.

Did anybody see that Dead Cat Bounce?!

After another start to a dreadful week in the NYSXE we can now see the market truly clinging to life as it reaches out for air, yelling “Save me low interest rates!” If only the market knew that those low interest rates are the dreadful cause as we watch it bounce further and further towards a recession. Historically speaking, the Great Depression was in full force by 1933, then 4 years later in 1937 the news was reporting on how a recovery was occurring and the pipedreams were about as successful as a toilet drain. The markets truly ate that load of crude up, people even suggested that the depression was over and after 1937 it was just a recession, the depression was not over. Does this chain of events sound familiar? No? Not yet? Well lets just wait until the end of the year.

We have seen the market drop from 17500 to near 15500 in around a week. Within that week, the market raised from 15500 to 16526, then closing at 16062. Then we have people, our lovely keynesians, saying the market has been stabilized. Yet anyone with an understanding of economic theory could predict the Dead Cat Bounce. How many times have the austrians been suggesting that QE4 will be arriving soon? This is due to the fact that it is impossible to revive from this recovery.

We can not expect to see any recovery in the markets, and they will continue to curtail downwards. However; the worse is yet to come. People have not been noticing that the Chinese central bank has been stocking gold, and the seemingly reason for this is to make a future power play against a weak dollar. This is what the Chinese government is betting on, and it seems very possible. However, how far will China go? Will they be able to overthrow the dollar with a massive gold backed currency? At this stage, probably not, and what’s even worse now is the fact that China is succumbing to an even more dangerous area in the global economy.
In June of this year the chinese stock market crashed from a little over 5000 to 3500. It has maintained within a 500 range of 3500 for the past 3 months. This is because the Chinese government forced sale suspension on shares! It is illegal to sell major stocks in the chinese stock market for 6 months! We are witnessing a very contractionary stage of economic “growth”, and now when faced with QE, if the chinese lift their cap, the market will be hit very hard. Why? Because the entire economy of China is in one giant bubble based on an overvalued government propped up export sector. What does this mean? It means get ready for a global recession, because when the Chinese market collapses we will see more bubbles pop up in places like the United States and Europe, and the fact that those bubbles are not based on any actual economic growth, it will act as a ripple effect causing market hits throughout the world.

Bad week for wall street? Or worse?

The beginning of a new week on the NYSXE yesterday, people had their hopes up for the possibility of the markets last week being only a minor bear, however after opening up the markets we saw the crash propel even more furiously than before. It is happening world-wide, not only in the NYSXE. The nasdaq compsosite dropped from 5,000 to 4,300 in 4 days. The shanghai composite dropped from 3800 to 3200 in the same time, and the ESTX 50 dropped from 3450 to 3000 in the same 4 days. Analysts have been attributing it to the fact that there was a recent yuan depreciation to the cause of the current bear markets. However, I would argue that there is much more to it and not only is the yuan depreciation not necessarily important, the federal reserve banking system will use it as an excuse to continue on the 0% interest rate path towards destruction

The fed chairwoman, Janet Yellen, signaled that we should expect a rate hike in September of this year, however with the new situation with the global markets crashing analysts are now suggesting that we will not receive a rate hike. While a falling yuan would contribute to dollar strength—potentially giving the Fed pause—” he said, how can the fed introduce rate hikes? The suggestion that the rate hikes are going to be even close to enough to offshoot the years of free money printing is absurd in the first place. We are talking around a .01 or .02 percent increase, though we have been bamboozled in round after round of quantitative easing for over 4 years now. After which, we now see where the economy is.

After quantitative easing we have started to witness a shrinking stock market, which is due to the nature of quantitative easing. Considering the fed can now buy up all ill-gotten assets, many people are being weary of entering into certain markets. The result has been a decline in U.S. business dynamism. Also, we see that long term yields have been steadily declining, which means there is a lack of long term investment. Yet all of this is caused by the cheap monetary policy given by the fed.

So then, devaluing the Chinese yuan is causing investors to not invest due to market turmoil? I think not. This shows that the easy money policy within the United States, and the world, has caused a shrinking stock market, has caused a lack of entering firms, and a fall in long term investment. This is all due to the fact that nothing of value was created by Q.E. The fact that the entire policy of Q.E. is geared at leveraging failing businesses towards a national debt is a sham, and should have never occurred. Thus, the fact that this has occurred has now set into a cycle of endless Q.E. where no matter which way the fed looks, they will always need to continue with easy money. This is because when the Fed creates money, what it is initially doing is leveraging debt. Since, the fiduciary media never existed before, the central bank will create it and loan it out with massive leverage ratios. With those massive leverage ratios, it then becomes nearly impossible to reverse the lending simply because those ratios are pyramided on top of each other. When the fed goes into a “contractionary policy”, after QE, it will dismantle all the pyramided debt and cause an implosion in the banking system due to the fact that the leverage ratios were propped up by the expansion.

When enacting Q.E. the central bank set into motion that ability to buy up assets, as well as pyramid out debt even quicker. This means, now, the leverage ratios for key players will be even higher and more consolidated than prior. So, how can the Fed effectively “combat inflation”, when all of their debt is pyramided out? Simple, the fed can’t combat inflation, leaving it wide open for a dollar devaluation. After the next few rounds of QE, considering we can not afford another massive stock market crash, we can see an abandoning of the US dollar, such as Peter Schiff warns. The United States is in one giant currency bubble, and it will pop.