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Don’t Expect a Normal Reaction to an Abnormal Situation – Video Blog

  • On Friday we finally got the Non-Farm Payroll numbers for July
  • The consensus is that this reports indicates that an interest rate hike is inevitable
  • This is the rate hike that everybody has been expecting and this report see
  • The report is weak, relative to previous months, but slightly ahead of the consensus
  • It seems like we are going in the wrong direction
  • Labor Force Participation Rate is stagnant at the lowest in decades
  • Q2 GDP was much lower than expected
  • the Atlanta GDP Now Forecast for Q3 at 1% – a third of the official forecast
  • If the Fed was not willing to raise rates last year, when the economy grew at 5%, why would they raise rates now?
  • The Fed may have backed themselves into a corner where they have to raise rates
  • If so, Yellen has already prepared the market for a tiny raise
  • They recognize that the market is fragile
  • It would be a more credible move for the Fed to not raise rates at all
  • The market’s reaction to the jobs data and the “certainty” that rates are going up
  • The dollar sold off somewhat
  • Gold rose slightly
  • Higher interest rages are expected to be bullish for the dollar – Why didn’t the dollar rise?
  • The old adage, “Buy on the rumor, sell on the fact”
  • If the Fed raises rates in September, it will be the most highly anticipated rate hike ever
  • If the market buys on the anticipation of a rate hike, the actual rate hike will be the sell signal
  • The market is telling us it has gained all that it is going to gain from any future rate hike
  • The Fed will deliver much less in the way of rate hike than the market expects
  • The reaction in the stock market was more interesting – The market was down again
  • The longest losing streak in the Dow in about 4 years
  • The fact that the U.S stock market is still falling indicates whereas the currency markets may have factored in a rate hike, the equity markets have not
  • I have been hearing the refrain,”There is no reason to fear a rate hike!”
  • This is a very naive to look at the market because there is no historical precedent for interest rates to stay low for so long
  • These are not “normal” times
  • More importantly, the market only expects a rate hike if the economy get better
  • But now the data shows that the economy is continuing to slow down
  • The crowd that believes a rate hike will not harm the economy should reassess their thinking
  • Corporate earnings, already under pressure will be further weakened by an interest rate hike
  • The consumer is barely surviving with rates at zero
  • 2015 is probably going to be the weakest year of the entire so-called recovery
  • If the Fed really begins to raise interest rates, what is going to happen in 2016?
  • We will be in a bear market, the real estate market will drop and a recession will follow
  • The Fed’s only medicine at that point will be QE
  • The truth is, the economy did not need the first round of QE and it nees QE4 even less
  • This is going to be the mother of all money drops and all the people who have been saying,”The Fed was right!” are taking a premature victory lap
  • Hopefully it will shock the Keynesians into abandoning central banking and central planning
  • And finally embracing a real market recovery based on free market principles
  • Those of us who have seen the writing on the wall will be rewarded in the investment front
  • For having the fortitude to maintain our positions and not throw in a winning hand