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Rate Hike Fear JOLTS Markets – Ep. 107

  • Another day, another 450-point swing in the Dow Jones
  • The market opened about 250 points higher off the back of overseas markets
  • Japan was the standout; it was up about 7% on the hope of more money printing
  • All overseas markets were stronger and the U.S. followed that lead, but at the end of the day, the market was down about 240 points, a lot of selling coming in the final hour
  • Huge swings almost daily over several weeks generally indicates a change in trend
  • The long-term trend of a rising market followed by extreme volatility usually marks the end of that trend
  • All this volatility is based on rate hike uncertainty
  • Sentiments range from rate hikes coming either in September, October, or December
  • The first rate hike is not scaring everybody, it is the consequences of interest rate normalizaion
  • If the Fed does raise rates, I think the market will start looking toward the next rate cut
  • This bubble is so big, the slightest pin will prick it
  • The Fed’s only option will be stimulus to get out of the next recession
  • The cycle will be much shorter because of the amount of debt we have
  • Sentiment is coming from everywhere asking the Fed not to raise rates, which plays into the Fed’s hand
  • This disguises the Fed’s actual intention not to raise rates
  • Market volatility today was probable due to the JOLTS report today which unexpectedly jumped up to the highest level in years, indicating a huge number unfilled jobs
  • The JOLTS numbers have been good for years, and wages still have not gone up
  • This is just the raw number of jobs, so these may be a larger number of part time jobs open replacing full time jobs
  • Many low-paying jobs won’t be filled because entitlements provide higher compensation
  • Everyone is on pins and needles because they know that cheap money is the only thing that is fueling the economy – it’s not real earnings
  • The market may have sold off anyway because there has been a lot of technical damage done to this market and it is likely to go down until the Fed admits that rates are not going up
  • The stock market, unlike the foreign exchange market or the commodities market or the emerging markets have not discounted rate hike normalization
  • This means that if the Fed does rates by a quarter point, the dollar could sell off because it is too little too late
  • It could be the shortest tightening cycle ever
  • The stock market needs to know that the Fed is not going to raise rates
  • The U.S. will lose its safe haven appeal
  • One small example why the Fed can’t raise rates is the sub-prime Auto Loan bubble, which is now above a trillion dollars
  • The short-term benefit to the economy is increased manufacturing, inventory and jobs
  • But the huge reduction in credit quality of these loans provides risk of fewer future sales due to longer payoff terms
  • It is much easier to default on an auto loan than it is to default on a home
  • If we have a trillion dollars in auto loans, if we go into recession next year, we would lose at least $100 – 200 billion on car loans which will further exacerbate the recession in a big way
  • High-paying jobs in the auto industry will be lost,and the Fed has to know this already
  • Another trend is a record high in auto leases because they offer lower monthly payments
  • Leases are not the best choice unless they are bought for a business, providing a tax write-off
  • Otherwise, for personal use, your payments never end – you never own the car/li>
  • I have already recommended not to borrow money to buy a car
  • Save your money and buy a used car you can afford
  • In the Chinese economy, most cars are purchased with cash, from savings
  • The world is confusing our bubble economy for a legitimate economy, and they’ve made this mistake before
  • They made this mistake in the 1990’s, in the housing bubble and they’re making the same mistake again
  • The third time will be the charm, the fallout will be so big that people will finally get the message that this is a bubble
  • You’d better be prepared. This may be the last time to accumulate currencies and assets with will really retain value
  • These assets are now being sold because people believe in a myth
  • But the myth will ultimately be exposed for what it is