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Will She or Won’t She? Ep. 109

  • Tomorrow we have the most highly anticipated Fed meeting ever, but this will not be the last time I’ll say this
  • We’ll also be anticipating October and December if the Fed does not raise interest rates in September
  • The odds are they won’t do it
  • I put a Bloomberg story on my Facebook page: Yellen’s former aid says a rate hike would be a serious error
  • Why? The official target for the Fed Funds Rate now is at a range of 0 to .25 basis points
  • The Fed is contemplating a rate of .25 which is the high end of the existing range
  • If they decide to keep the rate at .25, all they’ve done is fixed the rate at the high end of the range
  • This is not even a rate hike
  • Why would this be a disaster?
  • Isn’t that an admission that the economy is fragile?
  • When Alan Greenspan lowered interest rates to 1% after the dot com bubble and after Sept 11, people though, this is ridiculous!
  • Now we are talking about raising rates to a quarter of that and it is considered a disaster
  • What is going to change between September and October and October and December – unless they get worse
  • The serious error is to prick the bubble economy
  • The more serious error is for the Fed to raise rates and then admit that it was a mistake they lose credibility
  • We’re going into recession regardless
  • If they raise rates, they will have to launch QE4 sooner
  • Any rate hike will sow the seed of a rate cut
  • On the topic of a recession, let’s talk about the economic news we got today
  • The first release we got was August Retail Sales
  • A rise of .3 was expected and we got a gain of .2
  • These are not great numbers
  • The worse number of the day was Empire State Manufacturing: last month’s horrible number was -14.92 the lowest since 2009
  • Wall Street was looking for -.5
  • September was -14.67; barely an improvement
  • Back to back the worse numbers since the great recession
  • The media barely reported on this number at all, but if it were good, it would have been in the headlines
  • The Redbook Year over Year Same Store Sales Index has collapsed – right now it is at 1.3
  • Previous years ranged between 3% and 5%
  • Industrial Production was expected to fall by .2, but fell by .4
  • Capacity Utilization dropped from 78 last month to 77.6
  • Manufacturing output dropped as well to -.5
  • Auto manufacturing had its biggest drop in 4 years
  • I have been talking on this podcast about the Auto Bubble and we are getting more evidence that the bubble has burst
  • The biggest decline in manufacturing in 4 years is pretty good evidence
  • The fact that there is a huge inventory of unsold cars on dealers’ lots is evidence that the market is saturated
  • We got more news from business inventories: up .1 as expected
  • Sales are also falling, so the inventory to sales ration is still 1.36, a notch below the record high from the ’08 financial crisis
  • Inventories have to come down a lot more because sales are not there
  • They are not there because the economy is weak
  • Earlier strong GDP growth was from inventory buildup
  • All the evidence points to recession
  • Employment numbers, which are theoretically good, are a lagging indicator
  • All the leading indicators of the economy are flashing a warning
  • Yet the media is ignoring the warnings and paying attention to Janet Yellen
  • She is pretending the economy is strong so she can pretend to raise rates
  • We need to allow the economy to go through that unfortunate crisis and allow the bubble economy to burst and the real economy to heal
  • The Federal Reserve shot us up with all these monetary drugs so unfortunately we have to check into monetary rehab
  • The alternative is to die of a overdose in the form of a currency crisis
  • In any event we will find out on Thursday and you will get my take on it late Thursday afternoon here on my podcast