fbpx

Will the Fed Rescue the Stock Market? – Ep. 105

  • It wasn’t a Black Monday of the 1987 variety, but it was one for the record books
  • The Dow was down opened downjust over 1,000 points – the biggest intra-day point drop ever
  • When the market opened down that low, bargain hunters came in for a spectacular rally
  • Bringing the Dow almost back into positive territory before surrendering those gains and ending the day down 588 points, another 3.5% drop, closing at 15,871
  • Taking out the 16,000 handle just a few days after taking out the 17,000 handle
  • All of these drops are being blamed by the media on China
  • The Dow Jones is down about 11% year to date
  • After today’s drop, the Chinese market was down less than 1%
  • This is not all about falling Chinese stocks
  • It’s the Fed – Everybody believes the Fed is going to end the party
  • As we got closer to September, the stock market was already going down
  • I’ve said all along that the Fed was bluffing – it is a game of chicken
  • Finally, today, Barclay’s is predicting a Fed rate hike in March of 2016
  • I think the Fed will launch QE4 before we get to a rate hike in March 2016, which is an election year
  • The media wants to blame the correction on China, as if there are no domestic problems to worry about
  • China should be blaming it on us – we’re the ones who got the world hooked on zero percent interest rates
  • The fantasy was that we could raise rates without an impact on the economy
  • The falling stock market is going to have an impact on the real economy
  • The economy is weak and getting weaker
  • This correction will turn into a full-fledged bear market unless we get some official statement from the Fed that they will not raise rates
  • That may come later this week in Jackson Hole
  • I am going to be in Jackson Hole at an anti-Fed conference
  • Here’s an example of how ridiculous the “Blame China” rhetoric is:
  • Maria Bartoromo was talking about the market decline with respect to the China currency devaluation
  • She actually said that by devaluing the Yuan, Chinese made products will be more competitive against American-made products
  • America does not produce products that compete with Chinese products!
  • She’s grasping at straws to connect the stock market correction with the Chinese Yuan devaluation
  • Right now it is positive for America if we can purchase Chinese products more cheaply because we’re buying them anyway
  • Eventually, however, Chinese products will get more expensive when the yuan goes up
  • She’s just trying to fit the narrative because that’s what makes everybody feel comfortable
  • That’s why I am not on CNBC and CNN – they realize my comments do not support their editorial policy
  • I am not talking about Armageddon for the markets – I am talking about the Fed saving the day
  • I don’t think the market is going to crash, but I believe it will go down until the Fed cries “Uncle” and prop up the equities markets with another round of QE
  • The Federal Reserve did not solve our problems in 2008 – they interrupted the crisis with QE and zero percent interest rates
  • That crisis would have solved the problem but we kicked the can down the road and we finally caught up to that can
  • We are resuming the financial crisis that the Fed interrupted from a much deeper hole
  • Had the Fed raised rates two years ago, we would have been in recession sooner
  • They should have allowed the markets to solve the problems they caused
  • Now we have more debt than ever before
  • I have also been talking about the developments in the foreign exchange markets
  • The dollar has been strong because rate hikes were expected
  • The strong dollar has weakened commodities, other currencies and put pressure on emerging markets
  • We had at one point a 4% drop against the Japanese Yen
  • The Euro got as high as 117 this morning
  • The dollar index closed below 93.50, which was a key support
  • The turn in the dollar index is significant
  • I expect gold prices to march higher
  • Gold stocks got crushed today, however, because the psychology of the market is still negative toward gold and commodities
  • This will do an about face when the Federal Reserve reverses course
  • The Fed was only talking tough on raising rates as long as the rhetoric didn’t come back to bite them in the form of a falling stock market or a weakening economy
  • The Fed missed the opportunity months ago, in response to overwhelmingly weak economic data to concede that the data they were depending on indicated no rate hike
  • Had the Fed admitted that, it would have avoided this carnage
  • Now the Fed can claim they are backing down from rate hikes because of the global economy
  • We will be monitoring the situation pretty closely – they call Tuesday “Turnaround Tuesday” so I would not be surprised if we get a reversal, especially if we get something from the Fed
  • The real turnaround won’t be in the U.S stock market, it will be in the currency markets and commodities
  • The Fed announcing that they won’t raise raise rates wont’ be enough to avoid a bear market, although it may postpone it slightly
  • There has been enough technical damage done to the U.S. market that the only thing to break the downturn will be a QE program
  • This time it will be much bigger and stocks will go up but the dollar will plunge
  • This means the real value of the U.S. market, priced in gold will collapse
  • Now that the Chinese are going to allow their currency to rise, it won’t be a currency war
  • Once the yuan begins to rise, and the pressure is off, the dollar is going to sink
  • And that is the coming crisis
  • The Fed is going to steer us into a U.S. dollar crisis and the markets have not figured out how weak the dollar is going to get