Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Fed Has Admitted It Screwed Up… the Next Crisis is Coming

Stock-Markets / Financial Markets 2019 Sep 30, 2019 - 04:25 PM GMT

By: Graham_Summers

Stock-Markets

That’s THREE strikes against the Fed.

The Fed cut rates again in September.

At this point, trying to keep track of the Fed’s reasoning for monetary policy is all but impossible. There is no logic or reason behind anything they do.

A year ago, the Fed told us that hiking rates four times a year while running $50 billion in Quantitative Tightening (QT) per month would have no effect on the economy or financial system.


At that time, the Fed told us that even if the financial markets did drop because of Fed policy, the Fed would not change course.

Then, in the span of six weeks, from late November to early January the corporate bond market imploded, and the Fed abandoned its entire strategy for normalization.  Stocks suffered a crash and the Treasury had to step in to prop the system up.

That’s Strike #1: the Fed proved its models for projecting the impact of monetary policy on the financial system had no connection to actual reality.

Moreover, anyone who was monitoring the financial system would have seen as early as last July that the Fed’s policy was destroying global growth and would result in a crash (I certainly did).

Strike #2 came later after the Fed spent six months (January to July of this year) pushing for extreme monetary policy including:

1)   Introducing Negative Interest Rates

2)   Making Quantitative Easing (QE) a permanent, normal policy instead of one used during crises.

3)   Targeting bond yields to corner the bond market even more.

4)   Using QE to buy assets other than Treasuries (corporate debt, stocks, etc.).

It’s odd because throughout this time period, the U.S. economy was growing and unemployment was falling. And yet, for six months the Fed claimed it was data dependent, while suggesting it should start using these various monetary tools.

Strike #2 hit when the Fed then cut rates in July despite unemployment being below 4%, the economy growing by at least 2% and stocks being within spitting distance of all time highs.

If you’re going to claim you’re data dependent and can’t be influenced politically, why would you then cut rates when ALL of the data is ranging from strong to very strong? The only reason the Fed is that the Fed buckled to political pressure from the Trump administration. So there goes its claim that it is politically independent as well as its claim it focuses on the data.

That’s Strike #2 for the Fed.

Which brings us to late September, in which the Fed cut rates again despite both economic data and the financial markets strengthening since July, while also ignoring the worst liquidity crisis since 2007.

You’ve probably heard about the “repo crunch” or “liquidity crisis” occurring at the Fed over the last few weeks. A detailed explanation of these issues would require an entire book, so for simplicity’s sake, the best explanation is as follows:

1)   Banks park money with the Fed on a daily basis.

2)   If banks have extra capital, they lend it to other banks that need it at a particular interest rate.

3)   This interest rate is THE interest rate the Fed targets with its rate cuts/rate increases.

4)   Banks have suddenly started charging one another a rate of interest that is HIGHER than the Fed’s desired rate. This means capital is in high demand “behind the scenes” which suggests banks are in trouble.

How bad was it?

Overnight lending facilities hit rates as high as 5%+ (remember the Fed’s current desired rate is 2.25%) for capital.

All of this indicates that “someone” or “someones” are in SERIOUS need of money. To address this situation, the Fed has had to stage its first liquidity injections since the 2008 crisis. All told, the Fed will put $275 BILLION into the financial system at the end of September.

So when I saw “someone “ or “someones” are in trouble, I’m not talking about a small hedge fund, I’m talking about large financial institutions that need nearly a over quarter of a trillion dollars in funding over a four day period.

If this sounds a little familiar it is exactly what happened in 2007 during the first phase of the credit crisis.

From August 2007:

The Fed garnered attention last week by adding billions of dollars to the money market to relieve upward pressure on interest rates. How do these operations work? Here’s a primer.

The Fed influences growth and inflation by controlling short-term interest rates. It controls those rates in turn via its monopoly over the supply of reserves to the banking system.

Source: Wall Street Journal

Put simply, the Fed is currently facing the worst funding issue in over a decade. Again, we’re talking $275 billion in liquidity injections occurring.

How did the Fed address this in its FOMC meeting and Powell’s Q&A session?

It didn’t.

There was little if any mention of any of the above issues by the Fed. Fed Chair Jerome Powell completely avoided the topic during his prepared remarks. And during the Q&A portion of his appearance he ducked every question concerning it, instead suggesting that this issue was related to the U.S.’s fiscal condition, which are the “Treasury’s job and Congress’s job.”

Strike 3.

At this point it is clear the Fed no clue what it’s doing. Between this and the desperate efforts to pump money into the system I’d say we’re in “late 2007” when it comes to the next crisis.

A Crash is coming… and smart investors are preparing NOW before it hits.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming collapse will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

Today is the last day this report will be available to the general public.

To pick up one of the last remaining copies…

https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

Best Regards

Graham Summers

Phoenix Capital Research

http://www.phoenixcapitalmarketing.com

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and unde74rvalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2019 Copyright Graham Summers - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Graham Summers Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in