Will this chicanery of the Federal Reserve end badly? They are doing what they used to tell banana republics not to do — trying to dig yourself out of a financial hole by printing money. It worked 10 years ago, but will it work this time, on a much bigger scale? If the markets ever begin to doubt it, then all hell breaks loose. It’s a credibility game. Belief can crumble quickly — virtually overnight. One day you have total faith in them, the next none.
Category: Economics and trade
Stock Market Collapse?
Keep an eye on the 10 year Treasury. If that goes down to zero interest or below, then a stock market collapse is imminent. I think it may happen when all the enthusiasm about going back to work backfires as investors realize that it ain’t going to be like it was before, and the economy going forward is going to be weak and subpar. That’s when the shit hits the fan.
Right now, speculators are basking in all the Federal Reserve money printing. The stock market is highly speculative and often not very realistic, but the bond market is always very tough minded and shrewd. The bond market will realize first that going back to work ain’t working out very well. That’s when everyone will pile into Treasuries and out of stocks, and we could see another October 29th.
If the 10 year Treasury goes to zero interest, you will have been warned.
No More Recessions
So the issue now is really can the Federal Reserve just not allow recessions to happen by printing a blizzard of money? Notice the obvious severe dichotomy that is taking place. The US economy and to a large extent the world economy are almost totally shut down, but stock markets are going back to all-time highs.
Jumping Into A Puddle
If people don’t start to go back to work soon, despite the obvious risk, we are going to be looking at a depression with a capital “D”. Damned if you do; damned if you don’t. Sometimes in life there are no good choices but you still have to decide, like that famous photograph by Cartier-Bresson of a man jumping into a puddle.
Gainfully Employed?
How many of the wage slaves out there are going to realize that they kind of like not having to work?
Before this pandemic fiasco was upon us, the number of gainfully employed in the US population among adults was 60.8%. I suspect that after the fiasco, that number will shrink due to the above-mentioned reaction — some people will find being unemployed to their liking.
Bale Out Nation
Bale out nation…by a government that is already deeply in debt. When will there be consequences? Don’t kid yourself — nothing is free.
Stock Market Direction?
Everyone is wondering now if this is a V-shaped recovery or if we are going to retest the bottom (around 2200). If we retest and break through, there is a very strong support level at 1600 because that was the top of the market in 2000 and 2008. If we do see a collapse, I don’t think it will go below that level.
I’ve been seeing suggestions that the mortgage market is broken since banks are now demanding higher interest rates because they are anticipating layoffs and want to be compensated for taking on the credit risk. It could be the overpriced real estate market is very shaky here. So a collapse in the housing market could be the trigger — again.
Bale Out Nation
The negative side to all the various bale outs by the Federal Reserve and the government: more crony capitalism where weak companies that should fail and just disappear are kept alive. Why there has been such poor growth in the last 10 years — all these zombie companies that are unproductive. Bale out nation — that’s how you undermine capitalism. Assets are spent on unproductive companies.
Federal Reserve Takes Action
Pretty blatant market control by the Federal Reserve. Will be interesting to see if their market manipulation works and prevents a collapse. Their 2.3 trillion this morning reversed the futures from negative to strong positive. 2787 is a 50% retracement from the lows. If it gets as far as 2850, the bullish case takes over. Otherwise, it’s a bear trap. If it starts to fall again, the next leg down is going to be truly terrible, as this rally is all based on funny money from the Federal Reserve — it worked in 2008/9, will it work again? Earnings start on Tuesday with JPM. Not surprising the Fed sprang another 2.3 trillion this morning as unemployment went up another 6.6 million people in just a week. It’s really no long about coronavirus, as the plateaus are in for the virus — it’s about the economic devastation that it will bring now and for the next 5 months minimum. The unemployment rate may get to 20%. That’s what the Fed is reacting to.
Economic Recovery?
Will the Federal Reserve and the Treasury just paper over this financial crisis with tons of dollars like they did in 2008 so there is no collapse or will the collapse happen anyway? That’s the question.
Henry's Views 