Dear FutureMoneyTrends.com Member,
The U.S. Federal Reserve (FED) is playing a risky game. As the global economy begins to move into a deep recession, our central planners are acting as if there really was a recovery here in the U.S. I used to think they were liars, but perhaps they are just delusionary. If I had to sum up the U.S. economy in one word, it would be “unsustainable.”
In order for the FED to follow through with its 25-basis-point hike, they will have to drain between $310 billion and $800 billion in liquidity. On the higher end of this estimate, this would mean removing more liquidity than QE2 added! And this is just a measly quarter of a point. With the velocity of money already at an all-time low, the FED is really in a bad spot.
The FED is pushing a “fake ‘til you make it” monetary policy, which has essentially tied all markets to “confidence.” Central planners will need to continue acting as if the economy is normalized 7 years after they marked the end of the 2008 recession, a real structural depression we believe we are still living in to this day, even though the reality is the U.S. and world are facing a second leg down from the depression that started in the mid-2000s.
This puts the FED in the worst position of all. By acting as if everything is normalized, they could actually implode the whole house of cards they have so diligently worked on putting together for the past 7 years. Yesterday, FMT Advisory put out 6 market signs that show the FED and Yellen are either liars or incompetent:
- If the U.S. economy was still strengthening and inflation expectations were truly picking up enough to warrant a Fed hike, then bond yields wouldn’t be declining in a rush for deflationary safety. Treasury yields would be spiking if the Fed were right.
- International markets have struggled with weak currencies against the dollar’s strength, but since the Fed tightened, international markets have showed relative strength, indicating the Fed will be one-and-done.
- Since future inflation expectations are not picking up – which is what the Fed is trying to tame, supposedly – utility companies and REITS have found near-term strength. Utilities ended higher last week, and generally, utility companies get slaughtered when the Fed starts to tighten, because of opportunity costs in the hunt for yield. If the economy was truly getting stronger, utility companies would have never gotten a bid last week during a rate hike.
- The market has almost always historically “rallied” on the first rate hike. The markets instead fell on the very first week of a rate hike.
- Bank stocks would be rallying big time on a Fed rate hike because of higher net interest margins in a strong economy, but bank stocks tanked on the Fed rate hike, indicating a weak economy and a very wrong Fed.
- If the Fed were right about inflation expectations and a strong economy, then why did FMT Advisory’s number-one “hit the fan” business increase in value marginally last week?
If the markets were truly factoring in more rate hikes or a stronger economy, none of the above would be transpiring. For 2016 opportunities and asset allocation, we will be releasing a special report late next week. Now is not the time to be in any mutual fund or status quo investment scheme.