If you follow my work, my analysis on central banking actions are coming true. Central banks original mandate was to be the lender of last resort. It morphed to stabilizing prices and maximizing employment as mercantile economics came back in the form of keynesianism. Now, we are seeing central banks becoming the BUYERS of last resort.
President Trump’s Achilles heel are the Stock Markets. He needs markets to be up, and avoid recession, in order to win the elections next year. The truth is all incumbents or ruling parties are voted out due to economics. If the economy was as strong as Obama and the Democrats said it was, then Hillary would have won the elections. It is all about economics, everything else is noise.
In fact, President Trump’s desperation can be displayed with him calling up the big 6 banks on Wednesday amidst stocks moving lower. https://www.cnbc.com/2019/08/16/trump-reportedly-held-call-with-major-bank-ceos-on-wednesday-as-the-stock-market-plunged.html
Wonder what he told them to do?…Keep stocks propped. The party is not over. Wall street and the banks will still make tons.
This is why China holds the cards with this trade war. They know if markets tumble, it will be President Trump who will be forced to the trade talk table in order to take a China dictated trade deal. China has no elections, and has a pretty strong state grip on the people (surveillance etc).
So I talked about why the Fed would be cutting rates. In my post below, I outline why rates must be cut…and why it may not help the US Dollar to go lower. This is where we seem to be heading, however, in the long term, all fiat currency will die. We are seeing this occur now as central banks begin cutting rates. It is a race to the bottom.
On Thursday night, and on CNBC the day after the word “stimulus” was floated out. More stimulus along with rate cut is coming. They won’t call it Quantitative Easing ( QE ). Why? QE was supposed to be a desperate policy to prevent another 1920’s-30’s like great depression. The truth is we did not solve anything. Bad debts and debts are getting larger.
However, I argue there will be a confidence crisis as many investor’s and market participants realize that this QE (will be called stimulus or a new name for it) will be the norm. Central banks become buyers of last resort. They will become more powerful.
Once this came out on stimulus, bonds began to stabilize a bit. The 2 and 10 went back to normal, and the 30 back over 2%. This tells us something VERY IMPORTANT. Money is leaving the safety of bonds and is going into the stock markets.
As interest rates are cut, yields will still be going lower. However, this means if you want yield, there will be nowhere to go except stocks. Bonds won’t be held for yield. Real Estate might lag because you would want to wait for interest rates to be cut to the bottom. Why take a mortgage when you know rates are heading lower.
This is the game folks. Everything and anything will be done to keep the stock market up. Fake markets. This is because the President needs this to win re-election but ALSO the pension funds who have been forced to go into stocks due to suppressed bond yields. If stocks ever fall, many will not see their retirements and we will have a pension crisis as well.
The game here is to kill the middle class. When this all reverses, it will be the middle class left holding the bag. The banks will be out. The wealthy will be out. Just realize that the party is not over yet. Stimulus and rate cuts are only for propping the stock market up due to the geopolitical and economic reasons I mentioned. This means inequality and other social issues will get worse. This will be a golden age for active traders. Use this game to our advantage.
We will know the party is over once bonds begin to sell off and rates spike. This is still a long ways away, and the Fed may even pull off a Bank of Japan and European Central Bank by going negative and then killing the bond market where they are the only purchasers…but this would likely mean the fall of the US Dollar as a reserve currency.
Also, confidence crisis can occur anytime, which I have outlined in my posts before. Geopolitical tensions will arise as well. As economic issues worsen, leaders of nations will want to protect themselves…going to war is what they will do. When all else fails, they take you to war. Turkey is the big one to watch…but now even China perhaps.
So if we see markets break above the flip zone re-test once the promise of stimulus gets more cemented and assured, we will likely see our first fib target on the weekly be hit at 3108. Again, there will be nowhere to go for yield except markets.