A Fed-Engineered Recession?

A Fed-Engineered Recession? by Dennis Slothower – Outsider Club

TDC Note – Our entire economy is engineered by the Federal Reserve, so, yes, the out-of-control inflation, bubble economics, past economic crashes and future greater economic depressions will all be Fed-engineered.

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The Federal Reserve indicated it is looking to begin tapering its balance sheet in September, but also revealed concerns over weakening inflation data, and the beleaguered President who is unable to get his “pro-growth” fiscal policies started.

In the past, Republican presidents Ronald Reagan and George Bush were able to initiate pro-growth fiscal policies in tax cuts and other policies that stimulated growth for small businesses. Given this success, the Federal Reserve felt justified in delivering recessions early in their Presidencies by jacking up interest rates.

Given the growing divide by the moderate Republicans who are joining with the Democrats to block Obamacare and likely tax cuts, the Fed may well have engineered a recession with President Trump fully hogtied and growing more politically isolated day after day.

Keep in mind that big business tends to run left and has been well groomed under the Obama administration, so it is not altogether surprising to see a number of CEOs choosing to use the situation of the President’s failure to sufficiently condemn white supremacists as an opportunity to resign from the President’s two advisory groups.

These two big-business advisory groups, the “Manufacturing Council” and the “Strategy & Policy Forum” haven’t met since last February so they have been dysfunctional anyway. So, on Wednesday the President said, “rather than putting pressure on business people of the Manufacturing Council and the Strategy & Policy Forum, I am ending both.”

It is no wonder the stock market doesn’t seem to know what path to embrace. The propaganda of stimulus via Republican fiscal policies is looking less and less likely, with Republican Senate Leader Mitch McConnell unable to deliver anything productive to the President from the Senate, whether by design or sheer ineffectiveness.

New Recession Signs

Meanwhile, notice what is happening to industrial production. We are slipping into recession as I have been warning! This economic situation is not going away!

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On Thursday, we learned that industrial production missed expectations — at 0.2% in July from 0.4% in June. Manufacturing production shrank -0.1%, damaged by a 3.6% plunge in motor vehicle production (the demand for cars is plunging now).

Technically, the stock market is breaking down through some key long-term support levels, especially in the small-cap stocks. It is now becoming more apparent that July was indeed the top in the Russell 2000 index, our leading market index, as it tested support levels again today and broke well below its 200-day moving average and most recent low.

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After Thursday’s selling the Russell 2000 has zero gains for 2017. This isn’t to say that the Russell 2000 can’t try and bottom around previous lows at the 1342-1351 support levels but it is exceptionally vulnerable, as breach of these support levels could bring on fast market selling, with sell stops being triggered now.

I think the OTC is also very vulnerable as market breadth, the technical underpinning of the Nasdaq Composite, is plunging now. Prices are beginning the process to revert back to mean averages.

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Remember — if the McClellan Summation Index drops to -500, a long-term bear market signal is generated in the Nasdaq Composite via this indicator.

What is also worrisome is the equal weight of the Nasdaq 100 has just dropped to an all-time relative low.

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This illustrates that up to this point most of the work, even within this index, has been done by a handful of big tech names, which also got smacked in the nose. Once again, seasonality factors point to a black storm right before the August-September-through-October time period, where investors would be wise to put capital preservation as their top priority.

I am concerned that too many have forgotten how a bear market develops.

To your wealth,

Dennis Slothower Signature

Dennis Slothower

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Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.