Central Banks Pump Equities & Crush U.S. Dollar by Dennis Slothower – Outsider Club
The stock market retreated on Thursday (sell the facts) following Wednesday’s FOMC meeting announcements; nothing major — just the beginning of quiet distribution.
Though the Federal Reserve has announced it is tapering $10 billion in the month of October, remember it recently injected $19 billion over the last couple of weeks. This has helped the stock market to take on this Teflon appearance in the month of September, historically the weakest month of the year.
The U.S. stock market is the most expensive of all world capital markets, historically so, in large part because the G-3 central banks are parking capital in the U.S. equity markets.
In effect, the G-3 central banks have “nationalized” the markets, detaching price discovery from the real truth, which is why these largely socialistic nations are economically failing. This is why we have the most expensive stock market in the world and the most distorted/corrupt pricing structure ever.
Yet, the plunging U.S. dollar is costing foreign investors in U.S. securities who are not fully hedged against the U.S. dollar significantly.
The Fed’s hawkish outlook of a rate hike in December and forecasting three more rate hikes in 2018 weighed on the precious metals, which fell steeply (gold -$22) on Thursday. This is stoking fear that the Fed is cutting the economic life support out from under the Trump administration.
In short, the Fed is warning investors it is planning to “invert” the yield curve.
When the Fed funds rate is equal to a two-year yield there is no motivation for commercial banks to borrow from the Fed’s window at Fed funds rates and lend capital. We are seeing evidence of this capital slowdown in the car industry, where today Ford (NYSE: F) announced its plans to idle five North American vehicle plants due to rising inventory and slumping sales.
The Fed is not linear in its management of the economy but investment banks want you to think there are no more economic cycles. History proves otherwise.
The stock market remains in the 94th percentile in valuation of the general market, just as the Fed begins tapering and continues to signal more rate hikes to come.
Does this look like a linear market to you?
In fact, after the Fed’s announcement, on Thursday as a reaction, the 5-year vs. 30-year Treasury yields collapsed 91 bps, putting the yield curve right back at the start of each of the last two recessions!
The bond market is now factoring that the yield curve is about to invert — a big-time warning!
NORTH KOREA – GETTING SERIOUS
President Trump announced on Thursday further new executive actions that significantly expand his authority to target individuals and institutions doing business or trade with North Korea.
The President announced that China’s central bank has told its other banks to immediately stop doing business with North Korea.
The President said, “I want to be clear — the order targets only one country, and that country is North Korea.” Trump ordered a 180-day ban on vessels and aircraft that have visited North Korea from visiting the United States and will target vessels that engaged in ship-to-ship transfer with vessels visiting North Korea within 180 days.
I wonder how long it is going to take before North Korea and Russia breach this 180-day ban.
Be advised that FEMA and the FCC will conduct a nationwide test of the Emergency Alert System (EAS) on September 27, 2017 at 2:20 p.m. EST.
The test will assess the readiness for distribution of the national level test message, as well as verify its delivery.
The EAS test is made available to radio, television, cable, and direct broadcast satellite systems, and is scheduled to last one minute. The test is intended to ensure the public safety officials have the methods and systems that will deliver urgent alerts and warnings to the public in times of emergency or disaster.
This is the third mandatory nationwide test of the EAS. The first test was conducted in November 2011 in collaboration with the FCC, broadcasters, and emergency management officials. The second mandatory test was conducted in September 2016.
To your wealth,