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Fallout From the Fed Not North Korea Shocked the Markets – Ep. 129

  • Well the Dow Jones got clobbered again today, down 252 points at the close
  • The NASDAQ down about 55
  • The transports continue to get clobbered down another 146 points, decisively in bear market territory
  • CNBC blamed the entire decline on jitters over North Korea’s hydrogen bomb test
  • I admit that this prospect is not good, but I don’t believe that announcement was the reason for the decline
  • The real problem is the Fed removing the monetary herion from the addicts on Wall Street and this is the withdrawal
  • Former President and CEO of the Federal Reserve Bank of Dallas, spoke on CNBC yesterday and he admitted that the Fed “engineered a stock market rally”
  • They wanted all this phony wealth to cause us to make irrational decisions
  • That’s what happened during the dot com bubble and to a greater extent during the housing bubble
  • Here you have it from the words of a former Fed president, a voting member who voted for QE 1 & 2 who is saying that the Fed did this to create a “wealth effect”
  • He even said, don’t be surprised if the market goes down 20% – it’s still overvalued – he admits the Fed was propping it up
  • Obviously if the Fed removes the props the market will go down
  • After Simon Hobbs asked Fisher if he is going to apologize, he said,” Don’t blame me, I voted against QE3!”
  • He is throwing his colleagues, including Janet Yellen, under the bus
  • Now that he is no longer at the Fed, he refers to it as a “giant weapon that is out of ammunition”
  • The Fed still has ammo: cut rates (in this case, even to negative) and QE4, their big bazooka
  • There’s plenty of ammo left and it will be fired a lot sooner than people think
  • Korea is an excuse, but Richard Fisher is letting the cat out of the bag, but no one in the media is picking up on this
  • Also in the markets today, while stocks were going down, gold was going up – gold hit a 2-month high today
  • As fast as it is going up in dollars, it is going up even faster in other currencies, like the Canadian dollar, which hit a 9-year low, the Australian dollar
  • The yen was up – the dollar/yen is breaking down – to me that is a very scary proposition for the markets to see this strength in the Japanese yen
  • Oil prices continued to drop, down another $2 today – we’re trading below $34
  • Gold stocks were up – you’d think they would be up a lot more because mining costs are plunging and revenue is going up, but Wall Street is oblivious to the bargains that exist in the mining stocks
  • We got a lot of economic news today and most of it was, as is typically the case, bad
  • Yesterday vehicle sales were at a 6-month low
  • Last year was a record for auto sales, but December was a 6-month low despite all the Christmas giveaways
  • Meanwhile the inventory to sales ratio continues to rise – a new high since the 2008-2009 great recession
  • Also GM got clobbered today, down about 4% – already down 9% for the year and down more than 20% from its 52-wk high – that is a bear market
  • This is telling me that the auto bubble has popped
  • There are going to be a lot of layoffs in the auto sector – good, high-paying jobs
  • I have said that starting in January 2016 we would start to see layoffs because the numbers have been horrible
  • Sure enough, Macy’s today announced a restructuring, laying off thousands of workers because of disappointing sales throughout the year
  • We will see a huge blow-up in the securitized market for auto loans
  • They layoffs are coming – the low unemployment number is the rear view mirror
  • Looking at the actual economy in the windshield is a disaster for jobs
  • This is deja vu – in 2008 the subprime market had already exploded – the housing market problems should have been obvious
  • Yet everybody said, “don’t worry, it’s contained.” and I said why can’t anybody see that everything I have been warning about for years is happening
  • People were still denying what I was saying even as the financial crisis had already begun
  • This is the same thing now – a lot of my warnings are unfolding before our eyes, yet everybody is just as oblivious as they were in 2008
  • This is all going to be happening relatively soon
  • Let’s go over some of the economic numbers that came out that show me that we are probably already in an official recession – within the government’s own parameters
  • A lot of people give me flack for saying we were in a recession a long time ago, but the government has been cooking the books
  • I’m talking about an official recession, where even the government’s rigged numbers show negative GDP
  • We did get a positive number from ADP – way above estimates – the consensus was 190,000 and the print was 257,000
  • Wall Street is taking solace in this number but it doesn’t make any sense because the employment component of the PMI’s and the ISM numbers are showing big reductions in jobs
  • I think if you go back historically, ADP goes back and revises numbers much later and this might be the case here
  • The trade deficit on the surface didn’t appear all that bad – 42.4 billion, slightly better (sic)
  • Here is the devil in the detail: the reason that the trade deficit went down is because out imports fell less than our exports, showing a shrinking economy
  • The lowest number in 5 years
  • Here’s the bad news: We got a December PMI Services that was 56.1 for the previous month but December was 54.3
  • All the manufacturing numbers are already sub-50; it’s just the service sector is lagging behind
  • Factory orders -.2, meeting expectations, but we are down year over year for the 13th consecutive month
  • The last time this happened was in the recession of 2008 – 2009
  • We are getting data that only happens when you’re in a recession, so it is likely that we are in a recession
  • Probably the most troubling number should be the December ISM number – last month was 55.9, they were looking for an improvement to 56.2. instead we sank to 55.3
  • We are continuing to move down in the service sector
  • Also today we got the FOMC minutes – if you remember it was unanimous – no one dissented
  • That was part of the show to instill a false impression of confidence in the economy and the markets
  • The minutes showed that there were members who voiced concern and had to be convinced
  • In the end the members decided to “take one for the team”
  • The Fed felt confidence that the markets were blessing the rate hike, but they were wrong
  • How much lower will the Fed allow the market to go down before it comes to its rescue
  • The one thing that hasn’t happened yet, the nail in the coffin is the reversal in the dollar
  • The Yuan is going down against the dollar – the Chinese want the Yuan to trade as other currencies
  • The real move in the Yuan will be way up
  • When the dollar reverses, China will let it fall against the Yuan and that’s the game changing event
  • Next time, the dollar crisis will lead to a sovereign debt crisis
  • Everyone who was blind to the last crisis is just as clueless this time