Traders seem obsessed lately with the ups, and mostly downs, of crude oil — so much so that every dip, feint and jiggle in energy futures is being replicated almost tick-for-tick by the S&Ps. A recent op-ed piece by Don Luskin in the Wall Street Journal asserted that falling oil prices brought on mainly by a fracking glut are crushing the world economy, but this gets it exactly wrong. In fact, falling crude prices are merely symptomatic, albeit in a big way, of deflationary forces that are starting to implode the global economy with black-hole force.
Economists, policymakers and pundits should be focused on the strengthening dollar, since that is the locus of deflation’s power. That they have instead trained their attention on crude is understandable, since falling prices threaten to gut some very large producers. But the epiphany is likely to be the same in any event, to wit: the Fed is no more able to restrain the dollar than keep oil prices from falling. If you understand this, you can see why the token tightening in December was the worst policy blunder ever made by a central bank. It has set in motion a global deleveraging that will not stop until the Dow Industrials have shed two-thirds or more of their value.
If the unwinding replicates the 1929 Crash and its aftermath, stocks are destined to fall by 85%. That figure could prove to be optimistic, given that the dollar was sound when the Great Depression began and roughly a third of the U.S. economy was tied to agricultural. Americans literally lived off the land back then. These days, tens of millions of workers probably have no idea whether the economy could do without them. Unfortunately, they may be about to find out.
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What are dboys doing at the end of each day? the market is being manipulated by infusions of bankster money……where do they get it all?
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Well, for starters, companies with billions (or even tens of billions) of idle dollars of their own are going out and borrowing even more billions to buy back their own shares. That is the way many companies “grow” their earnings these days. We’re not talking small change either — something like $1.5Tr worth of such shenanigans. RA
Ok . . . so THIS market decline (# 81) appears to have some teeth as do most drops that only stop when you think this really may be the one! And so it goes – – but – – this one really does look like the one!
So, here’s the million $$ question – – most people on this blog believe that deflation will carry the day when the great implosion occurs – so what will the Fed do? Will any amount of Fed printing work to reverse the simultaneous market & debt deflation bomb and inflate / hyper-inflate the value of SF’s penthouse floor flats?
Many here over the years predicted the demise of the dollar – and here it is rocketing up as the rest of the world erodes and investors see the dollar as a safe haven comparatively.
So, here I am predominantly in cash in a deflationary environment – winner! – only to see the banks that hold my dollars could close their doors when they go insolvent in this eventual crisis.
I’ve never had so much time to prepare for a disaster and been so unprepared.
Oh, how I long for the days of a safe 6% 5 year CD ….
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Where ya been, my friend? We could use a little more of you around here! RA
RA,
What are the chances that the FED’s quarter point move was the equivalent of a drive by on the Chinese liquidating part of their war chest of Treasury Bonds? EM currencies are crashing and as you well know, our one off currency play in SNIPP Interactive has the potential to be further decimated by the collapsing Loonie. FED engaging in a proxy war with would be super powers by flexing their funds rate?
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I attribute the rate ‘hike’ to pure, unbridled stupidity, Shawn. Note also that there’s not much ‘flex’ in the federal funds rate, since other sources of short-term borrowing are so loose to begin with. Take heart with regard to the loonie: the March contract has nearly achieved my 0.6830 target, and a bounce from that number is all but guaranteed. Unfortunately, a rising loonie seems like SNIPP’s best hope to rise in value over the near-to-intermediate-term. RA
My Port Royal argument for everlasting USD strength has yet another confirmation:
http://www.nytimes.com/2015/12/15/us/shell-company-bel-air-mansion.html
And speaking of LA, it seems the Rams, and either the Raiders or the Chargers are heading for a new stadium in Inglewood.
A stadium that will cost about 3 billion USDs.
And the NFL and the team owner promise to kick in a few million!
No, really, they promise!
LOL!
good one, guess we are on the opposite side of that DX trade.
LOL
And, Just think if so many are wrong about the US dollar and it turns, and goes down to new lows.
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Yeah, and wouldn’t the skies be crowded if horses and trees could fly! RA