John Williams: “The Fed Will Crash Markets & The Dollar”

 

Economist John Williams warns the Federal Reserve has painted itself into a very tight no-win corner.

No matter what the Fed does with rates it’s going to be a disaster. Williams explains, “You had some very heavy selling towards the end of the year and when you saw the big declines in the stock market you also saw that accompanied by a falling dollar and rising gold prices.”

“This Is Not The Reaction The Fed Wanted”: Goldman Warns Yellen Has Lost Control Of The Market

 

With stocks soaring briskly around the globe following Yellen’s “dovish” hike, and futures set for a sharply higher open with the Nasdaq approaching 6,000, something surprising caught our attention: in a note by Goldman’s Jan Hatzius, the chief economist warns that the market is overinterpreting the Fed’s statement, and Yellen’s presser, and cautions that it was not meant to be the “dovish surprise” the market took it to be.

Specifically, he says that while the FOMC delivered the expected 25bp hike, with only minor changes to its projections. “surprisingly, financial markets took the meeting as a large dovish surprise—the third-largest at an FOMC meeting since 2000 outside the financial crisis, based on the co-movement of different asset prices.”

Even more surprisng is that according to Goldman, its financial conditions index, “eased sharply, by the equivalent of almost one full cut in the federal funds rate.”

In other words, the Fed’s 0.25% rate hike had the same effect as a 0.25% race cut!

Here’s the one word in Janet Yellen’s speech that the markets should be very worried about

Please see the source for the video.

 

The stock market has churned a bit in the last few days. Some Wall Street wags have suggested that concerns over the President’s tweet storm over the weekend, or North Korea’s missile firings, may have been behind the stall in the market.

Certainly, political uncertainty, and geo-political risk, have caused some consternation in global markets, while concerns about the pace of gains in stocks, coupled with perceived lofty valuations have also provided a mild headwind on Wall Street in the last few days.

While the market appears to be happily embracing a coming rates hike from the Federal Reserve, it seems to me that market participants may have glossed over a very important comment from Fed Chair, Janet Yellen, last Friday.

The world economy can’t handle even one US rate hike, strategist Sri-Kumar says

Please see the source for the video.

 

Even one small interest rate increase by the Fed could have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday.

“I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.”

These moves would strengthen the dollar against other currencies, putting downward pressure on the euro, said Sri-Kumar, president of Sri-Kumar Global Strategies.

Fed Fakes Confidence With Another Dec. 1/4 Point Rate Hike

Yellen Says Interest Rates Will Go Higher

Janet Yellen’s remarks today confused the people who think the world turns on the Jobs numbers since they remain clueless with respect to the changing trend in employment. They do not take into consideration the technology shift, so they are still trying to trade from 20th-century concepts. Yellen gave an outlook of the U.S. economy and said that interest rate hikes are coming. Higher rates are needed for pension funds, and the decision will cause the stock market to take off which will appear like asset inflation.

Peter Schiff: The Last Thing That Fed Wants is a Rate Hike

Yellen Is Trapped in the Worst Nightmare Ever

Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate they MUST raise rates of they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

The Fed is Now Cornered

As you know, I’ve been calling for a bond market crisis for months now. That crisis has officially begun in Greece, a situation that we addressed at length other articles.This crisis will be spreading in the coming months. Currently it’s focused in countries that cannot print their own currencies (the PIIGS in Europe, particularly Greece).

However, China and Japan are also showing signs of trouble and ultimately the bond crisis will be coming to the US’s shores.

Bank of America: Markets Are in a ‘Twilight Zone’ and It’s Time to Hold More Cash and Gold

You can’t find a bigger warning of lately than what just came from BoA.

 

In a note sent out this morning, Bank of America Merrill Lynch has a warning for investors:

Investors remain trapped in “The Twilight Zone”, the transition period between the end of QE and the first rate hike by the Fed, the start of policy normalization…until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause either a market or macro shock (as it infamously did in 1936-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes. For this reason we continue to advocate higher than normal levels of cash, adding gold and owning volatility in mid 2015. Given extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield.

Martin Armstrong: Big Losses Coming In The Bond Market – Fall 2015 Turning Point – European Banks Will Collapse – Civil Unrest And Riots Globally – Gold To ‘Max Out At $5000 Per Ounce’ (Video)

Before you go about dismissing Mr. Armstrong as a conspiracy theorist, you should do yourself a service and read his background. Someone who has had both Ronald Reagan’s and Margaret Thatcher’s ear is far from a crackpot and is worth your time.

 

 

Renowned financial analyst Martin Armstrong says you can forget about the U.S. dollar crashing in value. Armstrong contends, “No, that’s absurd. The euro is in terrible shape. The yen is in terrible shape, and honestly, you can’t park money in yuan or Russian rubles, yet. I mean, let’s be realistic here, but eventually–yes.”

Deutsche Bank’s Ominous Warning: A “Perfect Storm” Is Coming In 2018

 

“We could now be at a crossroads,” warns Deutsche Bank in its annual default study report. As the ‘artificial bond market’ is exposed and yield curves flatten on Fed rate hikes so carry risk-reward is reduced and default cycles have often been linked to the ebbing and flowing of the YC through time with a fairly long lead/lag. With HY defaults having spent 12 of the last 13 years below their long-term average (with the last 5 years the lowest in modern history), “a perfect default storm could be created for 2018 if the Fed raises rates in 2015.”

Defaults will stay unusually low so long as current artificial conditions continue. However, as Deutshe Bank explains, the benign default environment of the last few years may be about to change…

After Francs Comes Dollar: Greenback Might Skyrocket Soon

 

After the Swiss National Bank (SNB) has undermined global confidence in regulators, any sudden action by the US Fed might trigger a feverish buyout of the dollar, pushing its FX rate sky-high, demolishing the entire architecture of international trade in goods and services.

MOSCOW, January 21 (Sputnik), Kristian Rouz — The recent shock to the currencies markets, having come from Switzerland on 15 January, when the franc appreciated by 23% in a single-day trading session, has badly damaged the international financial stability, with capital leaving the Eurozone and investors feverishly buying out gold and US bonds. Such a dramatic change in FX rate of one of the global reserve currencies has triggered major debt risks worldwide, from Eastern European mortgages to Russia’s burden of excessive corporate debt. Now, across the Atlantic, the robust economic growth and market optimism in the US have spurred the anticipation of the Federal Reserve’s interest rate hike, inevitably triggering the dollar to strengthen.

Fear Is Mounting On Wall Street That The Fed Will ‘Fall Behind The Curve’ Like In 1994

There is growing concern on Wall Street that there may be less slack in the job market than the Federal Reserve perceives, leading to a scenario where the central bank finds itself “behind the curve” with regard to winding down unprecedented levels of extraordinary monetary stimulus as inflation returns.

Aneta Markowska, chief U.S. economist at Société Générale, writes in a note to clients that “Could the Fed hike rates in 2014?” is one of the top questions that has come up in recent meetings with investors.