E What Exactly Is The Fed Thinking? Avoid Catching Falling Knives

Yellen is really underestimating the potential crisis the banks are facing because of the junk bonds and oil related companies. Since 2009 Subprime mortgages fell out; junk bonds stacked with oil related debt was in. 

In the 100 years prior to the establishment of the Federal Reserve, there were 18 distinct recessions or depressions:

1815, 1822, 1825, 1828, 1833, 1836, 1839, 1845, 1847, 1853, 1860, 1865, 1869, 1873, 1887, 1890, 1899, and 1902.

Since the establishment of the Federal Reserve, there have been 18 recessions or depressions:

1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008 

So in other words, the economy experienced just as many recessions with the ‘expert’ management of the Federal Reserve as without it.

And this doesn’t even begin to capture all the absurd panics (the S&L scare), bailouts (Long-Term Capital Management), and ridiculous asset bubbles that they’ve created, said Simon Black.

Public Fallacies:

Many investors blame China and oil prices for the distress in capital markets and economy. But aren't these also symptoms, not the disease itself?
Oil collapsing has affected junk bonds, employment, and oil states such as Texas (which is imploding itself), but what caused oil to collapse? Same with China - yes it is true that if China has slowing growth then all countries will feel it, but what is causing their slowing growth? Oil is controlled mostly by OPEC and supply/demand, but also affected by a strong dollar. And Chinese central bank policy mirrored the US until recently (China kept the Yuan pegged to the dollar, thus if the Fed kept rates low and liquidity sloshing, so did the Chinese central bank to maintain the peg - thus the U.S. exported inflation).

The Feds rate rise affects both of these markets. As many are aware - China was in free fall during Summer 2015 and oil was also suffering. The U.S. markets were dropping (the DOW shed more than 1,000 points in a single morning - that has never happened before). And what else? The Fed was all but assured to raise rates in September. But they didnt. And stocks rallied higher even though nothing was fundamentally or structurally fixed with China nor oil. 

Parting Words:

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John Ayres 4 years ago Member's comment

Given the provable fact that there is no crystal ball and no one can predict anything in financial markets, what exactly are we doing here? The strategy in a perfectly random situation should be to not participate unless you enjoy a bet

Mark Friedmann 4 years ago Member's comment

You make an excellent point. That being said, I like a good bet, especially when I can improve my odds with some good intel.

Adem Tumerkan 4 years ago Author's comment

I think of it as more of a carefully approached speculation, similar to chess, about the only options the Fed has.

Recession is here this they need to cut/go negative/QE

Or they try to not embarrass themselves after touting how well the economy is doing, warranting a rate hike, and keep the hikes going to keep confidence in them - and plunge he economy into a great recession.

Either or both roads lead to the same path.