Monday June 05, 2017
When a Hike Isn't a Hike
With the month of May coming to a close and summer kicking off with Memorial Day it seemed as if the bulk of the trading was once again in continuation mode of the current trends. Equities, most notably the Nasdaq posted new highs for the year on a weekly settle basis and is up 19% for the year. The US bond market seemed to be in equity denial mode as they held their ground unchanged all week. The Nasdaq is this year's star, and for obvious reasons, Amazon and Alphabet have a lot to do with it as the race to $1000 is thankfully, almost over. We hate to think of that number as anything significant, other than some dubious milestone, however psychologically we would beg to say that its more negative than positive. That number in some investors minds may seem a bit overzealous, too bullish, but who are we to say, P/E Ratio's, market caps, fundamentals are for losers…
A lot of discussion has been made as to what constitutes a bubble and all we can really say is it usually can only be categorized after its been pricked. People like to have catch phrases to describe human euphoria, we would just rather not call it anything other than price discovery. Is there even such a thing anymore or have we been so coddled and breast FED (no pun intended) that we remain in permanent asset appreciation bliss, negative news denial? Time will only tell and we can't fathom the rationale for all the talk lately of rate hikes and balance sheet reductions. Really, Honestly? Do people really think the central banks can do that? Does anyone believe that without their support the financial markets can function properly? For God-sakes stop it already, its annoying. As if all the liberal left whining and crying isn't enough, as if the Russian narrative isn't so passé, isn't that two weeks of cognizance over yet? You know our old mentors always said, FOLLOW THE MONEY, and with that you will find out what is truly going on. We have noticed these patterns time and time again, ask Neil Howe, he will tell you, just read his Fourth Turning and you will understand, well then again, maybe you won't.
Maybe the public has been so brow beaten that it doesn’t have the energy to question and submission seems like the only viable option. Shoot have we gotten off point? Ok back to the narrative.
One, think of what's at risk and who has the most to lose?
Two, Think of history and time and time again how decades pass, Fed chairmen/now women pass, generations move on, but what really, truly changes?
Actually not much. The control still rests in the very powerful elite and all the rules and regulations are geared toward maintaining that control. We can't help but think what this country would have been like if JFK, who's 100th birthday is this weekend wasn't murdered. He had a lot to say, he had a lot in mind, but we will never truly know what this country would have been like with him still in it. We would think he valued peace over conflict and that diplomacy was of the utmost importance. As we have said time and time again, there is no profit in peaceand with the goal of maintaining a $1 Trillion defense budget, well you get the drift. Forget that we have two neutral countries on the top and bottom and two of the largest oceans on the left and right, hell we are the castlesurrounded by the moat, so where's the threat?
Yea we are going to get a lot of complaints on that, but we are realists and we have the facts so just take it like a man! Anyway JFK was a patriot and a lot have followed, but without as much influence as he would have had. He wasn't perfect but then again, to err is to be human and as much as we humans like to think we are Gods, we are not! Ok so by following the money and as we have stated and used this chart in the past, who benefits from hiking rates? This chart should easily answer the question:
Interest on Excess Reserves is nearly a $30 billion subsidy to US and Foreign owned banks per year at a 1.25% Fed Funds rate. See all this talk about rate hikes, is non sense. Rate hikes before IOER were designed to make the cost of credit high enough to deter speculation, well now every rate hike pays more and more interest to the masters. Furthermore rate hikes will allow for that so coveted Net Interest Margin to increase as the masters charge more for their floating rate customers all the while getting back door free funding from the FED. So please don't give us this rate hike is bad for the markets business, it's bad for Joe blow borrower but good for the credit masters. More interest means more money and more and more debt.
So where does the proverbial buck stop then? For equity markets, we won't even fathom a down turn until we see that 2yr rate near the 10yr rate, or a much flatter US yield curve. Heck we can even go out on a limb and say that until the Fed Funds rate is above the 10yr, the equity markets should continue to rise, but hey that's just us. We must however keep an eye out for the Tiger, China's short rates are slowly creeping up and globalization has made us all one financially, so that certainly bears (pun) watching. To think some 20 years ago LTCM and its measly $4bln was going to take down the financial markets, wow how far have we come, or should we say how backwards have we gone!
All in all we suspect those in control to continue their plundering ways until something unexpected breaks and it always does. We hate to think blockchain can be corrupted but if it can, we are quite sure the central banks will find a way to control it, their future depends upon it. We believe blockchain to be the future and the old guard is going to have a hell of a time getting their hands wrapped around that one. As you know we have spoken heavily upon crypto currencies like Bitcoin and Etherum and we beg you to do your research as its worth knowing, that we are certain of. Ok that’s it, we leave you with the weekly settlements and from the looks of it, we aren't the only ones on the Crypto Bitcoin bandwagon, as it was up another 16% this week, up 140% for the year! Cheers
