the Federal Reserve kicked off its second round of quantitative
easing in the aftermath of the Great Financial Crisis, hedge fund
Tepper predicted that
nearly all assets would rise tremendously in response.
Fed just announced: We
want economic growth, and we don't care if there's inflation...
have they ever said that before?"
then famously uttered the line "You gotta love a put",
referring to the Fed's declared willingness to print $trillions to
backstop the economy and financial makets.
years later we see that Tepper was right, likely even more so than he
realized at the time.
other world central banks followed the Fed's lead. Mario Draghi of
the ECB declared a similar "whatever
policy and has printed nearly $3.5 trillion in just the past three
years alone. The Bank of Japan has intervened so much that it now
owns over 40% of its country's entire bond market. And no central
bank has printed more than the People's Bank of China.
has been an unprecedented forcefeeding of stimulus into the global
system. And, contrary to what most people realize, it hasn't
diminished over the years since the Great Recession. In fact, the
most recent wave from 2015-2018 has seen the highest amount of
injected 'thin-air' money ever:
response, equities have long since rocketed past their pre-crisis
highs, bonds continued rising as interest rates stayed at historic
lows, and many real estate markets are now back in bubble territory.
As Tepper predicted, financial and other risk assets have shot the
everyone learned to love the 'Fed put' and stop worrying.
as King Louis XV and Bob Dylan both warned us, what's coming next
will change everything.
halcyon era of ever-higher prices and consequence-free backstopping
by the central banks is ending.
central banks, desperate to give themselves some slack (any slack!)
to maneuver when the next recession arrives, have publicly committed
to 'tightening monetary policy' and 'unwinding their balance sheets',
which is wonk-speak for 'reversing what they've done' over the past
general investors today just don't appreciate how gargantuanly
significant this is. For the past 9 years, we've become accustomed to
a volatily-free one-way trip higher in asset prices. It's been
all-glory with no risk while the 'Fed put' has had our backs (along
with the 'EBC put', the 'BOJ' put, the 'PBoC put', etc). Anybody
going long, buying the (few, minor) dips along the way, has felt like
on current guidance from the central banks, "global QE" is
expected to drop precipitously from here:
just the relatively tiny amount of QE tapering so far, 2018 has
already seen more market price volatility than any year since 2009.
But we've seen nothing so far compared to the volatility that's
coming later this year when QE starts declining in earnest.
parallel with this tightening, global interest rates are rising after
years of flatlining at all-time lows. And it's important to note that
our recent 0% (or negative) yields came at the end of a 35-year
secular cycle of declining interest rates that began in the early
we seeing a secular cycle turn now that rates are creeping back up?
Will rising interest rates be the norm for the foreseable future?
so, the world is woefully unprepared for it.
and companies are carrying unprecendented levels of debt, as are many
households. Rising interest rates increases the cost of servicing
that debt, leaving less behind to invest or to meet basic operating
mathematically, rising interest rates result in lower valuations for
stocks, bonds and housing. But so far, Wall Street hasn't gotten the
message (chart courtesy of Charles Hugh Smith):
we're presented with a simple question: What
happens when the QE that's grossly-inflating markets stops at the
same time that interest rates rise?
answer is simple, too: Prices
fall commensurate with the distortion within the system. Which is
unprecendented at this stage.
Wait, There's More!
the situation is dire. But it gets worse.
debt that's getting more expensive to service? Well, not only are we
(in the US) adding to it at a faster rate with our newly-declared
horizon of $1+ trillion annual deficits, but we're increasingly
antagonizing the largest buyers of our debt.
is most notable with China (the #1 Treasury buyer), whom we've
dragged into a trade war and just announced $50
billion in tariffs against.
But Japan (the #2 buyer) is also materially reducing its Treasury
purchases. And not to be outdone, Russia recenty dumped
half of its Treasury holdings,
$47 billion worth, in a single fell swoop.
this trend lead, understandably, to lower demand for US Treasurys in
the future, that only will put further pressure on interest rates to
this is all happening at a time when the stability of the rest of the
world is fast deteriorating.
(EM) countries are getting destroyed as central bank liquidity flows
slow and reverse -- as higher interest rates strengthen the USD
against their home currencies, their debts (mostly denominated in
USD) become more costly while their revenues (denominated in local
currency) lose purchasing power.
lines are fracturing across Europe as protectionist, populist
candidates are threatening the long-standing EU power structure.
Italy's economy is struggling to remain afloat and could take the
entire European banking system down with it. The new tit-for-tat
tariffs with the US aren't helping matters.
China, trade war aside, is seeing its fabled economic momentum slow
players on the chessboard are weakening.
Timing Is Becoming Clea
the financial markets are currently still near all-time highs (or at
the high, in the case of the Nasdaq). And yes, expected Q2 US GDP has
jumped to a blistering
the writing is increasingly on the wall that these rosy heights won't
last for much longer.
next three charts from
combined with the above forecast of the drop-off in global QE, paint
a stark picture for the rest of 2018 and beyond.
first shows that as the G-3 central banks have started their initial
(and still small) efforts to withdraw QE, the Global Financial Stress
Indicator is spiking worrisomely:
one of the best predictors of global corporate earnings now forecasts
an imminent collapse. As go earnings, so go stock prices:
looking at trade flows -- which track the movement of 'real stuff'
like air and shipping freights -- we see clear signs that the global
economy is slowing down (a trend that will be exacerbated if oil
prices rise as geologist Art
end of QE, higher interest rates, trade wars at a time of slowing
global trade, China/Europe weakening, EM carnage -- it's like both
legs of the ladder you're standing on being sawed off, as well all of
the rungs underneath you.
a major decline in the financial markets is due for the second half
of 2018/first half of 2019.Actions
clouds deliver a valuable message: Seek
shelter before the storm.
it's time to:
the rug gets pulled out from under today's asset prices, 'flat' will
be the new 'up'. Simply not losing money will make you wealthier on
a relative basis -- it's the easiest, least-risky strategy for most
investors to prepare for what's coming. "Cash is king" in
the aftermath of a deflationary downdraft, when your dry power can
be then used to purchase high-quality income-producing assets at
excellent value -- fractions of their current prices. And in the
interim, the returns on cash are getting better for investors who
know where to look. We've recently explained how you can now get 2%+
interest on cash stored in short-term T-bills (that's 30x more than
most banks will pay on cash savings). If you're sitting on cash and
haven't looked seriously yet at that program, you really
With more Fed tightening expected in the future, T-bill rates are
likely headed even higher.
your plan for the correction into place now.
In addition to your cash, how is the rest of your portfolio
positioned? Do you have suitable hedges in place to mitigate your
risk? Does your financial advisor even acknowledge the risks
detailed in the above article? The last thing you want to do in a
market downdraft is make panicked decisions. So if you haven't
already put together a contingency plan for a 20-40%+ market drop,
a consultation with
the firm we endorse (it's completely free).
The commodities/equities price ratio is the lowest
it has been in 47 years.
That ratio has to correct some point soon. Much of that correction
will be due to stocks dropping; but the rest will be by commodities
holding their own or appreciating. While it's true that commodities
could indeed fall as well during a general deflationary rout, that's
not a guarantee -- especially given that many commodities are now
selling at prices close to -- or in some cases, below --
their marginal cost of production. The easiest commodities to own
yourself, the precious metals, are 'dirt cheap' right now
(especially silver), as explained in our recent
Ronald Stoeferle. And with today's bloodbath, they just got even
cheaper. Here's a helpful free
27-page ebook explaining
ways to purchase and store gold & silver in today's markets.
and address your biggest vulnerabilities before the next crisis
Are you worried about the security of your current job when the next
recession hits? Are rising interest rates causing you to struggle in
deciding whether to buy or sell a home? Are you trying to come up
with a plan for a resilient retirement? Are you assessing the pros
and cons of relocating? Do you have homesteading questions? Are you
trying to create new streams of income? Chris offers private
consultations on these common questions, as well as many others. If
you're wrestling with big life decisions like these, scheduling
a consultation with him can
prove valuable in helping you make the best choice.
lurching through the final steps of familiar territory as the status
quo we've known for the past near-decade is ending.
mind-bogglingly massive central bank stimulus supporting asset prices
are disappearing. Interest rates are rising. It's hard to
overemphasize how seismic these changes will be to world markets and
the global economy.
coming months are going to be completely different than what society
is conditioned for. Time is running short to get prepared.
recent report, The
Breaking Point Is Upon Us, details
how signs of collapse are now quickly accelerating around the world.
The currency and bond markets of five major countries are now in the
danger zone, as many more teeter on the edge. If you haven't already
read this report, we recommend doing so now. It drives home how
important the recommended steps above are.
when today's Everything Bubble bursts, the effect will be nothing
short of catastrophic as 50 years of excessive debt accumulation