The cycle since 2009 has been different from other market cycles, throughout
history, in only one significant manner. That having been said, it is the Global
Central Banks that have intentionally pushed interest rates to zero and below.
This encouraged investors to speculate in the equity markets which have now
become 'dangerously overvalued, overbought,' as well as 'over bullish' extremes
according to all measures. In my opinion, this has "deferred" and not eliminated
the disruptive unwinding of this "speculative" episode.
They have encouraged a "historic expansion" of public and private debt burdens
with equity market overvaluations that rivals only those of the 1929 and 2000
extremes on reliable valuation measures. These brazen experimental policies,
of Central Banks, have amplified the sensitivity of the global financial markets
to "economic disruptions" and "distortions of value" in relation to investor
risk aversion.
It is very clear that a zero interest rate policy has encouraged yield-seeking
speculation by investors. As I have previously discussed, in many of my past
articles, I detailed that monetary easing "in and of itself"
does not "support" the financial markets. 'Easy money' merely stimulates speculation
while investors are already inclined to embrace even more risk. The actions
of the FEDs' aggressive and persistent 'easing' will fail to prevent this "market
collapse".
Any financial professional who has any understanding of how securities are
priced, should know that elevating the price that investors pay for financial
securities does not increase "aggregate wealth". A financial security (stocks)
are nothing but a claim to some future set of cash flows. The actual "wealth" is
embroiled in those future cash flows and the value-added production that generates
them. Every security that is issued MUST be held by someone until that security
is retired. Therefore, elevating the current price which investors pay for
a given set of future cash flows simply brings forward investment returns that
would have otherwise been earned later on. The FED is leaving "poorly-compensated"
risk, on the table, for the future!
The total debt of the United States has reached gigantic proportions well
beyond 2008: http://www.thegoldandoilguy.com/will-investme...r-worse-200809/
The crisis ended precisely when, in the second week of March of 2009, the
Financial Accounting Standards Board (FASB) responded to Congressional pressure
and changed rule FAS157 so as to remove the requirement for banks and other
financial institutions to mark their assets to market value. The mere stroke
of a pen has eliminated any chance of widespread defaults by making balance
sheets look financially stronger. The new balance sheets may be great, in the
short-term, but ultimately have become weapons of "mass destruction".
The Race to Debase Continues...
As of September 2nd, 2016, the BLSBS "disappoints" with a print of just 151,000 "jobs".
This will eliminate the possibility of a FED FUNDS increase, however, do not
be surprised if some FED officials emerge to tell you otherwise, as we are
already experiencing some counter-intuitive moves within several of the "markets".
The true unemployment rate is ACTUALLY U-6! Consequently, the U-6 rate more
accurately reflects a natural, non-technical understanding of what it means
to be unemployed. Including discouraged workers, underemployed workers and
other people who exist on the margins of the target="_blank" labor
market, the U-6 rate provides a broad spectrum of the "underutilization"
of labor within the country. In this sense, the U-6 rate is the TRUE unemployment
rate which is close to 10%.
U-6 Unemployment Rate
Concluding Thoughts:
In short, this incredible bull market is stocks which we have embraced since
2009 is quickly nearing its end. The FED's mass easy money policies, stock
buyback programs, accounting rule changes have simply masked/covered up most
of the financial mess people, business and global economies are in.
Eventually all these tactics to cover-up and kick the financial-can down the
road will start to fail. One they start failing things will get really ugly
fast for the entire economy for those not knowing how to avoid and profit from
market weakness.
