6/16/2015 – An up day with the Dow Jones up 112 points (+0.63%) and the Nasdaq up 26 points (+0.51%).
Not much is expected from the FOMC tomorrow. Well, they are expected to kick the can into September, when the Earth shattering 0.25 basis point rate hikes are “expected” to start.
Further, it is highly probable that the FED minutes will have a little bit for everyone. Bulls, bears, day trading retirees and as Jim Cramer calls them, financial unbelievers. To be more specific, that Q-1 weakness was temporary, maybe they will raise rates in July/September, maybe not, etc.. With that in mind, let’s look at the subject matter from a rational point of view.
As of today, the FED is facing the following setup.
- Massive stock market and other asset bubbles.
- Slowing economy and collapsing macro data. We are a stone throws away from an “official” recession. I can argue we are already in one.
- Zero interest rates and limited options to stimulate the economy further.
As a result, the FED has only two options.
- Raise interest rates NOW in order to reload their recession fighting toolkit before the next recession hits. Again, we are nearly there.
- Cancel rate hikes and eventually introduce QE4 to further “stimulate” the economy. Also known as, maintaining financial market stability. This scenario includes postponing interest rate hikes until we are in a recession.
You don’t have to be a genius to figure out which scenario the stock market is betting on. And while it would be prudent for the FED to reload now, in reality, no one really knows what they will do. I don’t think they know.
At the same time, it is a no win situation for the FED. There is no guarantee that the stock market won’t crater even if the FED introduces another round of QE while cancelling interest rate hikes. And I am not the only person who thinks that way.
While most are focused on the risks around a withdrawal of liquidity, we believe the biggest hit to confidence could be the opposite: if another round of US QE is necessary to prop up the economy. While the market could have a knee-jerk rally on an indication of forthcoming stimulus, we think this would likely be short-lived and could end in the red. QE fatigue is already evident: each subsequent round of QE has seen diminishing risk rallies.
Bingo. That’s how complex today’s macro economic setup is. We are at the end of this massive credit expansion cycle and there is nothing that can save this market now. Not even another round of QE. Well, unless the FED goes into a full monetization drive. But that’s entirely another matter.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. June 16th, 2015 InvestWithAlex.com
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