Turkish Contagion Spreading

Source: kingworldnews.com

Turkey has major economic problems and it appears that their currency is on the verge of collapse. To keep the Turkish economy afloat, many European banks have extended credit to prevent the debacle. Spain’s second largest bank lent $18 billion and France’s BNP lent $40 billion. They question is, will this be enough.

Since 2013, gold is up four times in relation to the Turkish lira. In addition, Turkish banks have amassed a sizable amount of debt (it’s debt is about 40% of their balance sheet) which incurs payments for interest. Economically, payment whether based in lira or dollars, will be a burden on the Turkish economy. If it is based in dollars, the dollar is strong against the lira which means it will take more lira to pay. If it is based in Turkish lira, the lira is devalued so it will still take more lira to pay the debt service. Either way it will be more costly to service the debt. The end result is collapse.

The economic problem probably started in Greece but more recently, Venezuela or Argentina and likely Brazil. This is a domino effect, it one country’s currency collapses it has a germane effect on all currencies since they are all intrinsically linked.

We as a global economy are in a fix, when all major economies are in precarious positions. The US economy along with the Chinese, Japanese, Russian and UK economies are teetering on collapse. People don’t see it unless they do some research, they one’s whom are still gainfully employed are too busy trying to make ends meet and the others are too busy looking for their next meal, but the world is in a mess. Back when some countries were economically on solid ground, it made sense that the less well off countries could gain a foot hold by diverting some of the wealth but today, no country is economically sound so where do they go to procure wealth. For the US, they print more fiat money. Eventually the sky will fall, this is happening in countries one by one.

To make an analogy, it’s like the person who kites their finances. They pay off one credit card with another until the credit line is reached, then the house of cards falls. The problem is more severe with countries because of the magnitude of the debt, with a single or so household, the debt can be written off and absorbed. With a country, it creates a domino effect which will eventually pull down the global economy.

At some point, we will not be able to ‘kick the can’ down the road so that the financial debacle becomes the problem of a future generation. The credit crunch will blow up in our faces and that is apparently about to happen. Countries have no surpluses to sustain them and the only apparent solution is a jubilee.

This is not my opinion, it is noted in the Bible that every 49 years all debts should be dissolved and the clock should reset. This is not to be a religious solution but a practical solution. Consider the credit market freezing, how do commodities get from producers to the end users.

This is not meant to be a lecture, for you who see the picture on the wall. It is more meant for those who don’t see the picture (outcome). It is time to wake up to reality and 1) invest what ever you have in the bank to a more stable commodity; 2) learn a trade that you can barter. This is not doom and gloom but the picture is gloomy.

Wage Gap

Source: smartasset.com

This is a subject which has been talked about for at least a decade, it’s the wage gap between the 1%s and the rest of us. Center on Budget and Policy Priorities (CBPP) found that between 1979 and 2013 the percentage increase of the 1%s was 5 times larger than the middle 60% and 4 times larger than the bottom fifth. Since 2013, the divide has continued to grow.

A subject which hasn’t been broached by the MSM directly is that the prolonged wage differential leads to unrest. Indirectly, the MSM has been reporting the unrest but what they cite as the reason usually is attributed to other causes and the viewers are always directed to vent their anger at anything other than the root of the problem. One reason maybe that they are being paid handsomely for their efforts.

History provides many examples of uprisings caused by income disparities but most recent is the situation which has been fomenting in Venezuela. Another South American country which is on the verge of the same fate is Brazil. I just read an article yesterday citing that the citizens whom have the financial means are fleeing Brazil. The main reason for the flight has been attributed to the rising crime rate.

As mentioned above, the news media does not broach the root cause of the issue. In Brazil’s case, they make some mention of the failing economy but the main crux of the story points to the rising violence. One reading into the problem would likely ask what would cause the rate of crimes rise but what will probably be proposed is that Brazil needs more prisons and more law enforcement.

Federal Workers Miffed Over Executive Orders

Source: federaltimes.com

Trump signed three executive orders taking aim at federal workers and the employees are irate.  The orders will make it easier to dismiss employees whom are not performing up to expectations or are guilty of misconduct.

The first order is meant to address the issue of dealing with workers demonstrating a history of poor performance.  It limits the amount of time an employee under investigation for misconduct could spend on probation.

The second order targets the use of official time allowed for federal employees to conduct union activities.  It stipulates that an employee must spend at least 75% of their time doing government work.  This is such a problem that even members of congress and the OPM have stated that the rising amount of time used for other than government business is a waste of taxpayer’s money.  You know it’s got to be bad it even congress is talking about it.

The third order calls for the renegotiation of union contracts.  This will allow for certain agreements made when the economy was thriving to be renegotiate to reflect the current conditions.

I am not in total disagreement with the workers although certain agreements covered under existing contracts are not viable in this present economy.  To ignore this fact and continue kicking the can down the road will inevitable lead to more government departments going bankrupt or as done in the past, hiking fees or taxes.  This is somewhat analogous to raising the minimum wage.  People earning below the minimum rate believed that fighting for the increase would make them better off.  What is actually happening is companies are lowering hours, laying off personnel or in some cases companies are moving to robotics to totally eliminate the workers.  How did this make things better?  In this case, if the workers fight to keep things as they are and it is economically unfeasible, will they be better off when their department goes bankrupt?

I see unions as necessary to maintain the balance between workers are employers but the gains won by union negotiations are pretty much written in stone.  When these gains or promises are no longer financially viable, the unions are hard pressed to relinquish them.  It is similar to the government, when they levy a tax or fee the government will say it is just temporary but when the time frame is reached the government is reticent to repeal the tax.

As a final point regarding the first order, have you ever complained about government workers being lazy and not performing.  Think about waiting in line at your local DMV or social security office.  It has been the mantra since I was a kid that if one secures a government job, you were set for life.  IMO, government functions should be decreased not increase.    I am not saying that the government has no purpose but today the arm of the government is too pervasive and corrupt to boot.

Economic Web

Source: gainspainscapital.com

The feds made the decision to stay the course with QT, this decision has very dire consequences.  The fed’s objective is to reverse the damage caused by years of QE.  It may seem logical but the loose money policy has engendered a financial market that no longer reacts normally, it has also skewed the amount of debt companies would normally hold.

Starting with the bail outs, the companies especially the banks ignored the business model which moderated the risk a business would take because they now had a safety net, the tax payer.  They began to rely more on financial leveraging instead of their core business to improve their earnings.  Businesses would obtain low interest loans and use the money to buy their shares, this worked to push their stock values up regardless of their earnings.

The country also indulged in taking on more debt as the economic languished.  Debt can be a good thing if used properly but it is a death knell when used carelessly.

We currently have a situation where the country and the majority of companies are debt laden to a point where they can’t reduce their debt load.  Since debt will become due at some time and it will have to be turned over or refinanced if the borrower is unable to pay off the loan, these new loan will be dependent on the new interest rate.

Herein lies the conundrum, as the feds raise the interest rate these new loans will have higher interest rates.  At the same time, raising the interest rate will make dollar stronger when compared to foreign currencies.  Look at the charts inside the purple rectangle.  This steep rise occurred after the fed took the hawkish decision to continue QT and the future schedule of raising interest rates.  As the dollar gains strength, companies exported goods become more expensive and sales will fall so companies meager profit will be further depressed.

The country will be affected as the huge national debt will be even more unaffordable.  This was solved in the past but the US printing more money.  This time is different as the other countries have been rallying around the BRICS to set up future trades of goods.  Most importantly, the trading of crude.  When this is operational (it’s getting very close and it already is functional to a limited degree), foreign countries will have no further desire to hold dollars and they will be returned to the US.  When foreign countries no longer accept dollars for payment, imports will stop.

Financial pundits are predicting that the US’s economic downturn will make what occurred in 2008 look like child’s play.

US Dollar Strength

Source: silverdoctors.com

The US Dollar broke through resistance and now is currently at 94.4.  This is a measure of the strength of the dollar relative to the overall currency market.

Some background on the effect a strong or weak dollar has on trade and the pricing of goods.  A strong dollar portends that another countries currency is weaker against the dollar so products which are import from that country will be cheaper because they are priced in the foreign currency.  A weaker dollar will do the opposite and the import will be more expensive in terms of the dollar.  This is not addressing any effects a tariff will have on the price.

Most would be of the opinion that a strong dollar is good and in some respects it is.  The bad thing about a strong dollar is when the US exporters try to sell their products these will be more expensive for the foreign country and either the foreign country will purchase a substitute product from other country or purchase less.  The loss or lessening of sales will affect the balance of trade between the countries.

Another factor which is not so apparent is the feds on going plan to reduce their balance sheet.  This plan is to reverse the QEs which expanded the fed’s balance sheet from about $900 billion in 2008 to about $4.5 trillion today.  The shrinking of the balance sheet is taking about $30 billion out of the economy per month.  At the same time, the ECB is pumping about 30 billion euros per month into their economy.

The feds have been raising the interest rates from 2016 albeit at a snail’s pace.  The ECB still has negative rates.  The end result is the dollar strengthening and signs of deflation are beginning to rise.  The signs can be seen in the foreign markets.

Source: silverdoctors.com

Brazil’s market is down 20%, South Africa is down 17% and Turkey is down 32%.  The Asian markets are also experiencing the effects.  This effect is due to the amount of US dollars still held in the global markets.  There is over $9 trillion in debt held globally and about $6 trillion of this is held by emerging market countries.

This might be the reason why countries are working to repatriate their gold and reduce their reliance on the USD.  If this trend does not reverse, you can expect that the US (fiat) dollars will soon be flooding back to the American shores.

Yield Curve Inversion

Source: investopedia.com

The inversion of the yield curve has preceded most recessions.  This is the reason trend forecasters use it as an indicator of the future when applied to business activity.  It has a valid basis when one considers the underlying factors that are used to evaluate the price of bonds.

A yield curve is the relationship between the cost to purchase a bond to the amount an investor will receive over the term of the bond.  A bond is a financial instrument a company, a business entity or a country floats to secure a source of funding to expand or maintain the company or the country.  The investor having the desire to receive a profit for their investment will analyse the company’s financial statements to assess the odds of getting this profit.  Note that this is a simple explanation as the prudent investor will also analyse other data such as the market to estimate the future demand for the company’s product as well as the company’s competitors.  Assuming that all looks well financially, the investor will expect that the bond price will increase.

The price of the longer term bonds normally should be higher than the shorter term bonds.  This is based on the idea of the time value of money.  A dollar today theoretically should be more valuable than a dollar tomorrow because if one were to  invest today’s dollar, tomorrow they should have more than a dollar (they will gain interest).  Thus if one commits their (today) dollar for a longer term, they should expect to receive a higher yield.

When the yield curve inverts, this is saying that investors believe that loaning money to a company for a longer period will result in getting a smaller return.  This portends that in the future, the company will be a riskier investment than it is currently.  In other words, the trend for companies as well as the economy is downward, hence a recession.

When one takes into account the huge amount of debt worldwide, it makes the chance for a recession more probably.  Debt acts as draw on net income or in a country’s case, GNP / GDP.  The debt instrument requires that interest is paid on the principal, this interest has no economic gain associated with it to the borrowing entity, meaning it is a pure expense.  The money (principal) borrowed will be used to say buy a new asset that will produce a product which will be sold and return a profit, this is not true of the interest due on the debt.  As the debt increases, the debt service also increases resulting in an addition burden on the entity’s net income / profits.  The entity has the option to increase their prices to the consumer or in the case of a country, increasing its citizen’s taxes.  Doing this will likely reduce the demand for their product.  This results in lowering the overall value of the entity and possibly leading to bankruptcy.

Source: usawatchdog.com

Asian Nation Dumps Dollar and Yuan

Source: rt.com

A neighbor of China, Kygyzstan has been amassing a sizable gold reserve in relation to the size of their country.  They have international reserves of about $2 billion and they have stockpiled about 16% of this reserve in gold, their goal is to build the percentage to 50%.

The country’s Central Bank Governor said “The rules of the game are changing.  It doesn’t matter what currencies we have in our reserves;  dollars, yuan or rubles all make us vulnerable”.  The governor probably makes this assessment based on what occurred in 2015 when the country’s currency (som) fell to record lows due to the devaluation of the Russian ruble.  After that, the country increased its gold reserves from 8 to 15%.

Kyrgyzstan’s largest export is gold, the country mines a large amount of gold.  The governor believes it is far more prudent to maintain the mined gold in the country’s reserve instead of exporting it.  The stored gold can be converted into the currency they need for trade.

This is likely to be a growing trend as the currency wars and the trade wars escalate among the countries of the world.  It is the opinion of some that precious metals are real wealth and fiat dollars are just representations of precious metals.  As the economies of the world’s countries move towards collapse, more pundits are moving to the conclusion that precious metals are the real wealth.

It is true that one can not eat gold or silver but it is more likely that someone would be more willing to trade for gold and silver than fiat currencies.

101 Americans Carrying Over $1 Million in Student Loans

Source: zerohedge.com

It is easy to find a scapegoat, the most obvious is the student. The previous generation’s parents grew up in a world where a college education was a must, so they brought up their kids to believe that they needed a college education to succeed. These kids were duped so the next scapegoat is the parents. They were just following a tried and true rule that was true when they were growing up. Their parents may have been newly arrived immigrants or the immigrant’s kids. They came to America to find a better way of life and they were insistent on educating their families.

With all the scapegoats exonerated, what went wrong. There is not one clear cause as it is different for each individual. One cause which applies to all is the downfall of the economy. When the US government decided to alter financial policy so it was more profitable for manufacturing companies to out source, this was major hit to the country’s GNP. It was the first step in taking the wind out of the economic sails.

The students still pursuing their degrees were remiss in following the economic trends so when they graduated they found no jobs in their field of study. They were left with the option of taking a minimum wage job or furthering their education. It was the path of least resistance to further their education pursuing a MA instead of stopping with a BA. It was easier to keep taking student loans and hoping that the economy will change by the time they got their MA. When it didn’t they pursued their PHD. For the ones that decided to cut their losses and take employment, they were unable to keep up with the payments when their grace period was over. They took a route to refinance the loan, back in the 70’s student loans could be discharged under bankruptcy. If the loan was refinanced, it would no longer be consider a student loan. In the following decade, the initiated rulings that made student loans hard to discharge.

Over this time, college tuition increased at a faster rate. They became more unaffordable but the student’s mindset did not change and they were still working to obtain their degree. In hindsight, they should have taken an economics or finance course so they could grasp what they were getting into.

Today, they are in an financial hole that they can’t get out of. Even if they worked 24 hours, 7 days a week they couldn’t dig themselves out of the debt. They are also being saddled with exploding health care costs, I also grant you that they have an auto loan and a monthly cell phone bill.

More Bad News For Malls

Source: silverdoctors.com

Malls continue to lose stores and the trend for this year looks like it will be more of the same. I recently read articles indicating that the flagship stores are scuttling more of their locations. If you can call Dick’s Sporting Goods a flagship, I would anticipate that they will be downsizing after their decision to end selling assault rifles.

Last year Dick’s was the only ray of hope for the malls, they opened large stores to replace the vanishing Sears and Macys. Over the past decade, malls have been losing ground on their profitability. The major change was etailing. Understanding the reasons malls came to be was that the people wanted convenience. Prior to malls one would have to make several different stops to complete their shopping list, malls main selling point was one stop shopping.

With the advent of etailing, the malls are no longer the most convenient way to shop. People are moving away from the malls not only due to etailing but the economy is forcing people to cut back on their frivolous purchases. Regardless of what the BLS reports current unemployment is, reality paints a different picture. As the economy worsens more people denying that we are in trouble are waking up to the fact that our country is bankrupt, we are living on borrowed time.

Source: silverdoctors.com

Shave and a Haircut – 2 Eggs

Source: thedailycoin.org

For an explanation of the title, back (even before my time) there was this saying that went ‘shave and a haircut – 2 bits’, I think 2 bits was a quarter. What’s taking place in Venezuela has gotten so money is pretty much irrelevant and produce is king. This is exactly what happens when a country goes into hyperinflation, money goes irrelevant.

According to Fabiola Zerpa, a haircut now costs 5 bananas and 2 eggs. When a country’s economic system fail, people will revert back to the basics. Here is an except from Bloomberg’s ‘Life in Caracas’ series; “The other day, I made a baguette for parking swap. I had time but, as usual, no bolivars. The attendant at the cash only lot had some bills but no chance to leave his post during the fleeting moments the bakery nearby put his favorite bread on sale. The deal: he let me leave my car, and I came back with an extra loaf, acquired with my debit card. He reimbursed me – giving me a bonus of spare change for my pocket”. A perfect example of bartering.

The point is that if / when this comes to your hometown, your best tools are your ability to grow food and / or have some viable skills. Gardening will provide you with not only something to eat but also a commodity to trade. Simple skills can also be bartered; skills like fixing a car, cutting hair, hunting and simple first aid will become a viable bartering tool.

It may seems unrealistic when you still have a semblance of normalcy but just look at Venezuela, it took just a few months for it to go from a normal functioning society to shambles. It is very possible that it could happen in your hometown. Learning skills, how to do things and becoming a little self sufficient will never be useless even if you don’t need to use it.

Source: thedailycoin.org

Argentina Interest Rate Hike to 40%

Source: theguardian.com

Argentina’s Mauricio Macri raised the country’s interest rates to 40% in an attempt to defend the peso. Over the past months, the rate has risen from 27.25% in April. The peso is slumping because foreign investors are moving their money out of the peso and converting it to dollars. They are seeking the increased rates offered by the US federal reserve.

Seeing the peso falling, local Argentinians are following by converting the pesos into dollars. The slowing of the local economy is also leading to the flight from the peso. The current inflation rate in Argentina is running at an annualized 25.4%. The latest rake hike has shown some positive effect but it is still considered to be the poorest performing currency having lost about 19% since January.

Macri has initiated a pro market economic reform with a goal of cutting inflation to 15%. The reform is seeking to lower the deficit from 3.2% to 2.7%.

Source: theguardian.com

NY Restaurants Seek Food Surcharge

Source: zerohedge.com

So money doesn’t grow on trees? At the end of 2015, the majority of the public were in favor of raising the minimum wage to $15. Politicians everywhere were including it in their platforms saying that it was only fair to make business owners responsible for providing their employees a living wage. It was the new talking point and surely it gained them votes.

Given a population who are of the mind that they are entitled to a living wage regardless of the effort they have done to make themselves more equipped to merit a better wage. Some workers were not affected by the minimum wage hike as they were already earning of the minimum. The wage hike mainly affected employees working jobs that didn’t require any skills or a higher level of education.

This is not to say that those earning above the minimum wage merit the higher wage. In a lot of cases, they are earning more thanks to union contracts or they are employed by the government. Some actually merit a higher rate of pay because they made the effort to get the education or skills to qualify for a position that requires knowledge. I am somewhat under the belief that any job other than self employment should be based on the worker’s skill level and not by the amount of time the worker has worked for a company.

Now restaurant owners in New York are seeking that the city allows them to levy a surcharge on diners to keep them from going bankrupt. They have been facing rising food prices, rents and payrolls. Their profit margins have been cut to make ends meet and now they have nothing left to cut.

Venezuela 4,000 Percent Hyperinflation

Source: zerohedge.com

It is painful to read about the dire problems in Venezuela. A cup of coffee now cost 75,000 bolivars up from 1,800 bolivars, that rise took just over a year. That’s an increase of 4,067%.

This is a textbook example of what happens when your government loses control over their economy. It can happen in many ways, one way is by printing money at will. I expect that soon the American dollar will go the route of the bolivar.

Bremmer Rodrigues owns a bakery just outside of Caracas, he says that he doesn’t know how to get rid of the bags of bills that is collected at his shop. Every day he takes in hundreds of thousands of bolivars. He hides the bills in boxes so he can get them to the bank to deposit.

The bolivar is so devalued that $5 is equivalent to a brick load of bills. ATMs need to refilled hourly due to the amount of bills needed to be dispensed just for a small amount of cash. Merchants no longer count money when a transaction is made, they weigh the money. Basic purchases take hundreds of bills, shoppers stuff piles of bills into gym bags when shopping and storekeeper stash thousands of bills into box and drawers.

Whatsapp reports that the price for a kilogram of ham costs 1,480,000 bolivars. At one deli, they stopped ordering ham when their scales can’t calculate the cost. Their scales only have six digits and they ran into problems when they tried to fix the scale so it could calculate the price. A kilogram is approximately 2 pounds.

Toys R Us Closing All US Stores

Toys GIF - Find & Share on GIPHY

Source: giphy.com

After 6 decades, Toys R Us is closing all its US stores. They filed for bankruptcy about 6 months ago as they tried to pay down around $8 billion of debt. They were not successful in finding a suitor and it is reported that they stopped paying their suppliers. They also announced that they are planning on closing all their UK stores. A bid was made on their Canadian stores.

MGA Entertainment bid on the Toys R Us as well as as many as 400 of the US stores. In the bankruptcy file of September, Toys R Us owes MGA $21.3 million.

Toys R Us based in Wayne, NJ has been struggling for years to control their billions of debt. It has been a uphill battle due to competitors like Amazon, Walmart and Target. Toys R Us has been unable to find the right chemistry in order to draw in the customers that they did when the chain first started. In its hey day, they had a flagship store in New York’s Times Square. This store is now housing an Old Navy.

It’s a shame to see an iconic store fail but it is a sign of the times.

Source: sfgate.com

Who is Buying US Treasuries

The quick answer to the question posed in the title is no one. Two weeks ago the US Department of Treasure released its own internal projections for the federal government’s budget deficits. The Treasury anticipates it will need to borrow about $1 trillion this fiscal year, $1.1 trillion next year and $1.3 the following year. Based on their projection, the national debt will exceed $25 trillion by 2020.

Where does the money come from? The government funds their debt by selling bills, notes or bonds and the main buyer of these IOUs are the federal reserve, the Chinese and the Japanese. Looking at them individually:

FEDERAL RESERVE

The federal reserve reeling from its miscalculations on its QE programs has announced that it will not longer conjure money (by printing more fiat) to buy US debt. The fact of the matter is either that they know the public will no longer put up with them printing money which devalues the money or that they’ve realized that it doesn’t work.

CHINESE GOVERNMENT

The Chinese said point blank last month that they were ‘rethinking’ their position on buying more US debt. Looking at the actions of the Chinese, they are shedding the US IOUs by using them to fund projects to build the one belt road. They are also not participating as vigorously in the US auctions. I believe that they are hesitant to dump the US treasuries en masse for fear it will collapse the system before they can devise a plan to crash it in a controlled fashion.

JAPANESE GOVERNMENT

The Japan government has acted as a puppet for the US for many years and now they have created an economic fiasco for their country. They are incapable of contributing to the US money pit as they are dealing with their own financial problems.

The future will bring higher interest rates. Economically, when demand for an asset (in this case, bonds) falls the price of the asset will fall. In the case of bonds, the face value of the bond is fixed so it can’t fall in price. What will happen is that the rate paid to the buyer will rise to entice the prospective buyer to purchase the bond, ergo the interest rate will rise.

Since the T-bill rate is the bench mark on which all other debentures are based, the overall bonds will likely rise. This means borrowing costs to industries and companies will increase. I’m sure you will be able to see how this will reverberate throughout the market place. The picture is bleak.

Velocity of Money

Economically there is a mathematical equation the is meant to describe the relationship between the money supply, the velocity of money, the inflation and the economic output. This may seem a little complex but I will attempt to break it down. The equation is:

MV = PQ

where:
M = money supply
V = velocity of money
P = inflation
Q = economic output

Looking at the equation in mathematical logic, if MP increases then PQ must also increase. To increase MP, either M or P must increase with the other staying the same or the other can decrease by a lesser amount than the other increase. The same logic applies to PQ.

Looking at the economic logic with some current facts. We know that the money supply has increased (money printed by the feds) and the velocity of money has decrease (as shown by the attached chart). So the MV has likely decreased or at the very least stayed the same.

This equates to PQ must also have done the same as MV because the equation states MV = PQ.

Looking at PQ, when know the US’s economic output has fallen due to all the manufacturing job being outsourced and the average worker’s (the middle class who are no longer middle class) disposable income falling. Therefore based on just the equation, inflation must increase.

Now that the mathematics are understood, lets look at things in real life terms. First some definitions. Velocity of money is how fast money flows from hand to hand. If you take your money and save it, this slows the velocity of money and visa versa when you spend the money it increases the velocity. M is a definition given to types of money, M(sub 1) is the most liquid so it more or less is cash. As the subscript goes higher the money is less liquid, so a mortgage is considered money but it is very hard to spend because it has to be converted into cash before it can be spent.

How this affects the economy is the lower the velocity the lower the sales which in turn reduces profit and results in recession or depression. It is a death spiral, when companies have lower profits they layoff people which lowers people buying products which leads to lower sales.

The conclusion is inflation is likely on the horizon and if you want to believe it or not we are likely in a recession if not a mild depression. What should be a concern is if the inflation turns into stagflation, the US will begin looking similar to Venezuela.

Source: zerohedge.com

What is Triggering the Market

Peter Boockvar thinks it is the end of QE. He explains that The Bank of England is keeping its benchmark rate at .5% while the CPI is at 3% to lay the groundwork for a future rate hike. The BoE said ‘monetary policy would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the November report’. If you read between the lines, the BoE is in fact getting people ready to accept a future rate hike and the hike will not likely be the minimal hike as in the past.

After their decision, the pound spiked by about 1%, the Gilt yield went up 7 basis points (the highest level since November 2015) and the 10 yr is up 6 basis points. It triggered a selloff in the European and US bond market, raising the yield on the sale of current bonds.

In a nutshell, I think Mr. Boockvar is on point. The market was held high by companies taking out low or no interests loans to buy their stocks. It wasn’t the moms and pops investing in companies because they believed the value of the companies was heading up. As far as I can see the market valuation is being driven by the government and big business, not the individual. When the tap is turned off for these loans, the stock price will falter as the main buyer will be taken out.

Source: kingworldnews.com

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