TRENDS THIS WEEK:
Fed holds rates - Joker's Wild
By Gerald Celente
Publisher, Trends Journal
KINGSTON, NY, 23 September 2015—Since June, when the Shanghai Index began its 40-percent collapse, equity markets worldwide have been bashed and battered.
Concurrently, raw-material prices have tumbled to decade lows, developing world currencies have plunged to 2002 levels, and currencies of once prosperous resource-rich nations continue to decline.
Throughout this summer of volatility, the high anxiety overshadowing the markets was the fear the Federal Reserve, following its mid-September Open Market Committee meeting (FOMC), would announce an interest rate hike for the first time since 2006.
It is now generally accepted, however, that the Fed’s cheap money policy has done little to help the real economy, but instead created asset bubbles. This was a trend line we forecast long ago, and were prominently derided by the mainstream media for spreading “pessimism porn.”
In 2010, we wrote, “The rising equity markets were a world away from the reality of the streets, and not a legitimate indicator of recovery or the state of the economy.” We noted that the high flying markets “…were a reflection of the trillions of cheaply borrowed dollars that were being used to gamble."
Since the US stock market bottomed in 2009, the value of American shares have increased by $17 trillion. And, the “Value of megadeals this year beats dotcom-boom record to reach $1.2 trillion,” Financial Times, 19 September 2015.
Now, however, the equity houses of cards, built on trillions of digital dollars not worth the paper it’s not printed on, can no longer be supported by cheap money policy. Following this past Thursday’s FOMC decision not to raise rates, rather than cheered by investors as good news, stock markets, commodities and currencies fell sharply, and the down trend continues.
Among the reasons for the Fed’s stated decision not to raise interest rates were concerns that with China’s economy slowing down and emerging markets falling deep into recession, the global economy would fall into recession.
The concerns are real.
Today, the preliminary Caixin China manufacturing purchasing managers’ index (PMI) fell to a six-and-a-half-year low of 47.0 in September (a reading below 50 represents contraction). And, Oxford Economics forecasts emerging market gross domestic product will contract by 3.6 percent on average, registering its worst loss since the Panic of ’08.
Trend Forecast: Despite the Federal Reserve’s ZIRP for 80 months and its Quantitative Easing (QE) bond buying frenzy that ballooned its balance sheet by $3.5 trillion between 2009 and October 2014, US GDP has slogged along at barely 2 percent.
Regardless of whether or not the Fed minimally raises interest rates in the coming months, we forecast it will attempt to reverse the onset of global economic recession and protect failing equity markets with round four of QE. And, while there may be a short relief rally for the markets, it will do nothing to improve the state of the economy. We forecast that the greater the Fed’s QE 4, the higher the price of gold.