This financial market reminds me of when we were kids sitting at the dinner table and the one thing almost all of us heard back in the 1970s was “that plate better be clean by the time I get back or else.” This left us with images of torture that would follow the “or else.”
I know our parents only had good intentions by forcing us to eat. History has now revealed the adverse consequences of our parent’s good intentions are, among other things, a main cause of eating disorders. History suggests a lot of adverse effects occur the more insistent and forceful the intended effort, causing more dramatic and powerful blowback. The road to Hell is paved with good intentions, right?
Leading us down the path to Hell is the Federal Reserve…Today’s version of our over force-fed childhood is the force feeding of the Federal Reserve that has been done to all Americans by trying to force feed America with easy prosperity through easy money by printing money. The Federal Reserve has been trying to force on us the most fantastic economic recovery in the history of the world by printing money non-stop since 2009. This buffet style “all-you-can eat” asset inflation will cause much sickness in America and around the World.
Unfortunately the results have not been beneficial. Money printing is supposed to spur borrowing, which is supposed to lift spending and help with jobs; this according to accepted Fed theory. Yet attempts to force anything in U.S. politics and the economy have always ended badly, which is why we don’t have a good job situation in the U.S. This is why our lives have not changed and things are more difficult. This is why I suggest there is a very high risk of unexpected blow back from the United States current economic Fed stimulus policies. So far they are only presenting us with unwelcome consequences.
Friedrich Nietzsche in his book, “Beyond Good and Evil,” wrote, “The consequences of our actions take hold of us. Quite indifferent to our claim that meanwhile we have improved.” The Fed’s claim is that not only has the Fed stimulus worked in the past, but also it is working now in the present. Yet, one of the consequences is that the Fed’s stimulus creates speculative bubbles. It always has and it always will. Fed inflated bubbles in the past have burst and may be about to again.
Remember the dot com bubble in 2000-2002. That was a gift from former Federal Reserve Chairman Alan Greenspan. It was a Greenspan inspired quantitative easing bubble. Then there’s the credit bubble of 2008 and the real estate bubble of 2008-2010. And the bubble we are in now, the inflating bubble and U.S. stock market bubble. We are in the worst of the bullish sentiment extremes of all previous stock markets. Pundits are gushing over more returns to come, but few are talking about the downside risk. Are they confident that the Fed can fix anything? This is a lesson that is ripe with adverse consequences.
Citibank came out last week and issued a warning that the U.S. stock market is at a point where blow back will be the same as being blind- sided. They are saying from a price active perspective, the market trend is very mature and is much stretched just as it was in 2000 when the U.S. stock market lost 25%. They also pointed out that consumer confidence appears fragile and likely to move lower, which is a negative preemptive move for the market. Lastly they said the Fed has taken its foot off the gas, which has been the prime mover of the U.S. stock market rally.
Another possible consequence coming is, unemployment claims are the most they have been in five years and are at six-month highs – 3.03 million Americans filed claims. This was reported before the emergency benefits for 1.3 million Americans disappeared.
So let’s not forget the lessons we learned from childhood and we, somehow need to relearn as adults: whenever the U.S. tries to force-feed us to ostensibly make things better, and printing money is one, it ends badly. Without allowing the market and economy to recover a natural way with smart fiscal policy, we are actually being shortchanged for the long term. It doesn’t merely create unwelcome repercussions; it puts the circumstances in play for a nightmare.