Happy New Year to all of you! In last year’s roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern bitcoin rigged reality 2018.
Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it’ll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so.
Truth be told, they couldn’t map out an exit route from cheap money even if they wanted to. That’s a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar. My new book Collusion: How Central Bankers Rigged the World comes out on May 1.
You can see my book tour schedule evolve over the next few months on my website. The Fed predicted three hikes for 2017, and for the first time in three years of announcing rate increases, met its own forecast. Thus, Federal Funds Rates rose by 75 basis points. Gearing up to Brexit, the Bank of England raised rates by a mere 25 basis points. Japanese Prime Minister Shinzo Abe’s snap election victory last fall secured BOJ head, Haruhiko Kuroda in his spot, or at least, provided a green light for more easy money provisions to the Japanese capital markets. In the US, Jerome Powell will assume the helm at of the Fed on February 4. How different will his policies be from those of Janet Yellen or Ben Bernanke?
Powell will embrace the same unlimited easy money policy on any sign of market weakness, as the global web of central banks remains as omnipresent as ever. Global stock markets, being the easiest place to park cheap money will rise at first in 2018. This will take place on the back of another spurt of record corporate buybacks. In the US, the Dow Jones finished the year up 28. President Trump took credit for the equity euphoria, as Obama and other presidents have done in the past. 5 trillion of assets it’s holding, markets would plummet. That’s why the Fed isn’t moving much, nor are other central banks, to truly reduce the size of their artificial market intervention.
On the flipside, there’s economic reality. Job growth is at its slowest pace since 2011, wage growth is relatively stagnant and job market participation sits at four-decade lows. While the stock market continues to shatter records, the real economy remains left behind. Debt is at epic levels any way you slice it, public debt, corporate debt, credit card debt, student loan debt. Then debt bubbles will pop, beginning with higher yielding bonds.
7 trillion, a figure equivalent to more than 45 percent of GDP. 1 trillion over the past two years. US tax cuts will propel more issuance at first, due to the perception of more money available later with which to repay it. This is the year where borrowing fueled by central banks slams into a wall of growing defaults. Expect corporate defaults to rise on the back of even slight rate hikes.