-- Published: Wednesday, 9 September 2015 | Print | Disqus
By: Bill Holter
We have a very important inflection point coming next week with the Fed meeting. I believe the inflection point has already been reached a few weeks back but next week may be the final straw. Will the Fed raise rates to "save face" and try to stem the loss of credibility? Or will they remain "patient" (cornered) and realize they cannot raise rates without razing the entire building?
Before getting to the rate hike thoughts, a bit of backdrop is needed. World equity (and credit/currency) markets are in disarray. 20-40%+ drops in equity bourses around the world are now common. In plain English, the world is already in a bear market of significant historical proportions. Credit markets particularly in Europe are showing signs that illiquidity is taking over. The German bund trading to .8% up from nearly 0% is just one illustration. In the U.S., the 10 year Treasury is now moving through the 2.23% level to the upside which has been strong resistance. I believe a close over 2.4-2.5% will be a stake in the heart of American credit. I say this because we already have real estate markets stretched and higher mortgage rates will lower "purchasing power" of new buyers. As for autos, higher rates almost don't even matter because what was once less than a 5 year loan market is now 7 years with negative equity to start, laughable!
Non financial yes but of very high importance are the now FOUR chemical plants explosions/four immediate retaliations (have you even heard of the latest explosion in Minnesota?
One other area to look at before we get back to the Fed is the COMEX gold circus. Registered gold available for delivery by dealers has dropped significantly because of last month's deliveries http://www.zerohedge.com/news/2015-09-09/something-just-snapped-comex . The total is now about seven tons left (JP Morgan has less than 1 ton) which leaves total contracts divided by deliverable gold at the crazy multiple of 207 potential claims for every deliverable ounce:
This is beyond dangerous and now means a paltry $250 million is enough to clean out the vaults! I have said for about two years, "force majeure" would be the end game and it certainly looks more and more likely. To put this in perspective, this amounts to about 6 hours (or less) worth of interest the U.S. must pay on its debt. To point out the obvious, you probably sleep more hours each day than this!
As for the Fed, they are well and truly STUCK! Their meme of being patient and "we're gonna gonna gonna raise rates" has gone about as far as the world will allow. They simply cannot raise rates with the current externals. The 2007-2008 "solvency problem" was medicated with more liquidity. Today the problem is not just solvency, liquidity has steadily dried up all over the world. A Fed rate hike is "tightening" credit no matter what the blowhards on CNBC want to tell you. Equity and credit markets are suffering from illiquidity and non existent volume. TAKING MORE CAPITAL OUT OF THE SYSTEM WILL ONLY MAKE IT WORSE! Please note, we have not even mentioned derivatives which all have an interest rate assumption in them ...how many do you suppose have been written over the last five years with a rate higher than 0-.25%???
Any rate hike by the Fed will burn the entire house down! Stocks will crash. Credit will cease to trade, be issued or forwarded. Derivatives will blow up and calls for physical product on the commodity exchanges will be issued. How far do you believe seven tons of gold can be spread out? Not going very far out on a limb, if the Fed does raise rates next week, I do not believe markets will stay open more than two weeks at most.
Going out on a speculative limb, many of you know I have spoken of a potential "truth bomb" being dropped on the world by Mr. Putin. Sergei Glayzev has said as much several times. How ironic would it be if this truth bomb was actually dropped on 9/11? Might this fulfill and bring true the Shemitah? No, I'm not off my rocker, events are now gathering to hit all at once. Multiple explosions back and forth, Russia building bases in Syria, Obama's Iran nuke deal, bear markets all over the world, credit illiquidity, currencies experiencing 5+ sigma events time after time, central banks losing faith at every turn, and topped off with COMEX inventories of gold pulling a disappearing act?
Can the Fed really raise rates? Do they have the ability to "buy" everything that will be sold? How will they "buy" dollars themselves? Can they buy homecoming dollars using new dollars? Everything will need to be supported and nothing can be allowed to fall. You must ask yourself this, can you go to sleep for eight hours and expect everything to be the same "normal" as when you went to bed?
I leave you with this seemingly unrelated question. If we are truly at war with China, either financially or militarily. How many American companies produce the bulk of their product (OR ALL!) via Chinese manufacturing? If hot war does break out, will China continue to deliver product as if business as usual? What would the stock price of Apple be if China decided to no longer produce I-phone parts or units? I guess the best question would be, is there a bigger word than "crash"?
Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration.
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.
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