Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen
Originally Posted by EJ
The low oil prices did not cause the stock market to correct. The rate hike, even a mere 1/4 point, sent both oil and stock prices down.
My article from early 2013 forecasts exactly this result if the Fed went ahead and raised rates before the output gap closed. Yellen went ahead and raised them based 1) on market expectations she set at the Boston Economics Club meeting where I met her June 2010, and 2) Fed concerns that asset markets were over-heating.
Story from 2002. I'm at a small dinner put on by Thomas Weisel partners. Tom's there lecturing us about how the telco crash as no big deal because all of the swell infrastructure that got left behind was going to be the foundation for the recovery. A Boston Fed board member is seated next to me. I asked him what prompted the Fed to raise interest rates when it did. Was the intent to pop the dot com bubble. He answer: "Yes. We said, "Geez. Look what they're doing with our money!"
Their money, not ours. That's how they see the world. It's similar to the Hollywood mentality. My sister's in the business. A director at a party at her house once used the term "civilians" to refer to the rest of us who are not in the movie and TV business. I got exactly the same vibe talking to Yellen.
They don't care if they crash the economy up and down. Did Greenspan get indicted for his role in the housing bubble and crash?
The Fed's modus operandi is a lethal combination of arrogance, cluelessness, and lack of accountability.
I think they saw "their money" being used in ways they didn't like, such as financing of Unicorns, and decided to take asset markets down a notch.
Credit risk contagion is still fresh in the minds of market participants, so the reaction to the hike may be more than the Fed bargained for.
Lousy credits started to roll over mid-2014 but good credits have not been effected, at least not yet.
Lacking tools to contain a credit crisis if one occurred today the Fed will be forced to reverse direction at the hint of credit market spill-over.
I do not see another run-away train like I did on late 2007. In fact, I will not be surprised to see markets recover starting next week.
I looked at that Corp AAA chart back in 2007-2008 and it seems like that index didn't start falling (was actually making new highs like it is now) until September 2008 while the market was in a bear market since October 2007. Is it possible that is happening now with the market in a bear market while corp AAA credit won't go down until well into the bear market? Thanks in advance. Any idea when a new article will be published? No rush, just very excited to hear your updated views!
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