Overall, if you have the feeling that these types of helter skelter neo-voodoo economics can't be sustained for very long, then join the club.
Everyone knows that the trillions of dollars of liquidity that have been pumped into the markets by successive rounds of quantitative easing over the last few years have mostly sloshed into stocks, ballooning the Dow and S&P up to all-time record highs this past May. So obviously when the Fed tells the markets that they're going to drain the pool by raising interest rates, the markets...go up again?
Welcome to the new normal. It makes no sense, but that's exactly how the markets responded in a bizarre half day of euphoria after Yellen surprised exactly no one by raising the Fed's federal funds rate target to 0.25 – 0.5%. It didn't take markets long to shake off that mini-rally and continue trending where you would expect them to trend in a rate hike environment: downward. The markets closed Monday up slightly from their Friday lows, but still noticeably down from their position just one month ago. Not only that, volatility has returned to the markets with a vengeance. The Dow is in the midst of its most volatile December since the global collapse of 2008.
Also as expected, the downward drag of the Fed's decision is not just being felt in America. Every single major index in the Americas and Europe is down on the month, except for the FTSE 100 and the IBEX 35. Still, it's not as bad a reaction as could have been expected, and not at all surprising for the black is white, up is down, left is right “new normal” of the QE-driven central bank-directed economy.
Some other signs that all is not right with the world this week: Asian stocks are all receiving a boost this week because the Chinese government has just admitted to slowing growth. In the new normal, this means that they must be getting ready to unleash another round of stimulus on the markets, so that's good news. Also this week, higher-than-expected windfalls of...well, wind are threatening to send German energy prices negative over the holidays. In the new normal of dwindling oil prices, no plant wants to scale back reduction even when there is expected to be a very windy Christmas in Germany, meaning wind power will create excess energy in the market and actually send prices negative.
Overall, if you have the feeling that these types of helter skelter neo-voodoo economics can't be sustained for very long, then join the club. The bottom has just fallen out of junk bonds (the harbinger of the 2009 crisis and the 2011 Euro debt kerfaffle), and Goldman Sachs has just released its six “Grey Swan” indices of global risk showing that every single one of them is worsening.
So with that in mind, enjoy the eggnog, sing some carols, and kiss your loved one at New Year's. It's shaping up to be a very interesting 2016.
Also in this issue:
History of Empires
Gun Control Laws to Come
Hacking the Power Grid
More on Oil
Spain’s General Election
China’s New Game
Drug Latin Names