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Update: We have published the No Market For Old Men - January 2019!

No Market For Old Men

Jessup: You want answers?
Kaffee: I think I’m entitled to them.
Jessup: You want answers?
Kaffee: I want the truth.
Jessup: You can’t handle the truth!

A Few Good Men

Buy gold and save yourself. I write that every month because we live in an artificial economy with fake markets inflated by central banks who adopted zero interest rates and quantitative easing to create unsustainable financial asset values. Sooner or later they had to stop these policies or the system was going to collapse under the weight of trillions of dollars of debt. While it seemed like markets could delay that day of reckoning forever, we knew that was unrealistic. The question now is whether we are finally facing that reckoning or just another bear market. A lot will depend on what the Federal Reserve does next.

We have likely seen the last rate hike in this cycle, but whether the Fed keeps shrinking its balance sheet is another question. If the S&P 500 drops below 2300, the Fed may decide to stop shrinking its balance sheet until conditions stabilize. Since we are only 50 basis points above that lesson, this could happen soon. But the market is severely oversold so a rally could also materialize at any time and leave balance sheet shrinkage on course.

The current sell-off is starting to pose a systemic risk because its breathtaking magnitude and velocity are shattering confidence. Market losses are exposing the fact that markets were far more fragile than they appeared, and that financial asset values were largely illusory. Even more concerning is that the sell-off occurred before economic data deteriorated; GDP, employment and inflation numbers are still strong. For reasons discussed below, these statistics are of diminishing value in today’s world and overstate economic strength, but investors and policymakers still rely on them...

 
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