Will The Fed Sacrifice The Recovery Myth To Save The Markets? – Ep.184

* The carnage in global stock and bond markets continues; it really got started last night in Japan
* The JGB (Japanese Government Bonds) dropped for the 3rd consecutive day
* The biggest 3-day drop in bond prices in Japan in over 3 years, so yields surging, along with the Japanese yen
* Of course, this is not supposed to be happening because they're doing more stimulus and they've got negative interest rates, yet the Japanese yen is appreciating anyway
* The Reserve Bank of Australia also came out last night and cut interest rates to 1.5%
* That is an all-time record low
* Why did they do that? Is it because there's not enough economic growth in Australia?
* Are they trying to revive a slumping property market
* They've got a bubble in the real estate market - there's no valid reason for cutting interest rates from already low levels
* The actual reason that the Reserve Bank of Australia gave for the rate cut was that inflation was not high enough
* It's about 1%, the way they measure it, and their goal is to have it between 2 and 3%
* In other words, the cost of living is going up by 1% a year and the Reserve Bank of Australia says, "That's horrible! We need to make sure that things get at least 2-3% more expensive this year and we're going to slash interest rates to make sure that happens."
* Of course, when you do that, you have all sorts of risks, and what is the payoff?
* Why is the cost of living going up 2-3% better than it going up 1%?
* What's wrong with the cost of living not going up at all?
* How about if it actually went down?  What if people could actually buy the things they need for less money?
* What's horrible about the standard of living actually going up?
* Of course, the real risk is, what if inflation goes from 1% (at least the way they measure it) to 4 or 5%?
* Was it worth it? Now you have an inflation problem on your hands
* If you've got 1% and you want 2% - You're close enough!
* Obviously this has got nothing to do with inflation, they're simply trying to stop the rise in the Australian dollar
* But the Australian dollar went up anyway!
* They're trying to keep it down because they have this Keynesian world view that a weak currency is good and a strong currency is bad
* But we've got to an inflection point where the central banks are losing this battle
* The yen is rising despite the efforts to suppress it
* The Aussie dollar went up, despite efforts to suppress it
* The problem is, the U.S. economy is a disaster
* We got the terrible GDP numbers, and we got a lot of other bad economic news today
* We've got a lot more bad news coming out later in the week
* We might get a horrific report on non-farm payrolls
* We got that surprise good number last month, but who knows? We might revise that down and come up with another disappointing number on Friday
* But the Fed, instead of acknowledging this, are still talking about rate hikes
* In fact a Fed official just yesterday said the market should not rule out the possibility of a rate hike in September
* First of all, if the economy comes roaring back (no chance that's going to happen)
* Even if it comes back, they didn't say they WOULD raise interest rates, they said they might
* Which also means they might not
* It doesn't matter what happens to the economy, they can't raise rates
* The economy is not getting better
* We are either in recession or on the cusp of one
* And the data continues to prove that, but the Fed continues to talk as if they're thinking about raising rates
* That is part of the problem, because if the market doesn't believe that the Fed is coming to the rescue...

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