Janet Yellen Gets Nuts – Ep. 125

*  Yesterday, the Federal Reserve finally met market expectations and increased interest rates to .25% * Actually, the official rate was 0 - .25 and now, the official rate is .25 to .5 * The actual rate was always in the middle between zero and .25 * Assuming the Fed tries to keep the rate closer to .25 than .5, the actual increase in rates could be less than 25 basis points * The initial reaction to this rate hike is to proclaim the end of the era of "cheap money" * .25% is still cheap money.  Alan Greenspan never went below 1%. * Some people are saying "Peter Schiff was wrong" because the Fed did raise rates * Actually, in a recent podcast I noted that the Fed changed their narrative away from "data dependent" to an expression of faith in the economy, opening the door to a symbolic rate hike unsupported by data * I was alone throughout the year believing that the Fed would not raise rates prior to this change in narrative * The Fed was afraid that to not raise rates this year, it would be a vote of "no confidence" in the economy * Ultimately, the Fed felt that even though the data didn't justify it, they had to raise rates because of psychological damage to the markets * If the economy were really sound, we would not need Janet Yellen to express confidence in the economy - a strong economy creates its own confidence. * We don't need propaganda in the form of a symbolic rate hike * The Fed did not even have the last recession in their forecast until we were well into the recession, so who cares about the Fed's level of confidence? * In an earlier podcast, I referred to Ben Bernanke's comment that he felt he was a representative of the administration * Janet Yellen is creating a sense of confidence in the economy for the same reason * The Fed is now pretending that we will have more rate hikes in the future, forecasting 4 more hikes during 2016 * I believe the economy is not strong enough to accommodate these rate hikes and neither does Janet Yellen * The ultimate irony is the data that came out the morning of the rate hike * Industrial Production: they were forecasting a drop of .2, which is still bad, instead, we got a drop of .6 * The PMI Manufacturing Index was the lowest in many years, 51.3 down from 52.6 * More bad news: The Philadelphia Fed last month showed an increase of 1.9, so 1.2 was forcasted - instead we dropped 5.9 * These numbers show an economy that is decelerating * If you look at a chart, these numbers are about to crash even lower * These numbers are flashing recession, recession, recession * If you're a Keynsenian, the prescription for the condition this economy has would be stimulus, not an interest rates * The air was coming out of this bubble anyway, all the Fed did was increase the hole for the air to come out * The market was up just before the hike, which was interpreted as a green light to raise rates. I said in an earlier podcast that that would be a mistake, because the market would then tank, and that is what happened today * Transports have been the weakest of all, despite oil prices * We continue to see weakness in the high-yield bond market as the air is coming out of that bubble * It is probable that the stock market is going to get a lot worse between now and the time the Fed is supposed to hike rates again * But the problem for the Fed now, is if the market starts to tank now, they can't do anything until the jobs numbers begin to show weakness * Janet Yellen actually referred to this move as "ahead of the curve", meaning that if she waited any longer, she would overshoot on her objectives: * One was unemployment.  How can that get too low? Especially with so many people out of the labor market,Our Sponsors:* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com* Check out Plaud AI and use my code GOLD for a great deal: https://plaud.ai* Check out Quince and use my code quince.com/gold for a great deal: https://www.quince.com* Check out TruDiagnostic and use my code GOLD20 for a great deal: https://www.trudiagnostic.comPrivacy & Opt-Out: https://redcircle.com/privacy