In the fall of 2008, the Federal Reserve Bank cut interest rate to 0% and promised to keep at 0% far longer. With 3 rounds of quantitative easing, Fed has inflated the stock bubble once again. The new money created were used to buy the back the company stocks to boost the PE Ratios. The QE programs bought underwater mortgage assets from the too big to fail institutions and it provided them fresh capital run their operations once again.
Increasing number of economic data point to American economy is rapidly going into recession which started in the late 2015. The Sales to Inventories ratio hit recession levels dating back to 2009. Home Sales have plunged to 1970 levels. The junk bond spreads have increased drastically. Subprime Auto loans defaults are spiking and auto sales are down and Inventories are soaring. Sub Prime Auto loans delinquency for 60+ days are retracing back to 2008 crisis level. Auto Inventories to sales ratio are through the roof. Part of reason is most American don’t have full-time jobs, as most jobs are part-time. BLS Jobs reports have been pedaling fiction about the increasing job growth, if we look underneath the jobs report, most of the jobs created have been low paying part-time service jobs, high paying manufacturing jobs have been replaced with bartender, waiter service jobs. CPI has been above the fed target of 2% in 2016. New Manufacturing orders have dried up. With the cheap money from the Fed, the businesses have overestimated the demand for the goods. Consumer spending is at the weakest as the most of the full-time jobs have been replaced by part-time jobs. GDP for 2016 is expected to around 1.4% for the year and the Fed’s favorite job index JOLTS plunged to 6 month lows. US treasury yields are negative the inflation has been above 2% and 2 year& 10 years are trading below 2%.
Dollar has rallied based on the perception that the US economy has recovered. People have been following Fed’s narrative of the economy being great. Fed has two option either raise interest rates and cause a recession or restart QE program and cause a dollar crisis. Central bankers around the world are printing money at a tremendous rate. Next crisis will be in the currency market. Gold and silver have gone up more than 15% for the year. After Brexit, pound sterling lost nearly 10% of its purchasing power while Gold appreciated nearly 20% in pound terms.