… all eyes were on Jerome Powell today to see if the Fed chair would say something to stem the surging stock market tide following the month which saw the biggest easing in financial conditions on record, equivalent to nearly 4 rate cuts.

We got the answer shortly after 11am ET, when after what seemed to be otherwise balanced remarks with a dose of hawkish comments…

“It would be premature to conclude with confidence that we have  achieved a sufficiently restrictive stance, or to speculate on when  policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so.”

… offset by some clearly dovish statements…

“The strong actions we have taken have moved our policy rate well into restrictive territory, meaning that tight monetary policy is putting downward pressure on economic activity and inflation. Monetary policy is thought to affect economic conditions with a lag, and the full effects of our tightening have likely not yet been felt.”

… and generally sounding rather optimistic while answering student questions, saying that the US is on the path to 2% inflation without large job losses – i.e., a soft landing – which helped the market to convince itself that Powell had just given the green light for a continued market meltup (thanks to the blackout period, there will be no more Fed comments until the Dec 13 FOMC) as Bloomberg put it…

“Powell points to how the Fed’s past tightening moves will continue to have an impact on the economy — the full impact hasn’t been felt yet. If anybody thought the Fed wasn’t finished raising rates, his prepared remarks today sure put a fork in it. They are done.”

…. and what happened next was a violent repricing in easing odds, with March rate cut odds hitting a lifetime high of 80%, effectively doubling overnight and up from 10% just 5 days ago…

… which then immediately cascaded across assets and sent everything exploding higher, led by stocks which surged above 4,600 for the first time since the July FOMC (aka the “final rate hike”)…

… and one look below the surface reveals that this was indeed the QE trade: the Nasdaq barely rose while meme stonks and most shorted names exploded higher.

And yet, this eruption in the most shorted/hated names means that hedge funds actually had a catastrophic day: and indeed, looking at the HF VIP (most long) less most shorted basket pair trade we see a whopping 5% drop as many hedge funds were stopped out and margin called.

Putting today’s plunge in contact, this was the worst day for hedge funds since June 2021 and the second worst day since the covid crash!

Next, looking at the bond market, here too everything jumped but especially 2-Year TSYs, whose yields tumbled a whopping 12bps to 4.56%…

… and on course for the biggest weekly slide since the regional banking crisis in March, down almost 40bps.

Yet neither stocks, nor bonds, had quite as much fun as either “digital gold”, with Bitcoin briefly hitting a fresh 2023 high, briefly surging to $39,000 before easing back with Ether rising to $2100 …

… but the biggest winner by far from today’s market conclusion that a renewed dollar destruction is on deck, was gold which briefly rose above its all time high of $2,075…

… and that’s just the start: now that a new record is in the history books, a frenzy of gold calls was bought, both for futures and the biggest ETF tied to the metal, and as shown in the chart below, the buildup of open interest between $2,000 and $2,500 has been relentless over the past week on growing optimism that rates are primed to decline. Next up for gold? $2500 or higher.

Yet not everyone had a great day: the dollar predictably tumbled, extending it losses for a third straight week, the longest streak since June, and comes after the dollar saw its worst month in a year this November.

One dollar pair trade where the convexity is especially high is USDJPY, which after soaring for much of the past year suddenly finds itself in a Wile E Coyote moment, trading just below the 100DMA. Should the selling persist, we may see the pair quickly tumble down to 140, or lower.

To be sure, not all the moves made sense: as Bloomberg noted, bonds have a better reason to rally than stocks, which have to factor in the growth concerns that underpin Powell’s remarks. Evidence is gathering that the economy is slowing and stocks will have to reconcile that with their bullish rate views. Today’s ISM Manufacturing data is case in point that the stagflationary slowing that started in October — and Bloomberg Economics says it’s observing typical early signs of recession — extended last month.

The ISM commentary was generally downbeat, equally split between companies hiring and others reducing their labor forces “a first since such comments have been tracked” according to Bloomberg.

But it gets worse: the latest update to the Atlanta GDPNOW tracker slipped to 1.2% from 1.8% yesterday and over 2% just last week.

And after diverging for much of the year, all three regional Feds that do GDP nowcasts have converged on 2% –  a far cry from the “5.2%” GDP print the Biden department of seasonal adjustments goalseeked last month.

Bottom line: the onus is now on the payrolls report next week to further guide markets into next year. The continued rise in ongoing jobless claims pose a risk that unemployment could rise further. But so far, this isn’t a consensus view, with economists projecting the unemployment rate to stay unchanged at 3.9% (and more see a 3.8% rate than 4%).

And while that may only add more fuel to the rate-cut speculation, at some point the softening in economic data will have to be squared with its impact on profits. As a reminder, while much of the interval between the last rate hike and the first rate cut is favorable for risk assets, the weeks right before the cut usually send stocks anywhere between 10% and 30% lower as the market realizes just why the Fed is panicking.

However, judging by today’s action, we still have some time before that particular rude awakening kicks in.

Just eight months later, in remarks on November 22, 2021, President Biden said Powell – then up for renomination and facing stiff opposition from congressional progressives – “made clear to me: A top priority will be to accelerate the Fed’s effort to address and mitigate the risks – the risk that climate change poses to our financial system and our economy.” At that time inflation was 6.8%, on its way up to a 40-year high of 9.1%.

What changed? What caused Powell, a Republican originally appointed by President Trump, to go “freshly woke,” in Politico’s words? (Progressives had always thought him too conservative to steer the Fed in the direction they wanted.) And why would President Biden renominate a Fed Chair who was so clearly failing at his core mission of controlling inflation?

The answer is all around us: “Bidenomics.” The White House has consistently proven – by word and deed – inflation is not a priority. If it were, the administration wouldn’t be pumping trillions of dollars into the economy while dismissing the economic harm Americans have experienced. The administration is interested in lavishing money on its interest groups and its priorities. One such priority is reorienting much of American economic policy toward addressing climate change.

They say that “personnel is policy.” In this case, policy became personnel. In internal emails and emails with the media, obtained from the Department of the Treasury via Freedom of Information Act request by the Functional Government Initiative (FGI), the administration appeared to be far more interested in climate change than Powell’s dismal record on inflation, even when considering whether to renominate Powell to the Fed Chair.

In the words of The Hill, Powell previously had “ruled out imposing climate-related bank stress tests similar to those in development in the U.K. and Europe. He has also refused to use the Fed’s immense power to steer funding away from fossil fuels and toward renewable energy, which many climate hawks consider essential to the fight against climate change.”

But that was then. Powell hadn’t forgotten his clear understanding of the Fed’s mission to serve as “the central bank of the United States to provide the nation with a safer, more flexible, and more stable monetary and financial system.” He just abandoned it as a condition of remaining in office.

Meanwhile, President Biden needed Powell to remain as Fed Chair because, with the Democrat majority in the senate so thin, the White House believed nobody to Powell’s left could be confirmed. But the Federal Reserve’s Board of Governors was a different story. It could be remade with more progressive members. According to Treasury emails, then-House Financial Services Committee Chair Maxine Waters had been demanding the Board be more diverse. So according to emails, a “package deal” was engineered, by which Powell would sign on to the administration’s climate change agenda, while changes would be made to the Board around him. Powell could be the face, but the body had to be sufficiently progressive.

One casualty would be Randal K. Quarles, a member of the Board of Governors, who was to resign and be replaced by a more progressive member. Meanwhile, Bidenomics staggered on. Fed policies bent toward dubious environmental concerns. The risk of recession lingers, and real average hourly earnings have declined more than 3% since January 2021. Inflation is twice as high as the Fed’s target of 2%, and nearly three times higher than it was when President Biden took office.

Powell recently told congress, “Inflation has consistently surprised us, and essentially all other forecasters, by being more persistent than expected and I think we’ve come to expect . . . it to be more persistent.” He also said, despite the official administration positivity, that the process of getting inflation back down to has a long way to go.” So, the Fed is planning to raise interest rates twice more in 2023.

The Biden administration prioritized climate change and the demands of progressive lawmakers over sound economics. It rendered an already failed Fed Chairman a figurehead unable to grapple with his fundamental responsibilities. When policy becomes personnel, you get Bidenomics.

Pete McGinnis is director of communications at the Functional Government Initiative. Article cross-posted from RealClearPolicy.

“It will be appropriate to cut rates at such time as inflation is coming down really significantly, and again, we’re talking about a couple years out,” Powell said. “Not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate. If you think about it, inflation has not really moved down. We’re going to have to keep at it.”

Markets continue their state of flux as experts point in wildly different directions about what all this means for various assets. Crypto is being threatened by governments. Real estate is still looking feeble. The stock market is bipolar. Through it all, precious metals seem to be the only legitimate safe haven, according to many analysts.

Doug Carey, CFA, president and owner of WealthTrace, listed three bullet points about why he’s so bullish on the shiny stuff:

• Inflation: Gold is widely seen as a good hedge against inflation. Carey points out that a rate pause “might signal concerns about economic growth or inflation. This could lead investors to purchase more gold as a hedge against potential inflationary pressures, pushing the gold price up.”
• The strength of the dollar: Gold tends to have an inverse relationship with the dollar. When the dollar is weak — as it is during times of high inflation — gold prices tend to rise. While rates are currently paused between 5% and 5.25%, they’re still well above the Fed’s target of 2%, suggesting gold prices are likely to remain high for some time.
• Opportunity cost: “Higher interest rates increase the opportunity cost of holding non-yielding assets such as gold. If interest rates rise, investors may prefer to invest in interest-bearing assets such as bonds or savings accounts,” Carey says. With a rate pause, however, “gold becomes more attractive, potentially boosting its price as demand increases.”

The latest dot plot revealed that the Fed sees rates climbing by at least 50 basis points this year, but Powell added that these projections are unreliable.

“We write down at these meetings what we think the appropriate terminal rate will be at the end of this year,” he noted. “It’s based on our own individual assessments of what the most likely path of the economy is. It can, in reality, wind up being lower or higher. There’s really no way to know.”

Buy the Dip?

Jonathan Rose, co-founder of Genesis Gold Group, says the real “smart money” is not in trying to time everything out but to play the long game.

“Look, it would behoove me to say everyone needs to grab up precious metals in anticipation of them skyrocketing soon, but that’s not how we look at the investment,” he said. “Do I think we’re in the dip and metals are poised to rise? Yes. But we’re in this for the long haul which means we don’t make decisions based on daily price fluctuations. As I always say, you don’t wait to buy gold. You buy gold and wait.”

Rose, whose company is one of the only unabashedly faith-driven precious metals groups operating in America, has advised precious metals clients for over two decades.

“Especially as it pertains to retirement accounts, people should make their decisions based on the current and future state of the economy as a whole,” Rose continued. “The question shouldn’t be where gold and silver will be tomorrow, next month, or next year. The question should be what the state of affairs will be when Americans need disbursements from their life’s savings. This is why we love self-directed IRAs backed by physical precious metals.”

Skipping the Scams

News like what we’re seeing today can compel investors to act quickly. This has prompted a boom in email campaigns and social media sponsored posts from gold companies. But as Ira Bershatsky, managing member of Advisor Metals, pointed out following the Fed announcement, buyers should beware of scams.

“I got three emails within minutes of Powell making his statements from gold companies offering ‘free’ silver in exchange for buying their precious metals,” Bershatsky said. “One would think that Americans are too savvy to fall for the idea that they get something for ‘free’ if they buy hundreds of thousands of dollars in products, but I keep getting the emails so I guess the scam works.”

Advisor Metals specializes in bullion, offering both discreet deliveries directly to customers through cash purchases as well as rollover and transfer IRA accounts. He does not offer “free” silver.

“I want people to buy from my company just like anyone else would, but I’m not going to insult anyone’s intelligence by trying to convince them they didn’t overpay dramatically in order to qualify for their ‘free’ silver,” Bershatsky continued. “It makes more sense to me to just be honest and work with clients respectfully.”

The Smart Money

There has never been a time in modern history when most economists were completely bearish on gold and silver. It usually comes down to a question of what percentage investors should dedicate to precious metals.

“I think gold is worth investing in always as a part of a very well-diversified portfolio as I believe in the power of evidence-based investing,” said Dana Menard, CFP, founder and lead financial planner at Twin Cities Wealth Strategies.

Investment advice is almost always tainted by the incentives of the advisor. With the Biden-Harris regime pushing so hard for ESG investments in retirement accounts, the most common conclusion Americans are coming to is that they need to take more control over the direction of their portfolios. And as such, many are turning to precious metals as a safe haven during these tumultuous times.

Several top policymakers have publicly spoken in favor of returning to the hawkish policy of the previous year at the next meeting in June, reported Fox Business.

However, the central bank has come under increasing fire for raising recession risks by aggressively boosting interest rates, which has caused worries on Wall Street regarding a deep recession.

Many top CEOs and economists have criticized the Fed’s decision making in recent weeks and for not acting early enough when price pressures were still building.

The Fed raised the borrowing rate for the tenth consecutive time to 5 to 5.25 percent in May, the highest since 2007. Still, inflation unexpectedly jumped 0.4 percent to 4.9 percent in April after months of declines.

The U.S. inflation rate is more than twice the Fed’s 2 percent target but well below the peak of 9.1 percent in June 2022. The labor market also remains tight, with unemployment falling to 3.4 percent last month, the lowest rate since 1969.

After prematurely stating that inflation was getting under control earlier this year, Fed policymakers have warned that inflation was still too high for a pause in the central bank’s tightening campaign, despite pleas from some economists to take a wait-and-see approach.

Despite the recent declines in inflation, some central bank officials say that another hike is increasingly likely.

“I think we’re going to have to grind higher with the policy rate in order to put enough downward pressure on inflation and to return inflation to target in a timely manner,” St. Louis Federal Reserve President James Bullard said in a Monday speech delivered to the American Gas Association in Florida.

“I’m thinking two more moves this year—exactly where those would be this year I don’t know—but I’ve often advocated sooner rather than later.”

Dallas Fed President Lorie Logan agreed that inflation was “much too high” and not cooling quickly enough to justify a pause in interest rate hikes at the Fed monetary policy meeting in June.

“After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress,” she said in remarks prepared for delivery to the Texas Bankers Association in San Antonio.

“The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”

Minneapolis Fed President on the Fence

Minneapolis Fed President Neel Kashkari, a member of the Federal Open Market Committee, told CNBC on May 23 that although he is open to pausing interest rates at the next policy meeting, he is still open to a rate hike.

He stated that would not take future rate hikes off the table, even if officials choose to pause the increases next month.

“I think right now it’s a close call, either way, versus raising another time in June or skipping,” he said during the interview with CNBC.

“What’s important to me is not signaling that we’re done,” he said, adding, “if we were to skip in June, that does not mean we’re done with our tightening cycle; it means to me we’re getting more information. Do we then start raising again in July, potentially?”

“The cost of not getting inflation down to 2 percent is much higher to Main Street than the cost of getting it down to 2 percent,” Kashkari continued.

“So I would rather err on being a little bit more hawkish rather than regretting it and having been too dovish.”

However, he said he was sensitive to the delayed impact of the Fed’s rapid rate increases and a potential credit crunch due to the ongoing banking crisis, which began in March.

These latest comments from top Fed officials have raised the probability of an 11th rate hike in June, even though investors have bet on the Fed taking a break from raising rates for that month. However, the probability that the Fed will raise rates in June rose to 26.8 percent yesterday, up from 17.4 percent the previous week, according to data from CME Group’s FedWatch.

Powell Faces Critics

Meanwhile, Fed Chairman Jerome Powell told the Perspectives on Monetary Policy panel at the Thomas Laubach Research Conference on May 19 that the Fed funds rate may not need “to rise as much” to achieve its inflation goals but agreed that prices were still too high.

After the last meeting in early May, Powell said that the Fed may decide not to raise rates so to better study the effects of the rapid increases.

“A decision on a pause was not made today,” said Powell, reiterated that the Fed’s future policy decisions would “be driven by incoming data, meeting to meeting.”

Powell said that the tightening of credit standards after the recent bank failures could weigh on economic growth, hiring, and inflation but that the Fed’s financial stability tools can calm any volatility in the banking system.

Powell said that “overall the banks and the banking system are strong and resilient,” but acknowledged that the disruption to the financial sector from the series of bank runs could impact the central bank’s policy decisions. The chairman has been repeatedly attacked for misjudging the rise in inflation as “transitory” in 2021.

He was then forced to go on the aggressive interest rate hike spree within months of such a stance, as consumer prices rose at the fastest pace since the early 1980s.

Musk Weighs In

“My concern with the way that the Federal Reserve is making decisions is that they are just operating with too much latency,” Twitter CEO Elon Musk and a major critic of Powell, told CNBC on May 23.

“Basically, the data is somewhat stale, so the Fed was slow to raise interest rates. And now I think they’re going to be slow to lower them.”

Musk called the Fed’s rate hikes a ‘brake pedal’ on the economy that is making things too expensive for those using credit, which will have “downstream effects” on the economy.

Mohamed El-Erian, chief economic adviser at Allianz, told Bloomberg on May 23 that “we are still in the hospital because there are problems with the banking model of certain banks.”

El-Erian is concerned over the situation faced by regional American banks and is opposed to pushing ahead with another strong rate hike too quickly, which will hit businesses tied to the commercial real estate industry.

“The key issue now is to allow the patients that are in the hospital to come out. If there’s another [Fed] policy mistake, the patient goes back into the ICU,” he added.

Article cross-posted from our premium news partners at The Epoch Times.

Anyone who started investing after the crash of 2008 probably has zero concept of how markets are supposed to behave and what they represent to the rest of the economy. They have never seen stocks move freely without central bank interference and they have only witnessed brief glimpses of true price discovery.

With each new leg down in markets one can now predict every couple of months or so with relative certainty that investor sentiment will turn to assumptions that the Federal Reserve is going to leap in with new stimulus measures. This is not supposed to be normal, but they can’t really help it, they were trained over the past 14 years to expect QE like clockwork whenever markets took a dip of 10% or more. The problem is that conditions have changed dramatically in terms of credit conditions and price environment and it was all those trillions of QE dollars that ultimately created this mess.

Many alternative economists, myself included, saw this threat coming miles away and years ahead of time. In my article ‘The Economic End Game Continues’, published in 2017, I outlined the inevitable outcome of the global QE bonanza:

“The changing of the Fed chair is absolutely meaningless as far as policy is concerned. Jerome Powell will continue the same exact initiatives as Yellen; stimulus will be removed, rates will be hiked and the balance sheet will be reduced, leaving the massive market bubble the Fed originally created vulnerable to implosion.

An observant person…might have noticed that central banks around the world seem to be acting in a coordinated fashion to remove stimulus support from markets and raise interest rates, cutting off supply lines of easy money that have long been a crutch for our crippled economy.”

The Fed supports markets through easy money that feeds stock buybacks, and it’s primarily buybacks that kept stocks alive for all these years. It should be noted that as indexes like the S&P 500 plunged 20% or more in in the first six months of 2022, buybacks also decreased by 21.8% in the same time period. That is to say, there seems to be a direct relationship between the level of stock buybacks and the number of companies participating vs the decline of stocks overall.

And why did buybacks decline? Because the Fed is raising interest rates and the easy money is disappearing.

If buybacks are the primary determinant of stock market prices, then the participation of individual investors is mostly meaningless. Stocks cannot sustain on the backs of regular investors because regular investors don’t have enough capital to keep markets afloat. Companies must continue to buy their own shares in order to artificially prop up prices, and they need cheap Fed money to do that. Stocks are therefore an illusion built only on the whims of the Fed.

And the reason for the Fed’s dramatic shift away from stimulus and into tightening? One could argue that it’s merely the natural end result of inflationary manipulation; that central banks like the Fed were ignorant or arrogant and they weren’t thinking ahead about the consequences. Except, this is false. The Fed knew EXACTLY what it was doing the whole time, and here’s the proof…

Way back in 2012 before Jerome Powell became Fed Chairman, he warned of a market crisis if the central bank was to hike rates into economic weakness after so many years of acclimating the system to easy money and QE. During the October 2012 Fed meeting Powell stated:

“…I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.”

In other words, Powell and all other Fed officials knew ten years ago what was going to happen. They knew that they were creating a massive financial bubble and that when they raised rates that bubble would collapse causing serious economic damage. Yet, they kept expanding the bubble, and now with Powell as chairman, they are popping the bubble. No one honest can claim that the central bankers were “blind” or ignorant. This is an engineered crash, not an accidental crash.

If the crash is deliberate then it is a means to an end, and there is no reason for the Fed to intervene to save markets at this time. Some people will argue that this puts a target on the Fed as a saboteur of the economy, and they wonder why the central bankers would put themselves at risk? Because they have a rationale, a way out, and it’s called “stagflation.”

Price inflation coupled with negative GDP is the basis for a stagflationary environment. The only other factor that is missing in the US today is rising unemployment, but this problem will arrive soon as numerous companies are slated to start layoffs in the winter. Stagflation is the Fed’s perfect excuse for continuing to raise interest rates despite plunging stocks. If they don’t hike rates then price inflation runs rampant and GDP declines anyway. If they return to QE then an inflationary calamity ensues.

In order to “save us,” they have to hurt us. That’s the excuse they will use.

It’s a Catch-22 event that they created, and I believe they created it with a purpose. But let’s imagine for a moment that the Fed has the best interests of the economy at heart; would a pivot back to QE change anything?

Not in the long run. Rising inflation is going to crush what’s left of the system anyway. Supply chain problems will only get worse as costs rise. To return to stimulus would indeed put a target on the central bankers. It’s better for them to pretend as if they are trying to fix the problem rather than continue with policies that everyone knows are draining pocket books.

Stocks saw a brief rebound this past week for one reason and one reason only – Rumors of a Fed pivot were spread and investors were hoping for a stop to rate hikes or a glorious return to stimulus measures. We will see many short rebounds in stocks like this over the next year, each one initiated by rumors of a reversal in policy. It’s not going to happen.

Will the Fed stop rate hikes? Sure, probably when the Fed funds rate is between 4% to 5%. Will that mean a reversal is on the horizon? No, it won’t. And it won’t mean that the Fed is done with rate hikes. They could start hiking again a few months down the road as price inflation persists.

Will the Fed return to QE? I see no reason why they would. Again, they are fully aware of the damage they have done with the QE bubble and the popping of that bubble. They would not have hiked rates in the first place unless they wanted a crash.

Consider this: What if the goal of the Fed is the destruction of the middle class? What if they are using the false hopes of small time investors in a return to QE? What if they are luring investors into markets with rumors of a pivot, tricking those investors into pumping money back into markets and then triggering losses yet again with more rate hikes and hawkish language? What if this is a wealth destruction steam valve? What if it’s a trap?

I present this idea because we have seen this before in the US, from 1929 through the 1930s during the Great Depression. The Fed used very similar tactics to systematically destroy middle class wealth and consolidate power for the international banking elites. I leave you with this admission by former Fed Chairman Ben Bernanke on the Fed’s involvement in causing the Great depression through rate hikes into weakness…

“In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn.

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” – Ben Bernanke, 2002

Is the Fed really sorry? Or are they just repeating the same strategy they used 90 years ago while acting as if they are unaware of the eventual outcome?

Editor’s Note: We strongly recommend that Americans who want to protect their wealth or retirement with precious metals should consider buying from America First gold and silver companies instead of any of the vast majority who are donating to Democrats and/or affiliated with proxies of the Chinese Communist Party. Here are two we recommend.

Image by Thomas Hawk via Flickr, CC BY-NC 2.0. Article cross-posted from Alt-Market.

Never in my life have I been more concerned about our economic future than today. I dismissed precious metals sponsors in the past because I did not see a need to offer them to our readers. But for the last year, I’ve come to realize the importance of protecting wealth and retirement, so I vetted out as many of the precious metals companies I could find to see which ones were truly America First companies. What I found was shocking as the vast majority have executives who donate to Democrats, work directly with companies affiliated with the Chinese Communist Party, or both. This is why we only selected two precious metals companies to recommend, and I do so wholeheartedly. Here’s the article by Michael Snyder…

In 2008, we experienced a nightmarish financial crisis that was felt in every corner of the globe.  Is such an event about to happen again?  On Friday, the Dow Jones Industrial Average plunged 1,008 points as panic swept through Wall Street in the aftermath of Jerome Powell’s dramatic speech in Wyoming.  Powell made it exceedingly clear that interest rates are going to continue to go up, and that deeply alarmed investors.  Some very vocal influencers in the financial community had been anticipating that the interest rate hikes would be ending soon, but now Powell has completely dashed those hopes.  Wall Street is going to have to finally face reality in the weeks ahead, and it isn’t going to be pretty.

When I heard that the Dow had fallen 1,008 points on Friday, the last two digits immediately stood out to me.

We all remember what happened the last time a year ended in “08”. Could this be a sign that another 2008 is coming? Before you dismiss such a notion, there are other times when a stock market crash has seemed to have been a sign of things to come.

For example, on September 29th, 2008 the entire world was stunned when the Dow Jones Industrial Average dropped 777 points.  That was a new all-time record, and fear swept through Wall Street like wildfire.  The following comes from a CBS News report that was published in the immediate aftermath of that market crash…

Wall Street watched Washington with shock and fear as the bailout package flamed out on Capital Hill.

And as that $700 billion financial rescue plan went down, the Dow went down like a sub, hurtling the Dow Jones industrials down nearly 780 points in its largest one-day point drop ever, reports CBS News correspondent Anthony Mason.

“Nobody could believe it,” said Ted Weisberg of Seaport Securities. “The fact that it did not get done is just mind-boggling.” The result on Wall Street was a history-making 777-point nosedive. The Nasdaq plunged almost 10 percent.

Many thought that it was rather odd that the stock market would fall 777 points just as a 7 year Shemitah cycle was ending and a new 7 year Shemitah cycle was beginning.

Rosh Hashanah started on the evening of September 29th, 2008, and all throughout history we have seen really big things happen on or around the times of major Biblical festivals.

Ultimately, the weeks following September 29th, 2008 were some of the most difficult that we have ever seen for Wall Street.  A great financial crisis shook the entire planet, and the U.S. economy plunged into what would become known as “the Great Recession”.

7 years later, there was another stock market crash in 2015.  It was immensely painful at the time, but not a lot of people remember it today.

Now another 7 years have passed, and it appears that we are on the verge of yet another major panic on Wall Street. Interestingly, another cycle seems to be repeating as well.

As I discussed the other day, this is the 14th anniversary of the housing crash of 2008. But what most people don’t remember is that there was another housing crash 14 years before that in 1994. And if you go back 14 years before that, you will find that the U.S. housing market was crashing in 1980.

Now the U.S. housing market is crashing again, and this one could turn out to be the most painful of them all.

If the Federal Reserve would just stop raising interest rates, we may have had a shot at avoiding a complete collapse of the housing bubble.

But that isn’t going to happen, and Jerome Powell made that exceptionally clear on Friday morning…

In a keynote speech at the Federal Reserve’s annual Jackson Hole Economic Symposium Friday morning, Powell said that the path to reducing inflation would not be quick or easy, adding that the task, “requires using our tools forcefully to bring demand and supply into better balance.”

“Using our tools forcefully”?

That doesn’t sound good at all.

And during his speech he actually seemed to promise that “some pain” would be coming for U.S. households and U.S. businesses…

“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

Even with four consecutive interest rate hikes, including two back-to-back 75-basis-point increases, Powell stressed that the Fed is not in a place to “stop or pause” — an unwelcome sign for investors who were predicting a rate cut next year.

So more interest rate hikes are coming.

Will it be a half a percentage point next month or will it be three-quarters of a point once again?

Only time will tell, but either choice will accelerate the collapse of the housing market and will bring even more pain for Wall Street.

Something that I will be watching very closely is the derivatives market.  As Alasdair Macleod recently explained, the derivatives bubble has expanded to a size that is almost unimaginable…

By far the largest problem in a period of credit contraction is to be found in over-the-counter derivatives. These are unlisted contractual agreements between counterparties, including commodity contracts, credit default swaps, equity linked contracts, foreign exchange derivatives, and interest rate derivatives. According to the BIS’s database, in December 2021 the notional amounts outstanding of all contracts was $610 trillion. These positions are the total of seventy dealers’ returns in twelve jurisdictions, capturing an estimated 94% of the total covered in the BIS’s triannual survey, suggesting that the true total outstanding is closer to $650 trillion.

Once this derivatives bubble finally bursts, it will be an event that will be absolutely cataclysmic for the global financial system.

I have been specifically warning about the dangers posed by the derivatives bubble for many years, and it is only a matter of time before it comes crashing down.

Unfortunately, what Jerome Powell and his minions at the Fed are doing threatens to greatly destabilize financial markets.

Wall Street is not prepared for an interest rate shock, and I believe that Fed officials are making a tragic policy error.

***It is finally here! Michael’s new book entitled “7 Year Apocalypse” is now available in paperback and for the Kindle on Amazon.***

About the Author: My name is Michael and my brand new book entitled “7 Year Apocalypse” is now available on Amazon.com.  In addition to my new book I have written five other books that are available on Amazon.com including  “Lost Prophecies Of The Future Of America”, “The Beginning Of The End”, “Get Prepared Now”, and “Living A Life That Really Matters”. (#CommissionsEarned)  When you purchase any of these books you help to support the work that I am doing, and one way that you can really help is by sending digital copies as gifts through Amazon to family and friends.  Time is short, and I need help getting these warnings into the hands of as many people as possible.

I have published thousands of articles on The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe.  I always freely and happily allow others to republish my articles on their own websites, but I also ask that they include this “About the Author” section with each article.  The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions.

I encourage you to follow me on social media on Facebook and Twitter, and any way that you can share these articles with others is a great help.  These are such troubled times, and people need hope.  John 3:16 tells us about the hope that God has given us through Jesus Christ: “For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.”  If you have not already done so, I strongly urge you to ask Jesus to be your Lord and Savior today.

Article cross-posted from The Economic Collapse Blog.

After more than a decade of chained stimulus packages and extremely low rates, with trillions of dollars of monetary stimulus fueling elevated asset valuations and incentivizing an enormous leveraged bet on risk, the idea of a controlled explosion or a “soft landing” is impossible.

In an interview with Marketplace, the Federal Reserve chairman admitted that “a soft landing is really just getting back to 2 percent inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now.” He went on to say that “nonetheless, we think there are pathways … for us to get there.”

The first problem of a soft landing is the evidence of the weak economic data. While headline unemployment rate appears robust, both the labor participation and employment rate show a different picture, as they have been stagnant for almost a year. Both the labor force participation rate, at 62.2 percent, and the employment-population ratio, at 60.0 percent remain each 1.2 percentage points below their February 2020 values, as the April Jobs Report shows. Real wages are down, as inflation completely eats away the nominal wage increase. According to the Bureau of Labor Statistics, real average hourly earnings decreased 2.6 percent, seasonally adjusted, from April 2021 to April 2022. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 3.4 percent decrease in real average weekly earnings over this period.

The University of Michigan consumer confidence in early May fell to an eleven-year low of 59.1, from 65.2, deep into recessionary territory. The current conditions index fell to 63.6, from 69.4, but the expectations index plummeted to 56.3, from 62.5.

The second problem of believing in a soft landing is underestimating the chain reaction impact of even allegedly small corrections in markets. With global debt at all-time highs and margin debt in the US alone at $773 billion, expectations of a controlled explosion where markets and the indebted sectors will absorb the rate hikes without a significant damage to the economy are simply too optimistic. Margin debt remains more than $170 billion above the 2019 level, which was an all-time high at the time.

However, the biggest problem is that the Federal Reserve wants to curb inflation while at the same time the Federal government is unwilling to reduce spending. Ultimately, inflation is reduced by cutting the amount of broad money in the economy, and if government spending remains the same, the efforts to reduce inflation will only come from obliterating the private sector through higher cost of debt and a collapse in consumption. You know that the economy is in trouble when the fiscal deficit is only reduced to $360 billion in the first seven months of fiscal year 2022 despite record receipts and the tailwind of a strong recovery in GDP. Now, with GDP growth likely to be flat in the first six months but mandatory and discretional spending still virtually intact, government consumption of monetary reserves is likely to keep core inflation elevated even if oil and gas prices moderate.

The Federal Reserve cannot expect a soft landing when the economy did not even take off, it was bloated with a chain of newly printed stimulus packages that have made the debt soar and created the perverse incentive to monetize all that the Federal government overspends.

The idea of a gradual cooling down of the economy is also negated by the reality of emerging markets and European banks. The relative strength of the US dollar is already creating enormous financial holes in the assets of a financial system that has built the largest carry trade against the dollar in decades. It is almost impossible to calculate the nominal and real losses in pension funds and the negative result of financial institutions in the most aggressively priced assets, from socially responsible investment and technology to infrastructure and private equity. We can see that markets have lost more than $7 trillion in capitalization in the year so far with a very modest move from the Federal Reserve. The impact of these losses is not evident yet in financial institutions, but the write downs are likely to be significant into the second half of 2022, leading to a credit crunch exacerbated by rate hikes.

Central banks always underestimate how quickly the core capital of a financial institution can dissolve into inexistence. Even the financial system itself is unable to really understand the complexity of the cross-asset impact of a widespread slump in extremely generous valuations throughout all kinds of assets. That is why stress tests always fail. And financial institutions all over the world have abandoned the healthy process of provisioning expecting a lengthy and solid recovery.

The Federal Reserve tries to convince the world that rates will remain negative in real terms for a long time, but borrowing costs globally are surging while the US dollar is strengthening, creating an enormous vacuum effect that can create significant negative effects on the real economy before the Federal Reserve even realizes that the market is weaker than they anticipated, and liquidity is significantly lower than they calculated.

There is no easy solution. There is no possible painless normalization path. After a massive monetary binge there is no soft hangover. The only thing that the Federal Reserve should have learnt is that the enormous stimulus plans of 2020 created the worst outcome: stubbornly high core inflation with weakening economic growth. There are only two possibilities: To truly tackle inflation and risk a financial crisis led by the US dollar vacuum effect or to forget about inflation, make citizens poorer and maintain the so-called bubble of everything. None is good but they wanted a decisive and unprecedented response to the pandemic lockdowns and created a decisive and unprecedented global financial risk. They thought money creation was not an issue and now the accumulated risk is so high it is hard to see how to tackle it.

One day someone may finally understand that supply shocks are addressed with supply-side policies, not with demand ones. Now it is too late. Powell will have to choose between the risk of a global financial meltdown or prolonged inflation.

About the Author

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

Image by Federalreserve via Flickr, Public Domain. Article cross-posted from Mises.