China mother of all bubbles

Several months back in May the Reserve Bank of Australia dropped its key interest rate and the ASX sold. To that point Australian markets were very questionable. They were starting to manifest some tough days, this was before the Chinese collapsed and I started wondering aloud if the ASX was ready to lead equity markets in a new corrective phase. Up to that point, it had been years where rate cuts or asset purchases were universally cheered and markets rallied. I just saw a chart on television yesterday where the Dow has correlated an upward trajectory with the Fed’s balance sheet.

On that day in May something changed. There was a historic rate cut in Australia and you can see the next day markets got crushed.

We know now that GDP in Australia is at 0.2% and lagging most industrialized countries including Greece. There always comes a point when the bill comes due. People wake up only to realize after years of easy money policies the policies have failed, the central bank is out of powder or both. This may be the week the United States finally woke up to that fact. It’s not a minute too soon considering the prior week was Pi Day and today as you read this we are once again at the seasonal change point. 

Whatever the case, after years of quantitative easing, traders are finally starting to view we didn’t get a paltry 25 basis point rise as bad news for the economy. Now we are truly coming to a point of heads I win tails you lose. They may need to raise rates but they can’t. They can’t because you don’t raise rates with an economy sputtering along at 2% growth and that’s the real growth. You don’t raise rates with 93 million Americans out of the labor force. I’ll give Janet Yellen one thing. They may talk a good game when it comes to the unemployment rate being just above 5% but talk is cheap. When push came to shove she realizes just like the rest of us the unemployment rate is a scam designed to make politicians look good.

Since at least 2011 the Fed has been responsible for keeping the economy from sinking because a dysfunctional Washington has NO fiscal policy and she learned well from Ben Bernanke. She knows the economy isn’t all it’s cracked up to be.

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About the Author

Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.