Looking at commodities over these past few years, it doesn't take a genius to see that in spite of QE and ZiRP, there are deflationary pressures in the system.
The easy money policies may have prevented a total collapse of the banking and financial system, but the underlying problem that caused the crisis, which became evident in 2008, has not been solved.
The symptoms may have improved a bit, but the patient is still sick, and it will become more obvious as the patient is weened from the medicine.
The potential solutions to the problem, (which is lack of aggregate demand), all have fierce opposition coming from those who either don't understand the problem, of feel that their short term ability to game the system is threatened by a solution.
Solutions such as raising pay, or infrastructure spending, as well as QE for the people (like the Chinese used to catapult themselves out of the crisis quickly in 2009), can not be agreed upon in this country.
Investors, in spite of what they perceive as the best solution, seem to agree on one thing. They're squeamish about holding on to assets that do well in an economy with strong demand. This is due to a lack of organic demand.
Without organic demand, investors are willing to hold those assets with the FED propping them up, though.
So, as an investor, it only makes sense to put your money into these assets, with organic demand or a FED prop present.
He did a good job of putting it all in a nutshell.
The government had 7 years to do something about infrastructure, at zero interest rates.
That infrastructure needs improving, independent from the economy. The fact that it would have provided a boost to getting the money velocity rolling, is a secondary point.
Fed heads Bernanke and Yellen have both pointed out repeatedly that policies focused on the working class and stagnant wages would be needed to strengthen the fundamentals of the economy. Washington and Wall Street have ignored this advice at every turn, letting it fall on deaf ears.
The middle and working class are the backbone of the economy.
So, yes, the monetary policy of the Fed has worked, but the fiscal policies from Washington are missing in action to date, and have failed by default.
And then there's Obamacare.......making it worse.
I was looking to put on a bull put spread this week on a pull back to this very area, expecting 205 at the lowest.
Staying on the sidelines until I see markets reaction to all the Fed speakers today.
Recently, selling bear call spreads on overextended rallies has worked well.
Are we turning the corner for a trend change? Jury is still out.
All QE did was keep the banks from going under. That's it. Bad debt was moved off the balance sheets, and cash reserves were established.
Money velocity never picked up, which means there's still a lack of liquidity, and still a lack of demand in the system.
Companies have been keeping stock prices storing through buy backs with money borrowed at ZIRP. Consumer demand remains weak.
The problems have been brewing for decades, as the true cost of living has soared above gains in wages.
Until that's addressed, it's Fed prop or market drop.
Rate hike is on the table.
Holiday season retail reports might be the difference on the year.
Getting into that area where I planned on selling a bull put spread now, but the toughest part is the psychology of it. Feels like trend change right now.
Hopefully when March 26 comes and goes as usual, it will be the end of hearing about "planet X".
Medium to long term.
I think the jury is still out on it, though.
I think the deciding factor, will be retail reports as we get into the holiday shopping season.
We have the quarter percent rate hike on the table, but I don't feel that alone will decide the direction of the markets.
If we get a stronger than expected holiday season of sales, the rate hike may get taken in stride.
If we get a weak holiday shopping season, delaying the hike may not be enough to prevent a bearish market.
Just my two cents.
Sounds like you need to re-read the old testament again, this time with your eyes open, and your mind off of sheep mode.
It's been many a long year since the stock market reflected the real economy. That's because we've been relying on Fed props for so long. It's been obvious since 2008, but it was Fed intervention that reversed the down trend from 2000 to 2003 as well.
The real problem, the reason so many lost their homes and defaulted on their payments (all credit, not just mortgages), had more to do with lack of wage growth than it did with "people being deadbeats".
From the year 1979 through the year 2009, incomes for the top 1% in this country had increased 240%, (and it's gotten more obscene since, estimates put it around 350% at present), while the rest of the population have seen their wages increase 80%.
When you adjust for cost of living, wages for most have shrunk, rather than increase. The median wage, $50K, would have to be $90K to be equivalent to the median wage of 1979.
One key problem, is that businesses focus TOO MUCH on cost cutting, and not enough attention is given to INCREASING VALUE, combined with a strategy to increase sales.
Corporate America needs to step back and consider how wage increases across the board will benefit them in the long run. They underestimate the increase in sales that would result from consumers that have been strapped for so long, now having a surplus in their budgets to spend on more goods and services.
But perhaps it will be a moot point within the next 20 years as automation displaces over 90% of the workforce, and an entirely new monetary system will be needed, in a world where a persons labor for others is no longer a valuable means of exchange.
You're giving the powers that be too much credit. These theories have been floating around since Rockefella was relevant.
I think the truth of the matter, we have a problem with focusing on the bottom line and ignoring the top line in the world of business.
A simple look back at times when the economy rocked shows that a healthy cash flow at the household level translates into a stronger economy.
I'll say it again.....businesses are too worried about the "damage" coming from increasing payroll, but if every business does this at the same time, think about the DEMAND they could create for themselves and each other. That's where the short-sightedness resides.
Maybe it's a matter of categorizing payroll and taxes as expenses vs. INVESTMENT.
They're running out of time, to figure this out, as I've said before, automation brings a new "math problem to the table".
We need to resolve the first problem to get ready for the next.
We have a monetary system that was built on human labor having value, and a form of capitalism where an entrepreneur could fill a need by building a business that generated profits, rewarding the laborer with a share of profits in exchange for the laborer executing the physical tasks needed to offer the product or service of the business in a competitive fashion.
We already see a world where 50% of all labor will be eliminated in less than a decade, and over 90% within two.
A new monetary system will be needed in the future. But for now, we need to fix the first mess before we get knee deep into the second one.
Great idea, but what if YOU happen to be on one of those lists sue to something you said on the phone or posted on social media post Patriot Act?
"veloocity2000" sounds sort of Islamic to some people.
Sad, but for many it would be an improvement. Generations of squalor take atoll on lifestyles.
Some people in this country who work for a living, live worse than slaves did in early US history, and worse than peasants during the middle ages.
Yeah, but they are driven to sell more and compete with, the others of their kind.
It's all a game to them. If, for example, a law were passed that made a living wage with insurance mandatory, they would go ahead and deal with it, and they would say, "can't win them all, we put up a good fight though".
Think I'm kidding? Dwight Eisenhower made the tax rate on these peoples income, federally adjusted that is, 90%, and the US went ahead to invest in the interstate system.
The rest is history, and when was the last time a one percenter complained about having access to the interstate system?
I live in Maine. Isis members are like deer without the antlers here.
We don't believe in gun violence, but hunting and national security are both very popular here.
We have pre-schoolers here that can pick a fly off a fence 200 yards away. The legal hunting age is two.
We don't have many Isis folk up this way.
I think smart money waits to see what black Friday and holiday retail sales tells us, though. That will probably give us the direction going forward.