This article was published by The McAlvany Intelligence Advisor on Friday, October 26, 2018:
Most people think of the Fed as an indispensable institution without which the country’s economy could not properly function. What most people don’t realize is that the Fed – created by the Morgans and the Rockefellers at a private club off the coast of Georgia – is actually working against their own personal interests.
Want proof? Try the multiple selloffs on Wall Street since the beginning of October. Some people blame them on October. After all, it’s the month when sell-offs happen. It’s in the tides. It’s in the moon’s cycles. It’s a spooky month. Etc., etc.
Others, looking slightly deeper at possible causes, blame them on trade “disputes,” China’s intransigence, the murder in Saudi Arabia, the rise in oil and gas prices, the “caravan” of dissidents headed for the U.S.’s southern border, the rash of fake bomb attacks, fill in the blank.
They came closer to the truth when they considered the report from the Commerce Department that new home sales for the month of September came in at 553,000, 5.5 percent below the August rate (which itself was revised downward), and 13.2 percent below the 637,000 sales reported a year ago. The mantra goes like this: Housing starts reflect a growing economy, as nearly every part of the economy is impacted by it: construction workers, electricians, plumbers, architects, bankers, suppliers of all manner of appliances (from stoves to furnaces, from furniture to mattresses) are part of the supply chain. If anything gets in the way, the chain slows down and sales of the finished product slow down.
What’s the best way to slow down the housing market? Push up interest rates. The first selloff in early October was triggered by the rise in the 10-year Treasury note – jumping from 3.06 percent to 3.26 percent in just three days. This is the Treasury security most sensitive to changes in the Fed Funds Rate, the primary lever the Fed has in its arsenal to cool off the economy. It uses that “lever” when it deems, in its independent and unrestricted opinion, that the party is getting too rowdy. Chairman Jerome Powell gave notice during a week-long blitz of the media early in the month, declaring that the Trump economy was “remarkably positive” and its outlook “particularly bright.”
That was the early warning that the party was getting too noisy and something had to be done about it. Wall Street reacted with a 500-point sell-off on the Dow on Friday, October 5.
The market began to rebound, gaining back much of the loss, when the Commerce Department dropped its bomb: housing starts were off because of – guess what? – rising interest rates.
It didn’t matter that 80 percent of the S&P 500 companies reporting earnings exceeded expectations. It didn’t matter that unemployment is at decade lows, or that real wages were rising. The Fed has determined, in its infinite wisdom, that the party was getting too rowdy. As noted here in an article on October 8, it was long-time Fed chairman William McChesney Martin who said that the Fed’s job is to “order the punch bowl removed just when the party was really warming up.” A more accurate assessment is from Rudi Dornbusch, the German economist who spent most of his working life in the U.S., who said bluntly: “None of the U.S. [economic] expansions of the past 40 years died in bed of old age; every one was murdered by the Federal Reserve.”
The poison is being administered in very small doses, drop by drop. It isn’t the three rate hikes that dropped the market on Wednesday. It was the rate hike promised for December, plus the four or five more hikes promised next year.
Ed Yardeni, president and chief investment strategist at Yardeni Research, is optimistic that the sell-off is temporary, only a “panic attack,” and that the economy remains strong despite the Fed’s attempts to slow it down. In fact, said Yardeni, the sell-off is making stocks more attractive:
Valuation multiples have dropped sharply this month, making stocks [more] attractive … [it is more of a panic attack] rather than the beginning of a bear market; we believe that the bull market [in stocks] will continue into next year.
The next relief rally should be triggered by continued signs of economy growth combined with subdued inflation [sic: price increases].
Indeed, that “relief rally” may already have begun. In the first three hours of trading on Thursday, stocks had regained half the losses sustained on Wednesday.
Whether that “relief rally” holds or not is beside the point. Paul, author of End the Fed, is correct: the Fed is both corrupt and unconstitutional. Until that happy day when the Fed is abolished, citizens, taxpayers, workers and investors will have to navigate their economic futures that are being manipulated by the Fed, in their own best interests, of course.
Ron Paul: End the Fed
McAlvanyIntelligenceAdisor.com: Investors Remember William McChesney Martin, and