The Stock Market Correction has Started!

By: Chris Vermeulen | Thu, Aug 20, 2015
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The Federal Reserve Bank has printed trillions of dollars to monetize US government debt just to keep the government afloat. Any significant rise in interest rates will probably decimate US government finances, the fragile housing market and in the bond market it will cause a financial catastrophe through interest rate derivatives.

This is a solid reason why the Fed will not raise any rates in any foreseeable future.

The power to create money out of thin air is great! Should we give it to politicians and secretive central bankers? Will this power be abused? Will those in charge yield to the temptation for "legalized counterfeiting?" Apparently the answer is YES.

All that the Federal Reserve has done was to inflate equity markets. They never solved any of the original financial problems that lead to creating "The Credit Bubble of 2007". There was as well no financial resolution by our elected political officials to resolve this serious problem so that it would never occur again in the near future. This process called "Quantitative Easing" created a shift of a tremendous amount of wealth from the middle class and the poor to the rich.

Inflated stock prices, usually held by the wealthy, created a clear "redistribution of wealth" which will be paid for by future generations to come. The concept by the Fed was that centralizing the wealth would help in creating new jobs and increase capital expenditures in their businesses.

The problem with this philosophy is that it never filtered down from the Billionaires into real economic growth within our economy. Instead, rather than experience expansion, we have been experiencing contraction which is resulting into an economic deflationary depression that will appear evident to all by the end of this year.

The top 1% of Americans hold 35% of the nation's wealth. This inequality has continued to grow exponentially.

There are several reason that I can refer to why the Fed will NOT raise rates anytime in the near future. There are interest rate cuts and devaluations going on all around the world at the moment. Japan and the Eurozone are both implementing Quantitative Easing. China is resorting to its alternatives to hold its financial system together and stave off a hard landing. Emerging market economies are being hammered by commodity price falls, while oil producers are being similarly hit by oil price falls. There is no Inflation in developed countries. The world is entering a deflationary slump. Why would the Fed ever even think about raising interest rates???

The unwinding of QE will have many negative effects in a market that is already short of liquidity. So, the unwinding that must be delayed for quite some time will be welcomed by many. The unwinding of QE purchases and the normalization of bond prices would be extremely negative for the bond markets, so the tin can will be kicked down the road for quite some time still.

The PBOC has significant room to lower required reserve ratios on banks to encourage lending. Even after a series of cuts, the RRR remains at 18.5 percent for major banks which is among the worlds highest. Reducing the ratio by 10 percentage points would free up 13 trillion yuan ($2.1 trillion) of additional capacity for banks to lend. On the fiscal policy side, the country's $3.69 trillion of foreign-exchange reserves and relatively low national government debt levels mean it has the ammunition for fiscal stimulus. China is planning at least 1 trillion yuan ($161 billion) in long-term bonds to fund construction projects as the economy struggles. Most of the interest payments on the bonds will be subsidized by the central government. I believe that more projects of this type will be initiated in 2015. This is a major factor why the Federal Reserve will continue pumping liquidity in the financial system.

I believe that the FOMC minutes suggest that it is very far from a rate hike, the US economy is more likely to see QE4 first!

In short, there is no reason to believe that core inflation will rise to the 2% target any time soon and raising interest rates at the moment would jeopardize the US's fragile recovery.


CPI Continues To Decline

CPI

The FOMC members gave the following reasons for caution:


In Conclusion:

We continue to see the US and global economies struggle. The writing is on the wall that a collapse in equities is drawing near, but we have yet to see the broad stock markets breakdown. When they do, there will be a lot of money made by taking advantage of falling prices, which is what my focus will be with my trading capital and ETF trade alert newsletter: www.TheGoldAndOilGuy.com

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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