The $2.1 trillion market selloff in August got a lot of people’s attention. Some investors panicked and sold everything. Others saw it as a great buying opportunity.
But almost nobody handled it the right way.
Let me be frank with you. This market instability is not going away. It’s been building for six years. This market can only end one way – with a “Super Crash.” It’s not just China that’s creating this next (much worse) selloff. It’s also the massive, $200 trillion global debt bubble that’s driving the world economy to its knees.
Market observers continue to give short shrift to the fact that the Federal Reserve is the perpetrator of the “Red Wedding” in the markets. The Federal Reserve doesn’t trust the markets. It thinks it knows better than the markets how to set the price of capital and create the conditions for economic growth.
Every once in a while, we get an errant number like the revised second quarter GDP number of +3.7% to tease us into thinking that they know what they are doing. But once we look below the headline number, we find the same weakness that has plagued the economy since the financial crisis. Years of ZIRP and QE have suffocated the economy in too much debt that will continue to smother growth for years to come.
The Fed continues to speak out of both sides of its mouth, when its best course of action would be to say nothing. On Wednesday, New York Fed President Bill Dudley sought to calm markets by saying that the case for a September rate increase was “less compelling.” On Friday, Fed Vice Chair Stanley Fischer said that a September hike was still a possibility.
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