The article describes how events were in motion before Trump’s inauguration
(some likely intended) to shunt any economic stimulus plans by President Trump.
Many of the
2017 economic headwinds
I’ve described will hit during the Ides of March, just as the Trump
stock-market Rally shows signs of topping out. This might not be the
Great
Epocalypse — not all at once anyway — but a large and likely correction is looming. I think the bear is about to be let out of his cage.
Chaos emerged in emerging-market stocks last week, bond prices
plummeted (yields rose to match their last 2016 high), stock-market
volatility rose, and the Dow took its worst drop in 2017. Copper prices,
a bellwether for recessionary conditions, saw their worst week since
last September. It looked like the Trump rally in almost everything was
rolling over last week, and that takes us into this week when several
likely big bads are scheduled to hit on the same day.
Debt ceiling bomb about to drop
One of the biggest hits happens right on March 15th when the
statutory limit to the rise in US national debt arrives. David Stockman
has been speaking a lot lately about how March 15th changes everything
for congress. Republicans have been loathe for years toward raising the
debt ceiling, taking the government near default by using the ceiling
and the “full faith and credit of the US government” as a budgetary
bargaining chip.
Such a battle over the debt ceiling in 2011 caused a major
stock-market plunge when Standard & Poors downgraded US credit for
the first time in history because congress chose to walk too close to
the precipice. Just prior to that credit debacle, I predicted the
downgrade would happen even though I said congress would vote to raise
the debt ceiling at the last minute of the last hour.
I said that would happened because Republicans knew they would not
let the nation default, even as they pretended for negotiation reasons
that they might. There error would be in thinking that their last-minute
capitulation would save the US credit rating. I said that belief would
prove to be highly misguided because no one else knew what Republicans
would do. I said that such brinksmanship over something so important
would certainly cause some credit-rating agency to believe that congress
was becoming overly risky.
I predicted the downgrade would happen in late July/August, even if
Republicans raised the debt ceiling, and the stock market would
crash immediately. Four days after Republicans raised the debt ceiling,
the US credit downgrade happened, and the stock market plunged. An
all-out crash was only averted at the end of September when the Federal
Reserve started its new stimulus brain child that Ben
Burn-the-Banky called “Operation Twist,” sending the market’s vital
signs back on an upward path with breathless hopes of more
quantitative wheezing.
Democrats are now embroiled over Republican efforts to
disembowel Obamacare, which is moving toward a congressional vote just
as the debt ceiling hits; so this time Democrats may be the ones to use
the ceiling as a bargaining chip. I think they will be less likely to
take things to the edge of the cliff than Republicans did, if only
because everyone has seen what can happen when you play roulette like
that; but they will use it to some extent, and they are likely to find
Republicans who are reluctant to raise the ceiling, too. So, that battle
begins in ernest this week, putting all of Trump’s stimulus plans in
peril, which puts all recent stock speculation at obvious risk since the
Trump Rally was largely based on belief that Trump would amp up
spending and hugely cut taxes — actions that would make the debt-ceiling
problems much worse.
The debt bomb is likely to hit much harder this time than in the past
because congress, in creating the free expansion of US debt that was
allowed up to March 15th, stipulated that the US treasury could not
build up a surplus of cash by taking out debt immediately prior to the
debt ceiling date, as it did when Obama was in office as a way of buying
the US time after the debt ceiling limit hit (i.e., this time the
government could not take out debt while there was no limit in order to
pile up cash for the time when there was a limit). In honoring that, the
treasury has been spending down its cash on hand to make sure that the
amount of cash remaining on March 15th is no higher than the the amount
the government typically keeps on hand.
Only thing is, the treasury is now down to
less than it
usually keeps on hand, making one wonder whether the huge draw down has
anything to do with bankrupting the Donald just as he approaches
congress for action. The US treasury has plunged from $435 billion in
cash back in October to just $66 billion as of the last count. Last
year’s cash balance at this time was $223 billion. One might be tempted
to guess that such a spending of borrowed and hoarded cash had something
to do with keeping the economy alive to the present and leaving it
broke by the 15th of March. Even with so much spending of last-year’s
borrowed cash, the federal debt is up $237 billion since January.
One has to remember that the treasury has only been under Trump’s
control since January 2oth, by which time the balance was already well
drawn down. One should also realize that numerous expenditures may have
been made before January 20th that assured depletion of funds thereafter
as the bills came due.
David Stockman speculates
that the initial borrowing and hoarding of cash happened in the belief
that Hillary would win so she’d have a treasure chest to get her through
the debt-ceiling crisis. It wouldn’t be the first time Obama & Co.
sidestepped the rules.
At the same time, tax revenues have been way down in 2017, which may
be a less nefarious explanation for the cash drawdown. At the rate tax
revenues are coming in, the government will face a greater cash crisis
than it usually faces at this time of year. February’s deficit was $190
billion more than last year’s deficit for the month. February became the
third consecutive month in annual government revenue declines and was
the largest drop in revenue since 2008.
As Stockman has said a number of times in the past, nothing is more
telling about the onset of recession than declining tax revenues.
Government tax receipts almost always turn sharply negative just before a
recession. Confirming the possibility that we are already headed into
recession, we saw US GDP growth fall off precipitously in the last
quarter of 2016.
The fall in revenue is in large part due to a decline in tax filings.
This could be because the IRS has said it will delay refund checks (so
why rush to file?), or it could be because many liberals have said they
will not file at all because they will not pay taxes to a government
that is not their government at a time when they wish to secede from the
union or flee to Canada. (You know, the same people who were enraged
beyond measure when Trump wouldn’t promise that he’d accept election
results if they won! Oh, the hypocrisy!) Nearly six-million fewer people
have filed their taxes this year than at the same time last year (an
8.5% decline in US tax filings).
The main thing I’m pointing out is not whether the drop in taxes is
due to recession or tax warfare, but that revenues are declining at a
time when debt will also suddenly be frozen and that (for whatever
reason, nefarious or benign) cash is just about out, too. That
presents a big problem with or without recession. Usually, when tax
receipts fall off as we head into recession, the government just takes
out more debt. This time it can’t, and this time it has less cash socked
away to survive on than it had when the debt ceiling hit during Obama’s
reign, and this time the US has an even more aggressively divided
congress than it had under Obama and has far greater debt interest
payments to maintain.
So, the treasury can play some accounting games to keep the
government running for a little longer, but not nearly as long as it did
during the last debt-ceiling crisis when congress kicked the can down
to the road to land in the middle of this week. I’d say, as I did
earlier in the year, its game over by late June or July.
And this is exactly what I have said throughout the Great Recession
is the monumental failing of congress time after time. Each time it
kicks the can down the road, which it has been doing since the financial
crisis of 2008, it makes the next crisis worse by refusing to take the
pain of correction on at the time. A cowardly congress, afraid of an
electorate that would rage if it was ever told it had to live within its
means, has created a debt-ceiling bomb.
The Yellen put goes kaput … and kaboom!
Also scheduled for March 15th is a likely Federal Reserve
interest-rate hike, now priced into the market at about 100%. On its
own, then, a rate increase wouldn’t make much difference, being fully
priced in, but timing as it does with other things, it’s one more bit of
bad news for a market that has only thrived on and, so, is addicted to
the Fed’s free drugs.
I believed and said all of last year that a financial apocalypse was
only avoided in 2016 by Janet Yellen keeping her foot down hard on the
accelerator — a sudden reveals of the Fed’s telegraphed plans, which had
promised three interest-rate increases. The Fed and the Obama
administration saw the Fed recovery going up in smoke last January as
oil prices and stocks plummeted. I suspected their multiple “emergency
closed-door meetings” (their designation) and immediate “emergency”
meeting with the president and vice president had everything in the
world to do with keeping the economy alive on life support until the end
of the election in order to ward off a Trump victory, knowing full well
their recovery was on the ropes.
I also predicted repeatedly that Yellen, whose continued existence as
Fed chair beyond 2017 has been threatened by Trump, would act to remove
government stimulus after the election if Trump won, likely just long
enough after Trump’s inauguration to make it look like the resulting
collapse of the Fed’s economic recovery program is Trump’s fault. The
Fed, I said, will seek to make Trump the scapegoat for their own
recovery failure. I have maintained all along that the economy is only
alive on Federal Reserve life support and that, as soon as all life
support ended, the patient would die because the patient actually died
back in 2008. I believe that begins this week.
The Fed has kept its balance sheet in the upper reaches (essentially,
kept money supply in the stratosphere) long enough to assure rising
inflation, and job recovery has been consistently strong in all the ways
that the Fed cares about or pays attention to. Because we are now at
peak employment (by Fed measures) and above target inflation, the Fed is
without reason (by its own flawed measures) to keep from raising
interest.
I have also said all along that the Fed cannot raise interest without
crashing its own recovery. We saw that happen in December of 2015. In
December of 2016, it raised them a second time, but it raised them into
the Trump Rally, which was a situation of extremely irrational
exuberance that made such a raise possible, but now on March 15h, it
will raise them with impeccably and predictably poor timing.
A couple of months after Trump officially entered office is the
perfect time to back off the accelerator and let the wheels of recovery
begin to grind and squeal to a halt.
Rising interest rates could cause a bond-market crash, too. Bond
yields are already rising (likely in anticipation of an interest hike).
The simplest way to put this it that rising interest rates mean
investors (such as bond funds) who want to sell the bonds they are
already holding have to sell them at a lower price in order to allow the
buyer to make a better return as a way of making up for the fact that
new
bonds are offering better interest. So, they take a bond bath. However,
if money from stocks flees to bonds as a safe haven, a bond crisis may
be averted, as that will press yields down, raising prices up for those
who currently hold bonds and want to sell them.
Higher interest rates — if they keep rising — also put the squeeze on
companies that have been taking out debt to buy back their stocks and
drive up stock prices by creating their own demand while reducing the
supply of their stocks. Buy-back activity has been a large factor in the
rise of stock prices. So, the Fed’s upcoming rate hike — if it raises
bond prices as it is intended to do — will put a little more braking
action on stock buybacks at a time when the Trump rally has already
turned downward.
The rise to an actual one-percent Fed target for the base rate at
which bank’s borrow starts to sound like we’re finally re-entering the
realm of real interest at last, leaving the near-zero bound behind. It
also strengthens the US dollar, further hurting both exports and
domestic sales because imported goods compete more favorably.
While the European Central Bank continued its quantitative easing
this week, it is under increasing pressure due to inflation to
discontinue. The governor of the Bank of Japan is also questioning his
bank’s pedal-to-the-medal approach of keeping interest down. So, the Fed
is backing off near the time in which Japan and the ECB are backing
off, too, meaning the tightening of money supply grows globally as we go
into the summer. (The ECB has announced it will taper its QE from €80
to €60 billion monthly, and the BOJ appears set to silently miss its
previous annual target for bond purchases in what some are calling
“stealth tapering.”) It’s all that free money that has been inflating
stock prices. I don’t think everything comes crashing down in March, but
this week likely marks the start of major failure.
This will provide the scapegoat that globalists need as we move
toward further EU exit votes to say, “See, this is what happens when you
elect nationalist leaders.” Watch as that becomes the winning argument
because they will be arguing into the face of rising fears that appear
to be Trump and Brexit failures, and fear will grab any lifeline. It’s
an easy argument for those who are ready and willing to believe it.
The smart money has already left stocks, moving into bonds, so the
big investors aren’t the ones to take the fall so much as the small guys
who have gone chasing the wild rally. When the dumb money pours into
the market just as the smart money leaves, that’s when markets crash.
Everyone making for the exits
With the Netherlands set to hold parliamentary elections on March
15th, we may see the Dutch join the British and the US in exiting the
globalist system. Popular eurosceptic lawmaker Geert Wilders leads the
polls with his nationalist call to make the Netherlands “independent
again.” Hear any echoes of “Make America great again?” Wilders told the
Associated Press, “I see the European Union as an old Roman Empire that
is ceasing to exist. It will happen.” In the latest shocking poll, 56%
of Dutch voters wanted to exit the EU.
Nexit could light up the radar screen in perfect timing with the
Fed’s rate increase and the arrival of the US debt ceiling. Brexit
temporarily spooked the stock market, but Nexit would be a much
larger jolt. The Netherlands is part of the Eurozone, whereas the UK was
not, making Nexit more significant if it becomes an imminent prospect.
In fact, the Netherlands was one of the original founders of both the
European Union (back when it was the European Economic Community) and
the Eurozone. So, Nexit is potentially a much bigger jolt to the
euro-psyche than Brexit, as the British never fully joined at the hip
(wallet). Eurocrats have identified the Netherlands, France and Italy as
a trifecta of nations that would destroy the Eurozone if they exited.
The British, of course, have extended open arms of trade toward the
Dutch if they exit to help both countries with the trade outfall of
exiting.
Wilder has called for a referendum to exit the EU. So, a Wilder
win means full steam ahead for Nexit, and the Eurozone will shudder to
its core on the eve of March 15th
if he wins.
Beware the Ides of March.
Oil boom, bust, boom … kaboom!
Following oil’s relentless drop in prices in 2015, the stock market
and oil plunged together in January of 2016. Oil companies closed. Banks
in Dallas trembled. People began to move out of the midwest, leaving a
glut in housing that started to look like ghost towns would be the next
and final chapter for the midwest. Then production fell as rig counts
dropped and exploration slowed, and OPEC appeared to be manage a
production freeze. Suddenly oil was well so all was well for the rest of
2016.
Now, record high inventory levels have returned with a vengeance,
bringing US crude oil again below $50 per barrel. Oil prices saw
their worst week for investors since prior to Trump’s election. Last
Wednesday’s fall in crude oil prices was the steepest in a year at 5% in
one day.
So, here we are again. Will the second oil boom now end in a kaboom?
Who knows. I was wrong all of last year about prices returning to the
basement that exists around $40 or less per barrel. So, my predictions
about oil prices have gone very wrong, and I won’t venture another. Just
saying, that
if oil does go kaboom, it couldn’t happen with more effective timing.
Not saying it will. Oil refineries are, again, shutting down for
seasonal overhauls, making some downward price adjustment in crude oil
normal. During this season, crude oil inventory tends to build because
fewer refineries can use it. Maybe oil speculators are reacting with
excess fear because of their experiences last year, given that inventory
builds are normal this time of year. It might just be a case of spooky
markets.
But that is kind of my point right now — that there is a lot coming
down this week that is likely to spook all kinds of markets. So, beware
the Ides of March, I guess.
http://thegreatrecession.info/blog/2017-stock-market-crash/
