A fading economy and a Fed that’s out of bullets.
Of particular interest was Ray Dalio, the hedge fund god who has been killing it throughout the crisis.
And so you have to be intrigued that he’s bearish.
He’s not wildly so (thinks stocks will do better than bonds) but his basic idea is that risk premiums are maxed out, and have to come down. In other words, people have paid up max dollar for all risk assets thanks to the Fed dropping rates to rock bottom. Now that will reverse.
His novel set of circumstances he sees is an economy that faces austerity (due to the Fiscal Cliff, etc.) coupled with a Fed that’s mostly blown its bazooka, and can’t get much more juice out of QE (he believes that QE does less and less because the Fed can’t push that much that much more money from bonds into riskier assets).
So the novel set of circumstances are:
- Yields can’t go down anymore.
- Austerity is coming.
- Economy is running out of steam.
- QE is losing its efficacy.
- Rate turn probably finally coming late in 2013.
So there you go: Rates going up, austerity coming, Fed out of bullets. Bad for risk assets.
Bernanke Just Gave A Green Light To Congress To Go Over The Cliff!!! FED: FOMC SEES 2013 GDP GROWTH OF 2.3% TO 3.0%
UPDATE: The FOMC’s updated macroeconomic projections are out.
2013 GDP growth forecasts were lowered to a range of 2.3-3.0 percent, down slightly from September’s estimate of 2.5-3.0 percent.
2012 GDP growth forecasts were lowered to a range of 1.7-1.8 percent from 1.7-2.0 percent in September.
2014 GDP growth forecasts were lowered to a range of 3.0-3.5 percent from September’s estimate of 3.0-3.8 percent.
15 of the 19 Fed officials see rates below 1 percent in 2014, while 10 of 19 see rates at 1 percent or higher in 2015.
Dr. Roberts says there are no quick fixes to the bulging debt because “there’s no way to close this deficit when corporations are moving the tax base off-shore.”
http://usawatchdog.com/america-is-going-to-crash-big-time-paul-craig-roberts/ - Dr. Paul Craig Roberts thinks there is “an impending collapse of the exchange value,” and the U.S. dollar could unexpectedly plunge in buying power….
…Perhaps this is what the Hong Kong Monetary Authority warned of? At the current average decay period of around 40% per action, we should see the ECB or Fed enact something new by around February 4th (just as the debt-ceiling comes to a head).
Economist David Levy, chairman of the Jerome Levy Forecasting Center, said at the outset of the recession the country faces a new era of chronically high unemployment. The United States will confront “the mother of all jobless recoveries” in the years ahead, economic historian John Steel Gordon said at the time.
As Rep. Ron Paul has noted, near zero interest rates fueled the 2008 recession and have proloned it today.
The Federal Reserve’s “manipulation of interest rates – essentially price setting – can only ever have destructive effects on the American economy,” Paul told the House’s Domestic Monetary Policy and Technology Subcommittee in September. “Artificially low interest rates continue to cause malinvestment and misallocation of resources throughout the economy. Savers and investors suffer from negative real interest rates, while the federal government takes advantage of the Fed’s zero interest rate policy to run up gargantuan fiscal deficits. These problems cannot and will not be remedied until the Fed stops manipulating the price of money.”