"All In"...Did We Back Down?
Wednesday morning before the Fed announcement, a reader sent me this: "It is Janet Yellen's turn to stoke the fire and evidently her news today of a rate increase has stoked the stock market fire to the tune of the Dow rising 138 points 10 minutes in. It has the feeling of being on the Texas coast holding a hurricane party waiting for a hurricane to hit. There are hundreds of people drinking and partying." SO TRUE ...and party they did! The rate hike was not even the biggest news of the day as you'll see...and maybe they were all connected, we'll get to that shortly.
Where do we go from here after a rate hike? First and foremost we need to see several things. First, can the Fed actually get rates to rise? The longer end of the Treasury curve actually went down so there was some flattening. Next, can they make the rate hike stick? We also need to watch to see the mechanics of the rate hike. The Fed will necessarily need to withdraw some (maybe up to $1 trillion) collateral from the system ...a system already short of collateral. This will tighten liquidity in an already illiquid credit market.
No doubt the world as a whole is treading water at best and most probably contracting economically. The rate hike will only serve to put more pressure on the emerging markets in the form of a margin call. This margin call will also be issued across the board. I believe we now wait patiently to see where the stress is evidenced. It may take only a couple of days or a couple of weeks but stress and weakness is coming. Trade, growth and corporate profits and importantly "velocity" are all weak and declining, now the financial sector will need to deal with a withdrawal of liquidity equal to approximately what QE2 added.
We must ask the question, "how will the Fed respond to additional credit stress"? For the common man, the question will be what will the Fed do with a "16" or even "15" handle on the Dow? Will they reverse the rate hike? Or even go straight to another round of QE? By the way, the world collectively sold $55 billion worth of Treasuries in the latest TIC report for October. Where did those go? Did the Fed indirectly shovel these into a hidden corner? I still believe the rate hike ...with a background of economic and financial weakness is a huge policy error and can only be "covered" for with some sort of false flag. When the collapse comes, it will be very fast and most probably completed with two turns of the globe.
Now, for the biggest story(s) of the day! Did anyone see what John Kerry had to say after his meeting with Mr. Lavrov and Mr. Putin? After four years of steadfastly demanding "regime change" and the ouster of Assad from Syria ...now he can stay? http://www.businessinsider.com/john-kerry-regime-change-syria-bashar-assad-2015-12Not Not only that, Kerry called on Turkey to withdraw troops from Iraq http://www.zerohedge.com/news/2015-12-16/dramatic-reversal-us-vice-president-biden-calls-turkey-withdraw-its-troops-turkey . Another story that "snuck in" so to speak was the House budget bill ...where Paul Ryan and company will pass a bill which includes raising the status of BRICS nations within the IMF http://www.rferl.org/content/us-congress-to-pass-imf-reforms-raising-status-of-russia-china-/27432701.html . (remember, "R" stands for Russia and the "C" stands for China.) So it looks like the U.S. has finally backed down at what has been contentious for five years or more?
All of these "backdowns" on their own are HUGE and certainly a sign of U.S. weakness but the real question is WHY? Why would the U.S. completely and out of the blue change their policy(s)? I would also ask this, does the "timing" of all of these "face changes" seem a bit coincidental ...and compressed within the timeframe where the Fed raised rates ...something China has been demanding since at least 2013?
These are very tough questions to answer as outsiders looking in but we can speculate. I have been saying for a while, I believe Mr. Putin et al have put together information regarding all sorts of fraud, theft and false flag operations from the U.S. and planned to "drop a truth bomb". Did he show Mr. Kerry exactly what he has in the way of proof? Has the U.S. been blackmailed into "playing along"?
Another possibility is Mr. Putin threatened from a military standpoint. If you remember a year ago or so, the USS Donald Cook was buzzed numerous times by a Russian MIG. No shots were fired but it was rumored the AEGIS system which the Donald Cook was equipped with was "shut down". After the event, the Donald Cook quietly left the Black Sea. Has Russia leaped ahead of the U.S. technologically and can now issue orders?
The above is speculation but the subject itself is extremely important. "Why" would the U.S. do a 180 degree turn? We backed down militarily with Russia and could be said financially with China. What happened or is happening? What will happen? It is clear Russia and China have prepared themselves in many ways to go forward without the U.S. and without the dollar. They have set up clearing operations, credit facilities, currency hubs, cross trade deals and even exchanges to trade various commodities ...without the use of dollars. Are they ready to pull the plug? I cannot answer this but something is certainly changing behind the scenes.
Raising interest rates (as China has demanded for two years or more)...into a weak and weakening economy and onto a financial system with comatose velocity and illiquid conditions is one thing ...backing down versus Russia immediately after meeting with Mr. Lavrov and Mr. Putin is another! Whether you want to believe it or not, our financial system is so levered and rehypothecated so many times over, when the plug is pulled you will have time to do nothing other than utter "Oh my God"! After Mr. Kerry's meeting along with the Fed and House actions, all parties involved know where each one stands ...future US bluffs will be called with regularity as they apparently were yesterday ...with the phrase "all in"!
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Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.