17/09/2016

Fundamentals do not support financial market valuations. Central Banks are keeping the system afloat - By Jeff Fitchett

“All compromise is based on give and take, but there can be no give and take on fundamentals.  Any compromise on mere fundamentals is a surrender.  For it is all give and no take.”
Mahatma Gandhi
Eight years ago on September 15th, 2008 Lehman Brothers, one of the world’s largest investment banks, filed for bankruptcy.  The failure of Lehman Brothers along with other massive Wall Street firms triggered the financial crisis in 2008 that is now referred to as “The Great Recession”.

Shoddy lending practices and too much debt was the underlying factor that caused corporate titan’s such AIG, Merrill Lynch, Goldman Sachs, JP Morgan Chase, GE, General Motors, and many other large corporations to seek tax payer funded bailouts.  

The recession that ensued had a ripple effect that was felt globally.  Governments and Central Banks enacted extreme policies that are still being implanted to this very day all in an effort to keep the financial system afloat.  

The 2008 financial crisis has shaped how I look at the world of finance and government.  I have grown skeptical of central planners ability to manage the global economy. 


Last Friday the Dow Jones plunged nearly 400 points as the odds of a September rate hike ‘had’ increased.  





















Chart Courtesy of Bloomberg, ZeroHedge


On the following Monday, September 12th, Federal Reserve Board Member, Lael Brainard did a speech at the Chicago Council of Global Affairs and in her speech she alluded to the fact that to tighten monetary policy now is less compelling. (Read full speech text here).  In response the odds of a September rate hike dropped and equity markets rejoiced with the belief that the ‘good times’ will continue.





















Chart Courtesy of Bloomberg, ZeroHedge

S&P 500 market pricing on Friday Sep 9th (markets think rates are going up) and Monday Sep 12th (markets think rates stay as is)





















Chart Courtesy of Bloomberg, ZeroHedge

As outlined in last weeks missive; structural issues  have not been dealt with. I think that ever increasing amounts of debt & stimulus will lead to hyperinflation.  Developing nations are dealing with this now and the rot will slowly creep into G20 nations.  

It is fascinating to observe the disparity between economic fundamentals and the broad based financial markets.  Perhaps future historians will label the time period in which we live as “The Age of Extremes” 

























Charts Above Courtesy of Bloomberg, ZeroHedge


























Chart Courtesy of Casey Research
































Charts Courtesy of Harvard University, Zero Hedge


Peddling fiction....

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