Happy New Year to all of you!
In last year's roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern throughout 2018.
Central banks may tweak a few rates here and there, announce some tapering due to “economic growth”, or deflect attention to fiscal policy, but the entire financial and capital markets system rests on the strategies, co-dependencies and cheap money policies of central banks. The bond markets will feel the heat of any tightening shift or fears of one, while the stock market will continue to rush ahead on the reality of cheap money supply until debt problems tug at the equity markets and take them down.
Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it'll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so. Truth be told, they couldn't map out an exit route from cheap money even if they wanted to.
The total books of global central banks (that hold the spoils of QE) have ballooned by $2 Trillion in assets (read: debt) over 2017. That brings the amount of global central banks holdings to more than $21.7 trillion in assets. And growing. Teasers about tapering have been released into the atmosphere, but numbers don't lie.
That's a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Financial bubbles pervade the world.
Central bank leaders may wax hawkish –manifested in strong words but tepid actions. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar.
And finally! My new book Collusion: How Central Bankers Rigged the World comes out on May 1. 2018. You can see my book tour schedule evolve over the next few months on my website. I look forward to seeing you at the upcoming events.
Meanwhile, here are some themes to watch for 2018:
1) Central Bank “Tightening” and “Tapering”: More Talk than Action
The Fed predicted three hikes for 2017, and for the first time in three years of announcing rate increases, met its own forecast. Thus, Federal Funds Rates rose by 75 basis points.
In Europe, the European Central Bank (ECB) kept rates in the zero percent range. Gearing up to Brexit, the Bank of England raised rates by a mere 25 basis points. In Japan, the Bank of Japan (BOJ) kept rates negative. The People's Bank of China (PBoC) didn't alter its benchmark rate this year, though it did increase its medium-term lending facility and its open market reverse repo agreements by a whopping 15 basis points in 2017. Those aren't exactly definitive tightening bias moves.
The ECB announced a “tapering” bias, but in practice, merely cut its monthly purchasing pledge while extending the total period of purchasing. This was a typical central bank ‘bait-and-switch' maneuver, the net effect of which will be more QE, not less.
Japanese Prime Minister Shinzo Abe's snap election victory last fall secured BOJ head, Haruhiko Kuroda in his spot, or at least, provided a green light for more easy money provisions to the Japanese capital markets.
In the US, Jerome Powell will assume the helm at of the Fed on February 4. How different will his policies be from those of Janet Yellen or Ben Bernanke? Not much. He voted in favor of the Fed's monetary easing programs (even with hesitation) every time. Powell will embrace the same unlimited easy money policy on any sign of market weakness, as the global web of central banks remains as omnipresent as ever.
2) Rising Stock Markets for Now; But on Shakier Ground
Global stock markets, being the easiest place to park cheap money will rise at first in 2018. This will take place on the back of another spurt of record corporate buybacks. The move will carry on due to a self-fulfilling prophesy of return-seekers (from hedge to pension funds) until met by a span of corporate or bank scandals or geopolitical risk.
In the US, the Dow Jones finished the year up 28.11% adjusted for dividends (compared to 16.47% adjusted for dividends in 2016.) President Trump took credit for the equity euphoria, as Obama and other presidents have done in the past.
