Nov 8, 2019
Quantitative easing in the United States is alive and well. The markets know this, and they are surging higher in the fourth quarter as a result, creating an artificial move higher in the S&P 500.
This steady tick upwards comes in spite of the fact that the global economy—including within the United States—is actually beginning to slow down, as the stress of the ongoing trade wars continues to weigh heavily on the system.
One of the major warning signs comes from the U.S . manufacturing sector, which in recent months has taken a sharp turn lower, as recent reports indicate:
Truck and trailer order rates are down between 50% and 70%. General distribution, a proxy for smaller machine shops and fabricators, is off by 4% to 7%. Automotive is down by 4%.
Typically a slowdown in U.S. manufacturing is then followed by a slowdown in U.S. non-manufacturing sectors, which then leads to a cascading effect as a full-blown recession takes hold of the economy.
Despite these warnings and the risks that the world faces in the fourth quarter of 2019, the markets steadily and happily truck along, moving higher in price month after month.
This can largely be attributed to the direct, blatant manipulation that the Federal Reserve has engaged in since the September scare in the overnight lending repo markets, in which the Fed had to intervene in order to prevent a crash within the banking sector.
Since this time, the Federal Reserve has continued to pump a monstrous amount of money into the system, doing what the Fed does best: throwing money at the problem in hopes of plugging all leaks with massive wads of cash.
Financial and geopolitical guru Jim Rickards recently tweeted out the following chart, which highlights just how rapidly the Fed's balance sheet has exploded higher:
This sharp move higher is due to the Federal Reserve injecting a stunning $175 billion in cash directly into the markets, pushing their balance sheet back up to $4.07 trillion and undoing much of their recent work in "exiting" the markets, proving correct my prediction that once they tried to get out, the system would begin to fall apart and they would be forced back in.
Coincidentally, this injection into the system almost exactly matches the 4% rise higher in the S&P 500, as the Fed's balance sheet has expanded by 4.5% since the Fed began once again to engage in "Not QE".
There is no getting out for the Fed. This is the system they have created, and QE to infinity is here to stay. They are trapped, and so are we. The system is completely broken, rotten underneath the surface, and papered over with ungodly amounts of fiat currency.
Ray Dalio, Co-Chief Investment Officer & Co-Chairman of Bridgewater Associates, also vented his frustration with the current state of the system, penning a great article explaining the mess the world now finds itself in, titled " The World Has Gone Mad and the System Is Broken".
Ray Dalio isn't wrong. The world truly has gone mad, and it is only a matter of time before the day of reckoning arrives, sending inflation soaring higher, markets reeling, and precious metals rocketing higher.
Until that day, enjoy the discounts. Keep stacking, and keep preparing.