KW: I thought you would be interested in reading some of the commentaries I have recieved about the current market volatility. Comments are sourced from various commentators and I have no idea whether they will be right or wrong. Here is a smorgasbord of comments, You decide

“It’s hard to say for certain,” hedges Chris Martenson, co-author at PeakProsperity.com. “But the systemic cracks we’ve been closely monitoring,” he warns, “definitely got an awful lot wider [last] week… The central banks have distorted the processes of price discovery and market structure for so many years now that it’s difficult to know yet whether their grip on the markets has indeed failed.”

We agree, it is difficult to know. For years the Fed has blocked off every southbound lane on the road to price discovery… and detoured all traffic into one single lane heading north. But chief traffic engineer Jerome Powell has lifted some of the restrictions…

He has continued to raise interest rates. He is also working down the balance sheet. Between Sept. 6 and Oct. 3, the Fed lopped off $34 billion of market-supporting assets.  In all, quantitative tightening has taken roughly $285 billion off duty since October last.

“We’re transitioning from a market led by central banks to one where fundamentals dominate,” says Mohamed El-Erian, chief economic adviser at Allianz. But what if the fundamentals aren’t equal to the job?

Some 165 companies of the S&P 500 — roughly one-third the index — now tread in bear market territory. Meantime, Investor’s Business Daily tracks 197 industry groups… 194 of them are in retreat this month. “It tells you how much real weakness there has been,” says Gary Kaltbaum, president of Kaltbaum Capital Management.

But we opened by raising the possibility of Dow 40,000. If it can’t hold the line at 26,000, you ask… how 40,000?

Yves Lamoureux is president of macroeconomic research firm Lamoureux & Co.

In January 2016 — when the Dow Jones traded in the vicinity of 16,500 — he ventured the index would scale 25,000 within a few short years. It did.

Now this fellow is coming out flatfooted for Dow 40,000.

But recall… there was a catch along the way… That catch takes the form of a “large panic event” beginning now and running through to next year.

Mr. Lamoureux:

We see a large panic event taking shape now that continues into next year — the melt-up we forecasted is done. Investors should be out of stocks for most of 2019.

He hazards the stock market could shed perhaps one-third its value in the unfolding panic. From today’s perch, a 33% decline represents an 8,471-point bludgeoning. But by 2020, Lamoureux projects the Dow Jones will rise again… as if by conjury. But how? What unseen force will provide the magical effect?

The Federal Reserve. Will the monetary authority slash rates to zero… and hatch another round of quantitative easing? Most likely it will — but the Fed has depleted too much of its phony fireworks in the last crisis to work next time.

As Jim Rickards of Agora Financial explains:

Interest rates are still at 2.25%, whereas they need to be about 5.0% to give the Fed enough room to cut rates to get the economy out of a recession. The money supply is still about $4 trillion, down from $4.4 trillion but still too high to launch more quantitative easing without the risk of destroying confidence in the dollar. In short, the Fed and other central banks are not in a position to deal with a recession or panic should one arise in the near future. 

What then can it do?

Harry Dent of Dent Research comments

While Larry Kudlow (Treasury Secretary and Chief Economic Cheerleader) assures us that Trump is NOT interfering with the Fed, our dear president has proclaimed that our Central Bank is “crazy” for raising rates.

From his, ahem, unique world view, he believes they’re trying to wreck his new gravy train economy… the one he created with major tax cuts ($1.5 trillion), major repatriations from overseas ($2 trillion), deregulation, and a lot of positive talk about 4% to 5% growth again…

But, with no fear of sounding like a broken record: sustaining growth rates at that level are demographically IMPOSSIBLE!

With nine years of stimulus and accelerated fiscal BS, we’re running out of eligible workers to hire. That means wage inflation. But the bigger problem is that natural workforce growth – people ages 20 to 64 becoming contributing members of the economy – is flat to slightly down for the next several years, and even for decades to come.  And productivity is declining from the aging of our workforce and the Baby Boom. It was 3%-plus in the 1980s and 1990s. Now it’s 0.5% and falling towards ZERO!

Donald’s massive tax cuts have fueled growth and inflation, even if temporarily. His stimulus plans and the Fed’s steady rate hikes to “normalize” are causing the dollar to rise and global borrowing rates to rise for emerging countries (and they’re the ones who borrowed most of the money, mostly in U.S. dollars after developed countries maxed out in 2008).

Now currencies are collapsing in countries like Turkey, Venezuela, Argentina, and Iran… and even China a bit.  Emerging stock markets are down 20% to 40%, with China’s down 29% recently.

It’s YOUR trade war with China – even though it may have merit – that’s most driving your gravy train onto unstable tracks… and it’s your policies that are driving inflation and rates higher.  In fact, the “bloody nose” you’ve given the Chinese could well be the trigger for the next global bubble burst and debt crisis that starts in the emerging world and spreads back to the developed.

As preschoolers are quick to remind us: when you point a finger, Mr. President, you have four fingers pointing back at you!
Trump is miscalculating the risks of his approach. So, there is no question about it: Donald has fueled everything that’s causing the Fed to merely continue on a path of normalization after the biggest “gift” delivered to us over nine years. They’re being predictable. Donald is the one that’s acting crazy after putting the icing on the never-ending stimulus cake with massive tax cuts…

I’m afraid, Mr. President, you can’t have your cake and eat it to!