World Market Melt on Friday: June Fed Rate Hike Off
World stock markets melted on Friday. Will the downturn continue today? Don't be surprised if it does. Then again, we could be facing nothing more than a violent shake-up of late-comers to the bull market that eventually turns around, likely with the help of the Fed and the world's other central banks.
Fed to the Rescue
The first step for the Fed will be delaying their purported June rate hike. We had thought a June hike, were it to occur, would be nothing more than a cosmetic move, at best one that raised rates to allow the Fed to lower rates when needed in the near future. But given the recent tanking of stock markets, it seems unlikely the Fed will even go the cosmetic route at this point. The importance of this delay of rate hikes may turn out to be a bouncy cushion under the U.S. stock market that will absorb any further down draft, ultimately sending stock averages back up again - at least for the near term. And we should expect other central banks to follow suit in both promising and executing measures to bolster markets, such measures consisting of either or both rate cuts and forms of quantitative easing. And with this, great new gobs of liquidity will fuel continued speculation around the world, driving up market prices even higher, until the point at which it all comes tumbling down in a great ash heap. When that serious implosion occurs, we don't know.
While the ongoing and so-far unsuccessful negotiations by world oligarchs with the Greek government were put forth as an immediate catalyst to Friday's downfall, it seems a more public recognition of the folly of believing that world economies are "recovering" will take center stage for a time now. Even the U.S. economy has come under suspicion, despite the blaring trumpets of gathering momentum we've heard in recent months. This article in the Wall Street Journal by Jon Hilsenrath, who typically reports on the Fed, expressed the about-face in some detail. He cites, for example
This and other examples cause Hilsenrath to speculate that the Fed will not hike in June.
So we now wonder how markets might react to this. Had markets already priced in a rate hike before this recent fall? If so, we should see markets shrug off current troubles and turn up again shortly. If not, then maybe further falls will continue, followed by some extended period of volatility in prices whether up or down. If the latter, we may next see yet a new round of quantitative easing by the Fed, something so many thought passe, if not impossible, what with the economy "picking up steam" in 2015. Now, however, we have to ask, "Where's the steam?"
But, frankly, it's all a guess. And so having not just diversification, but real balance in one's investments was never a better idea.
Fed to the Rescue
The first step for the Fed will be delaying their purported June rate hike. We had thought a June hike, were it to occur, would be nothing more than a cosmetic move, at best one that raised rates to allow the Fed to lower rates when needed in the near future. But given the recent tanking of stock markets, it seems unlikely the Fed will even go the cosmetic route at this point. The importance of this delay of rate hikes may turn out to be a bouncy cushion under the U.S. stock market that will absorb any further down draft, ultimately sending stock averages back up again - at least for the near term. And we should expect other central banks to follow suit in both promising and executing measures to bolster markets, such measures consisting of either or both rate cuts and forms of quantitative easing. And with this, great new gobs of liquidity will fuel continued speculation around the world, driving up market prices even higher, until the point at which it all comes tumbling down in a great ash heap. When that serious implosion occurs, we don't know.
While the ongoing and so-far unsuccessful negotiations by world oligarchs with the Greek government were put forth as an immediate catalyst to Friday's downfall, it seems a more public recognition of the folly of believing that world economies are "recovering" will take center stage for a time now. Even the U.S. economy has come under suspicion, despite the blaring trumpets of gathering momentum we've heard in recent months. This article in the Wall Street Journal by Jon Hilsenrath, who typically reports on the Fed, expressed the about-face in some detail. He cites, for example
Analysts at Bank of America Merrill Lynch calculate that the number of disappointing economic reports relative to positive surprises has been greater in recent months than at any point since the expansion began in June 2009.
This and other examples cause Hilsenrath to speculate that the Fed will not hike in June.
So we now wonder how markets might react to this. Had markets already priced in a rate hike before this recent fall? If so, we should see markets shrug off current troubles and turn up again shortly. If not, then maybe further falls will continue, followed by some extended period of volatility in prices whether up or down. If the latter, we may next see yet a new round of quantitative easing by the Fed, something so many thought passe, if not impossible, what with the economy "picking up steam" in 2015. Now, however, we have to ask, "Where's the steam?"
But, frankly, it's all a guess. And so having not just diversification, but real balance in one's investments was never a better idea.
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