DONALD TRUMP AND THE CONSERVATIVE PARTY DTACP

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Why Tomorrow Is the Most Important Day in the Markets
http://wallstreetinsightsandindictments.com/2016/09/why-tomorrow-is-the-most-important-day-in-the-markets/
Sep 20th, 2016 | By Shah Gilani
If you haven’t been paying attention, you could be forgiven for not understanding just how important tomorrow is for the markets.

Tomorrow is day two of two-day meetings being held by the Bank of Japan’s monetary committee and the Federal Reserve’s Federal Open Market Committee (FOMC).

Right now, it’s not what central bankers with god complexes say that matters – even though, yes, they move markets with what they say and even what they don’t say.

It’s what they’ve done and what’s going to happen – no matter what they say – that matters now.

Forget the gobbledygook, cryptic blathering spewing down from Mt. Olympus.

Here’s what going to happen tomorrow – and beyond…

Three Things You Need to Know About Central Banks

Before we dive in, there are three facts you probably don’t know – but you absolutely need to know – about central banks.
Number one:

All central banks, in all their iterations, whether they’re a branch of government, quasi-independent institutions, or private corporations whose shareholders are big banks and elitist bankers, which is exactly what America’s Federal Reserve System is, are all in bed with their governments.

They couldn’t exist otherwise. They’re given the power to manipulate interest rates, mostly through “open market operations,” where they go into financial markets (without any capital to speak of) and buy and sell trillions of dollars’ worth of government bills, notes and bonds to move interest rates up and down, for two reasons:

They can buy all the government-issued debt they’re asked to buy so governments can run unlimited deficits without immediately adversely impacting interest rates;
They can be blamed by politicians if there’s no economic growth or high inflation due to too much government borrowing, relieving politicians of the blame for high unemployment or high interest rates.
Number two:

All central banks, after glad-handing their political masters, serve their country’s big banks, providing liquidity when needed and bailing them out, if they can, at least up to the point that governments have to step in with bailout money they get from central banks. Central banks are big bank, backstopping, bailout machines.

Number three:

There is no need for any central bank, anywhere. They only exist to be manipulated by governments, to bailout TBTF (too-big-to-fail) banks, and to enrich bankster oligarchs, their capitalist cronies, and political officers all feeding at the same dirty trough.

With that established, I want to take a close look at the Bank of Japan. In terms of modern-day manipulations, BOJ has been at it the longest.

Believe it or Not, the BOJ Is Worse Than the Fed

After the BOJ’s excessive easy money policies inflated Japanese real estate, which was used as collateral in the 1980s for margin loans to buy stocks, which rose exponentially and were themselves used as collateral with banks for mortgages to buy skyrocketing properties, all ended in the horrific crashing of Japan’s stock markets in 1990 and real estate markets in 1991, the BOJ stepped in. And it never left.

Thirty-five years later, the BOJ’s still manipulating rates, still pushing on a string, still trying to underpin stocks and real estate, still trying to turn deflationary realities into some kind of magical 2% inflationary panacea. It’s not working.

The BOJ’s pursuit of inflation by artificially manipulating interest rates lower, into negative territory as of this past January, by buying 38% of all Japanese government issued debt in the world, by buying corporate debt, and by buying stocks, hasn’t worked.

It’s not that the BOJ can’t see that their low interest rate policies haven’t worked. It’s not that the BOJ can’t see that Japan’s exporting juggernaut has been slam-dunked by rising emerging markets exporters, especially China. It’s not that the BOJ can’t see that productivity declines and demographic realities are working against Japan’s economy.

The BOJ sees all that. None of it matters to them because it’s just doing what it does, what central bankers with god complexes and their cheerleading state governments want them to do, step into the void and manipulate rates and financial markets.

Why? Because regardless of what’s working for the economy, or the population, there are financial asset renters, bankers, and politicians who benefit by the manipulation.

The same story holds true for the run-up in real estate prices in the U.S. and the stock market crash. The Federal Reserve’s low interest rate policies inflated bubbles that popped.

Just like in Japan, big banks were saved by a central bank and have all gotten bigger.

The haves have gotten wealthier and the middle class and lower socio-economic classes have tragically fallen backwards down a very slippery slope.

Savers have been punished. Retirees and pensioners have been devastated. And the capital they’d amassed, which fed bank lending and capital formation throughout free markets, has been replaced by central bank, master-of-the-universe funny money.

BOJ’s going to say they’re going to do more.

They’re probably going to say they’ll take rates further into negative territory if they have to. They’ll buy more government bonds, more corporate bonds, and more equities if they have to. They’ll buy foreign government bonds to lower those rates to manipulate the yen down to spur export growth if they have to. And to help beleaguered savers and pensioners, they’ll even let longer-term rates rise, and buy even more shorter-term debt to “steepen the yield curve” if they have to.

And the Fed?

It’s unlikely they’ll raise rates tomorrow. Partly because they don’t want to let the world think Donald Trump, who called them out for being political (which of course they are) is going to goad them into raising rates before the presidential election (which, by the way, happened in October 1979 and cost Jimmy Carter the election).

They’ll probably say they’re data dependent and since things have slipped a little they’re on hold until December.

But the fact remains that the Fed could raise rates tomorrow. And that could disrupt markets that aren’t expecting a raise. The BOJ could say tomorrow that to help pensioners they’re going to let long-term rates rise. And that could disrupt markets even more than the Fed raising rates.

Or they both might take those unexpected courses and really double-whammy disrupt markets.

But it doesn’t matter. The disruption is coming. It’s either coming tomorrow or between now and the end of the first quarter of 2017. But it is coming.

It’s impossible to keep manipulating rates and blowing smoke into financial markets when there’s no earnings growth, when earnings have been declining for five quarters in a row, when there’s no meaningful economic growth anywhere.

Central bankers are not gods. Free Markets are the closest thing we have to capitalist heaven, and they eventually will break free from the massive manipulation, from the extraordinary decades-old manipulations.

Because that’s what happens when markets are manipulated too high for too long.

Starting today, get ready for bond market and stock market volatility.

We’re betting interest rates are going to rise and we’re betting stock market volatility is going to explode over at my subscription newsletters.

We’re shorting the bond market by buying inverse ETFs that go up when bond prices decline (and rates rise) and we’re buying call options on the VIX.