I'm Just Saying....

"The world is in greater turmoil than at any time in my lifetime." - Senator John McCain

While the Federal Reserve and out leaders continue to reassure us that everything is going according to plan, today's blog takes a look at the real world.  You can draw your own conclusions (as I hope you always do) as I'm Just Saying...

First off the US GDP has not managed to post anything near a 3% annual growth number (the number required at a minimum to create jobs) since the end of the Great Recession even though we have thrown almost $4 Trillion at the problem.  As this experiment in "stimulus" has provided no results the Federal Reserve is now reducing the purchases on a monthly basis.  They have cut their "stimulus" from $85 billion a month to $25 billion and will cut another $10 billion in September and the remaining $15 billion in October.  The reason for the slow withdrawal is that in the past when they stopped cold turkey the markets went into a tailspin and the one thing that they managed to manipulate higher was undone in a matter of weeks.  So with much fanfare they have managed to sell Wall Street on the idea of a slow tapering and through the end July it was working as the markets continued their heavenly spiral unabated.  Recently it appears that the markets are finally waking up to the reality that their stimulus is almost gone (I say "their" as this was the only place where it was actually producing results) and that the economy is not in any shape to take up the slack.

The high flier stocks have already been killed and although they have recovered some of their losses many are still down more than 30% from their highs. The market has now rotated from these stocks into the larger capitalized stocks but these too are starting to show signs of trouble ahead.  Recently it took just a week for the market to essentially lose all of its upward momentum and a large portion of its returns for the year and based on the lack of bounce and follow through there is little reason to see any recovery bounce from here.  The small cap index, the IWM, is down more than 3% for the year and this does not bode well for the market as a whole as this is the growth engine of the market.

On the global front there is more strife now than in many years.  Just yesterday bombs were dropped in Iraq, Russia is still "negotiating" its way back into the Ukraine, Malaysia airlines have now lost two passenger planes and Afghanistan is as unstable as before the United States and the coalition forces arrived.  Last week Portugal's second largest bank needed to be bailed out and the German economy stalled in the second quarter.  Any thoughts that Europe's troubles were behind them can clearly be seen as smoke and mirrors.

Through all of this the Federal Reserve is trying to reassure the market that their policies are going to provide the economic growth that will provide jobs and stability, but the more that they try to manipulate the numbers the worse things are and the more unstable everything is becoming.  What the Federal Reserve policies (and I am going back in time and not blaming all of this problem just on Janet Yellen, although she has left no doubt that she is on the same page as the rest of the chairs) have done is to create moral hazard, encourage the formation of asset bubbles, widen the wealth inequality gap, discourage and penalize savings and investment and monetize the government deficit spending.  These policies have not created jobs or stimulated the economy but have left us with a huge debt to service and ultimately repay.

Now that they are trying to unwind their "stimulus" the market is awakening to the actual problems in the world.  It appears that the party is over and will be until the Federal Reserve decides to try a "new" (read same old experiment again) which will produce worse results than the previous four or more (if you include Greenspan) erroneous policies but you can make up your own mind as to how to proceed, I'm Just Saying....