by Nick Giambruno, Casey Research:
Justin’s note: Today, we turn to Casey Report chief analyst Nick Giambruno, who shares what could be in store for America in the coming weeks. As you’ll see, there are clear indicators of a crisis… in the auto sector… the housing sector… and in the economy as a whole.
And he says now’s the time to prepare…
By Nick Giambruno, chief analyst, The Casey Report
There wasn’t a group of people more wrong about the 2008 financial crisis than those at the Federal Reserve.
Mere months before the disaster hit in earnest, the nation’s highest economic and financial officials were vocal that there was nothing to worry about.
Most memorable of these are perhaps two comments from former Fed Chairman Ben Bernanke…
In January 2008, he said, “The Federal Reserve is not currently forecasting a recession.”
And later that year, in July, he said Fannie Mae and Freddie Mac – the two government-sponsored enterprises that kicked off the credit crisis a few months later – were “in no danger of failing.”
And it wasn’t just Bernanke. The same delusional sentiment was echoed by almost all the top Fed and Treasury officials… as well as those in the mainstream financial media and academia.
Of course, we all know how things played out…
When the housing bubble burst in 2008, the effects rippled throughout the economy, kicking off the largest financial and economic crisis since the Great Depression.
And the S&P 500 – a good proxy for the U.S. stock market – went on to fall by over 56%.
The reason I’m telling you this today is to remind you that people exhibit laughable sentiments near the peak of bull markets.
And today, we’re hearing much of the same sentiment that was displayed before the 2008 crisis.
But as you’ll see below, it’s not the only sign I’m seeing of a coming crisis…
A Contrarian Indicator
I’ve written before about why I believe we’re near the peak of the largest bubble in human history.
And as I’m about to show you, there are clear indicators of a coming crisis… in the auto sector… the housing sector… and in the economy as a whole.
Despite this, Fed Chairman Jerome Powell recently said, “I don’t see a recession [in 2019].” And when asked if the bull market can go on indefinitely, he said:
Not every business cycle is going to last forever, but no reason to believe this cycle can’t go on for quite some time, effectively indefinitely.
We don’t see the kind of buildup in risks in the financial markets, let alone the banking system.
That echoed Powell’s predecessor, Janet Yellen, who said this in 2017 when asked about the next financial crisis:
Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.
But there are a few reasons why I’m not convinced…
Despite all this bullish talk, the Fed recently did a 180 on its tightening of monetary policy.
If you remember, the Fed has been steadily raising rates since December 2015. It raised them four times in 2018 alone… and in December last year, it claimed it would raise them twice in 2019.
But at its meeting last month, the Fed announced it would likely not raise interest rates in 2019, and it would likely raise them only once in 2020.
Here’s why this about-face matters…
Interest rates are barely coming off the lowest levels they’ve been in all of human history.
The Fed artificially brought rates down to 0% after the 2008 crisis and kept them there for over six years. You can see this in the next chart:
The Fed also announced it would phase out its balance sheet reduction program in the fall.
You might recall that the Fed created $3.7 trillion out of thin air in the wake of the 2008 crisis, under its money-printing programs euphemistically known as quantitative easing, or QE. That money was used to buy bonds, which sit on the Fed’s bloated balance sheet.
Now, some people think the Fed saved the day by pushing pause on its rate hikes. After all, it claims it’s doing this as a precaution “in light of global economic and financial developments.”
But I don’t buy it.
In fact, this whole charade proves to me that a crash is already underway – as the Fed inadvertently admitted we’re on the cusp of big problems.
After all, why would the Fed stop tightening monetary policy if it thinks there’s no chance of a recession?