Last Wednesday, the Fed released the most divisive statement in many years with 3 Governors (Geoge, Mester and Rosengren), all of whom have expressed the opinion that the Fed needs to tighten now and stop dithering around. Sadly, other than Bullard, the hawks are vastly outnumbered this week and the last word goes to Grandma Dove, Yellen, who rides in at 5pm on Thursday to help dress those windows for the last day of the quarter.
If you think that makes it all seem like a gigantic, manipulated scam – you are catching on! Notice the only hawk allowed to speak during trading hours is Bullard and he speaks right ahead of a 7-year note auction – a time when the Fed WANTS to scare investors back to the bond market. There's a very strong correlation between days our Government needs to borrow money (bond auctions) and days when the market falls – making it look unattractive by comparison – even against 2% 10-year notes.
How else do you think a country can go over 100% of it's GDP into debt and still borrow money at rates that don't even keep up with inflation? There has to be FEAR somewhere, but you sure wouldn't know it from record-high stock indexes, would you? Keep in mind that being in debt 100% of your GDP is like you being 100% of your gross salary in debt, before taxes.
If you make $100,000 and lose $35,000 to taxes and have a $2,000 mortgage ($24,000) and $1,500 in monthly home expenses (taxes, insurance, utilities, groceries), that's $18,000 and maybe you have 2 cars for $1,000 monhth ($12,000) which leaves you with $11,000 in discretionary income and THAT is what you have to pay back your $110,000 of debt.
Then there's interest on the debt. If it's just 1%, like the US debt, then you are paying $1,100 in interest but that's still 10% of your disposable income. What happens if rates go up – what will you be sacrificing? Also, how's that saving for college and retirement going? No wonder 80% of American familes have little or no retirement savings – this is the example for…