The Federal Reserve isn’t the only central bank cutting interest rates. In fact, the world is awash in easy money.
The Fed met market expectations during the September FOMC meeting and lowered interest rates another 25 basis points. It was the second cut of the year and pushed the interest rate down to the range of 1.75 – 2%. Meanwhile, the European Central Bank took a decidedly dovish turn over the summer. It has even hinted at another round of “shock and awe” stimulus.
And it’s not just the big central banks slashing rates.
The Indonesian stock market has plunged nearly 7% this year. The country’s currency, the rupiah, has fallen 9%, and is at its weakest level since the 1998 Asian financial crisis. Bond yield have soared. To weather the storm, Indonesians are buying gold.
After the dot.com bubble burst, the Federal Reserve swooped in and dropped interest rates to an artificially low level. In the mid-2000s, the economy boomed and the housing bubble inflated driven by the sudden influx of cheap credit. In 2007, it all began to unravel and the air started leaking out of the subprime mortgage bubble. Of course, everybody said, “Hey, nothing to worry about. Everything is great!”
And they were spectacularly wrong.
We are now officially in the longest bull market in US stock market history. Yesterday took out the record set in the 1990s. As Peter Schiff pointed out in his most recent podcast, the old record run ended in 2000.
And we all know how badly it ended. It ended with a 50% collapse, an 80% collapse in the Nasdaq, and the Federal Reserve had to slash interest rates to 1% and inflate a housing bubble in order to prop the market back up.”
Peter said he believes this bull market will meet a similar if not worse fate.
The US dollar has rallied over the last few weeks. The dollar index closed above 93 on May 8. This represents about a 5% increase from the low this year of just above 88. On the year, the dollar is up about 1%, although it is still off about 6% from its highs in 2016.
In his latest podcast, Peter Schiff called this a “bear market rally.”
There hasn’t been any good economic news that would explain the strength of the dollar.”