A New Rate Hike Would Break the Bull

21.06.2017 • Switzerland

Henry Bonner – Strategy and Council Letter (Switzerland) –

Still in Dublin … near St. Stephen’s Square in the heart of the city …

We were Sunday at St. Patrick’s Parish … where the tourists and the members of the parish …

The river Liffey passes through the heart of the city … giving an air of serenity to the city, which is of Viking origin.

The stock market is back in the green Monday – the Silicon Valley giants in the lead …

Europe1:

“Wall Street [is] carried to the top by technological values ​​…”

“Wall Street finished up sharply on Monday, driven by the strength of the industry’s flagship stocks: the Dow Jones gained 0.68%, reaching a record, and the Nasdaq 1.42% …”

“The big names of technology have taken the lead of the rise of the day, with Apple gaining 2.86%, Alphabet, the parent company of Google, 1.87%, or Facebook 1.48% …”

On Tuesday, the CAC 40 remains at its Monday levels.

Why does the market continue to climb?

According to Europe1, part of the answer is that higher interest rates from the Federal Reserve help banks, which makes Wall Street climb:

“[An analyst for FTN Financial, Chris Low advances the idea that the US central bank sees no reason to delay another rate hike, good news for the banking sector. JPMorgan and Bank of America rose by 2.19% and 2.05% respectively. “

Why would banks benefit from higher rates?

Banks issue loans to businesses and individuals, and the rates they can get on these loans go up.

As a result, banks will see higher incomes if the Fed continues to push up rates.

On the other hand, the situation could also go against the banks.

Why?

The bonds that the banks have will see their value fall.

In the 1970s, rates rose dramatically. Inflation went above 12%.

Instead of benefiting, the banks almost collapsed. Here in France, the government of Mitterrand nationalized the whole sector in 1982.

What will happen if the Fed continues to push up its rates?

Analysts are now believing that the Fed will push rates up before the end of the year … especially given that the market continues to climb despite the latest increase.

Some believe that this rate hike could rock the system to its fall …

Analyst Graham Summers writes for Zerohedge:

“Will central banks cause the markets to collapse again?

“The Fed will begin to RELEASE market liquidity, and significantly: $ 10 billion per month this quarter, and $ 20 billion per month in the fourth quarter of 2017.

“What is going on?

“The Fed is in the process of ‘withdrawing the ponche’ from the markets. Of course, the market may continue to be carefree today or tomorrow, but the reality is that the authorities have injected $ 14 trillion in the last seven years, and this intervention will end.

“Around the world, central banks will begin to reduce their intervention in the system, and the size of credit issues will decelerate with a speed we have not experienced since the Financial Crisis.”

What to do?

In other words, markets have become accustomed to cash injections in recent years … and almost no one has any idea of ​​the size of the disaster that could occur if this intervention stops.

As we have explained before, the ECB will inevitably see the effects of its intervention … even if inflation is still far below their expectations.

Should we sell our shares on the stock market?

Our current situation could continue for a long time … 6 months … one year … see more …

In Japan, the system has been in deflation since 1989, and inflation has just begun to rise again … even with unprecedented intervention in the market.

Some of our colleagues advise to rank in the equity market … because equities will be a haven while the euro, the dollar, and the yen are suffering.

As we repeat frequently, we prefer to have a simple “survival plan …” by having a little gold, real estate, or other “non-financial” assets to protect themselves …

Our latest dossier by Dr. Philippe Herlin exposes the potential disaster that is waiting for the euro …

We will see some details of this scenario in the next few days …

Truly,

Henri Bonner

-Read more at www.lettre-strategie-conseil.com (French)-

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