This is my favorite chart:
Since the start of the Great Recession almost eight years ago now, the Federal Reserve has talked, signaled, and jabbered about hiking interest rates.
Out of the Bernanke/Yellen piehole comes all sorts of platitudes about “watching the market” and “ongoing strength” and other trite nonsense.
Here is a Bernanke quote from 2009:
Although the federal funds rate is now close to zero, the Federal Reserve retains a number of policy tools that can be deployed against the crisis. One important tool is policy communication. Even if the overnight rate is close to zero, the Committee should be able to influence longer-term interest rates by informing the public’s expectations about the future course of monetary policy.
That means the Fed will lie. They are still liars.
Here is what Yellen said yesterday:
Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.
But like a sullen teenager saying they will mow the lawn, it just never seems to happen. Needless to say, the market doesn’t like rate hikes and is down today.
The market continues to credit the Fed’s words and not its actions, despite the fact that it’s been playing this same trick for the better part of a decade.
Here is my first bold prediction:
1. The Line on the Chart Above Will Be Flat for the Next Five Quarters
2. The Youth Will Continue to Get Hammered
Speaking of the Federal Reserve, here is an interesting chart showing the number of 25-year-olds living at home in the U.S., as well as the Federal Reserve’s Eighth District.
These numbers are from 2012 to 2013. I imagine they are worse today, as rent and housing prices have moved up.
Jeez, get a job.
3. Student Debt Will Continue to Grow
Student debt will surpass $1.5 trillion. It is currently $1.3 trillion and growing rapidly.
Current presidential candidates have stated that they will exacerbate the problem by throwing more money at it in the form of lower interest rates. This will equal more debt and add to the burden of young people. Default rates will climb above 20%.
4. The Housing Market Will Grind Along
There are some 5 million houses that were never built in the aftermath of the real estate correction. New home formation by the 52% of the millennial generation not living in their parents’ basements will increase.
At the same time, housing supply is limited. The suburbs and exurbs have been built. Land is expensive. The average price of a new home is $364,000. This will clear $400,000 by the end of next year.
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5. Global Debt Will Continue to Expand
The traditional purpose of a market or economic bust is to clear out the dead wood, regroup, and try again.
However, due to central bank interventions on a global scale, the world is worse off today than it was in 2007. Since then, global debt has grown by $57 trillion, or 17 percentage points.
It will get worse. Countries like Australia, Brazil, and Canada that grew fat exporting to China will be in recession. Their central banks will print money.
Furthermore, countries that used to be creditor nations like China, Saudi Arabia, and South Korea are now bleeding cash and will be in the red over the next few years.
6. IEA Says Oversupply of Oil Will Continue
The global oversupply of oil will persist through next year, according to the International Energy Agency, as growth in demand slows and OPEC producers maintain high output. The IEA’s forecast takes into consideration the slowdown in North American production.
7. Iran Will Be the Best-Performing Market in 2016.
The three top emerging markets that have to import oil, and thus will benefit from the continued low oil prices, are Egypt, India, and the Philippines.
That said, when the global economic sanctions end sometime during the first six months of 2016, the Tehran Stock Exchange — which is now the cheapest in the world — will more than double.
I’m off to Toronto to speak at the Money Show. I hope to see you this weekend.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
