Stock market’s eerie parallels to September 2007 should raise recession fears


Market Watch: Read this paragraph carefully:

Since last year real GDP growth has been slowing. The chair of the Federal Reserve has been signaling that, while growth is slowing, there is no recession risk and the Fed is forecasting continued positive growth. Warning signs in the economy, including an inverted yield curve, have been ignored and stock markets continued to make new highs in July.  In August a correction took a place and subsequently a rally ensued into early September. On September 18 the Fed is expected to cut rates.

What’s so special about this? This is hardly news. Except that this paragraph would be as true for the U.S. economy and stock market in September 2007 as it is today. Consider that 12 years ago the yield curve was inverted and U.S. economic growth was markedly slower than it had been in 2006. Yet the Standard & Poor’s 500 SPX, +0.26%   made a new high in July 2007 (same as 2019), there was an August correction (same as 2019), and then the Fed cut rates on September 18 (ditto — same day even).

U.S. stocks proceeded to make another marginal high that October — and that was it. Lights out. We all know what happened next. more …

Opinion: Out of the seemingly bottomless pit of the 2007-9 recession, the Federal Reserve under Ben Bernanke decided on a new course of action. Print new money, deposit in failing money center banks to buy back toxic mortgage bonds both at home and abroad, and save the world from depression.

Quantitative Easing, an innocuous name for printing counterfeit money was employed. The nations central banks found a remedy for preventing recessions:

  • Create new money to buy bonds to drive interest rates to (minus) zero
  • Deposit the new money into failing banks to avoid a run on deposits
  • Drive stock, bond and real estate prices higher
  • Prosperity is created for the 1% out thin air
  • Hope that the trillions in newly created debt will be unwound at a later date

Problem: With interest rates at historic lows the Federal Reserve now has only QE at it’s disposal to stimulate the economy in a slow down. Europe is in worse shape since interest rates are below zero in most countries. The $4 trillion debt created by QE 1, 2, and 3 was never paid off.

Yesterday the Fed employed the first repo operation (QE lite) since 2007, injecting $53.2 billion into the US economy. That move was a clear signal that the Fed is worried that it’s tightening moves of the past 3 years was a gigantic mistake.

Today a very divided Federal Reserve lowered rates by 1/4 % while saying the economy is strong. Oxymoron?

With US debt now at $22.5 trillion, there does not seem to be a way of ending this vicious cycle without a massive meltdown that will set the stage for currency defaults and hyperinflation as prophesied in Revelation 6:5-6.

I have no idea how long this charade can keep going, but keep in mind the Bernie Madoff’s scheme lasted for 20 years.