Uncharted Territory

We’re living in unusual times, and trying to predict market movements is extremely difficult, which is why this time on the Big Picture, Jim Puplava discussed what’s concerning him and where we might expect to see market challenges develop in the near future.

Strange Days Afoot

Based on a number of metrics, we are living in interesting times. National debt has ballooned to nearly $21 trillion.

Also, the Federal Reserve’s balance sheet assets are up nearly six fold since 2008, and in many parts of the world we see zero or even negative interest rates.

Fed policy seems to be out of sync with other central banks, and it’s at odds with fiscal stimulus implemented at what appears to be the end of the business cycle.

“We find ourselves in a situation, quite honestly, we’ve never been in before,” Puplava said. “We’ve never seen fiscal stimulus come at the end of the business cycle.”

We’ve also seen tremendous amounts of monetary stimulus worldwide. Yet, inflation has remained subdued. Also, we’ve seen the lowest interest rates in recorded human history.

All of this makes this whole business cycle a little bit more unpredictable, Puplava noted.

“And yet, we’ve seen some of the lowest bond volatility in more than 3 decades, which is surprising,” Puplava said. “The problem is, when you have this amount of debt, and you have a central bank … raising interest rates, you are opening up yourself to a mishap somewhere.”

Fed Set to Tank the Economy?  

If they continue raising rates, that’s exactly what’s going to happen, Puplava stated. It’s no wonder the traditional business cycle isn’t playing out per the old “rules.”

In the past, a recession would hit, the Fed would lower interest rates, and the government would implement fiscal spending, stimulating the economy. Then, the economy would heat up, inflation would rise, and the Fed would begin raising rates.