This Has Predicted Every Market Crash in History, by Bill Bonner

Going back to 1950, every recession has been preceded by rising interest rates. From Bill Bonner at bonnerandpartners.com:

MIAMI – As expected, the stock market seems to be on the mend.

After the scare of two weeks ago, prices are firming.

And the Fed is giving the economy the all-clear. Bloomberg:

“Beyond full employment” is a phrase that needs explanation. We take it to mean the Fed has gone bonkers. But we’ll elaborate on that another day.

The U.S. labor market is near or beyond full employment, while some pockets of finance are showing signs of rising leverage and high valuations, according to a Federal Reserve report.

Today, we’re merely trying to get back on schedule after a snafu that left us stuck in Miami International Airport at midnight last night. (As we type, it is about 7 a.m…)

Yes, our travel plans got more than fully messed up. And now, we are way beyond completely ready to move on.

Watch Rising Rates

But back to our beat of the markets…

“Buy the dip” has worked for the last 38 years. And now, investors are more than 100% convinced that it will work again.

But they are wrong.

Here’s an extract from a letter to clients of Semper Augustus, an investment group:

Fundamental investors like to pronounce they don’t think about macroeconomics. It’s all about researching companies, they say. We’re with you, brothers and sisters. However, if there was one economic chart to pay attention to, the one presented below of changes in the Fed’s discount rate is it.

Chart

Going back to 1950, every U.S. recession (gray shaded area) has been preceded by the Fed hiking interest rates

Every major stock market decline and every recession in the last 100 years was preceded by the Federal Reserve raising short-term interest rates by enough to provide the pin to prick the balloon.

Note the emphasis on every. Yes, there have been periods where the Fed raised rates and a recession didn’t ensue. Everyone knows the famous saying about the stock market having predicted nine of the past five recessions! That may be true, that rising rates don’t necessarily cause a recession. But as an investor, you must be aware that every major stock market decline occurred on the heels of a tightening phase by the Fed. More importantly, there have been no substantive Fed tightening phases that did not end with a stock market decline.

To continue reading: This Has Predicted Every Market Crash in History

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