Business

One week ago, we explained what happened to both the US economy and the stock market the last time the Fed tightened financial conditions back in 1936 when it, like now, erroneously thought the economy was strong enough to sustain it:

"The Fed exit strategy completely failed as the money supply immediately contracted; Fed tightening in H1’37 was followed in H2’37 by a severe recession and a 49% collapse in the Dow Jones."

This is what it looked like courtesy of BofA strategist Michael Hartnett:

Submitted by Simon Black via SovereignMan.com,

It was 1720, and Paris was completely mad.

The city’s brand new stock exchange, located at the ultra-swanky Hotel de Soissons, swarmed with citizens of all stripes looking to get rich.

Stocks were still a novel concept back then, and the allure of getting rich overnight was so appealing that people lined up for hours to buy shares.

The most popular was the ill-fated Mississippi Company, whose share price frequently rose up to 20% in the course of a single morning.

Yesterday, in the aftermath of the shocking news that the Third Avenue Focused Credit Fund was liquidating and had gated investors due to its "illiquid" portfolio, we had one simple prediction:

Four months ago, China decided to devalue the Yuan sending a shudder up and down collateral chains globally and forcing carry trade unwinds and derisking everywhere. Friday August 21st saw notable weakness as that weakness washed ashore in US equities.. and then Black Monday struck. The ensuing debacle stalled The Fed and shocked markets.

The last week, we have seen China devalue the Yuan very significantly, EM capital markets turmoiling, and today, that was ashore in US equities... what happens next?

Deja vu?

Submitted by Lance Roberts via RealInvestmentAdvice.com,

While the world patiently waits for Janet Yellen to raise interest rates this month, the markets have been unable to decide as of yet whether such an event is good or bad thing.