Submitted by Lance Roberts via RealInvestmentAdvice.com,
Commercial bankruptcies are skyrocketing, oil prices have collapsed, profits have declined and Central Banks globally are pushing negative interest rates in hopes of keeping economies afloat. At any other point in history, such a combination of events would have investors scrambling for cover as market prices fell.
In recent months unexpected calls have emerged from unexpected sources questioning whether capitalism is even working any more in a world in which corporate profits refuse to drop leading to paltry wage gains and thus, lack of the all-important wage inflation. Most recently it was none other than Goldman who wrote in February that "we are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism."
The overnight session has been one of alternative weakness and strength: it started in China where stocks tumbled 2.8% to a two month low following an unexpected warning in the official People's Daily mouthpiece that debt and NPLs are too high, not to expect more easing will come, and that the Chinese Economy’s performance won’t be U- or V-shaped but L-shaped.
With stocks the biggest beneficiary of the late January "Shanghai Accord" (that shall not be named), it stands to reason that the US Dollar was the biggest loser. Sure enough, overnight the WSJ writes that the "powerful rallies that have lifted stocks, crude oil and emerging markets for the past three months have one important thing in common - the falling dollar - and investors are growing anxious that it could prove to be the weak link."
But is a strong dollar about to make another appearance and unleash the next leg lower in risk assets?
What a bunch of nonsense.
For seven years now we’ve been told the US is in a recovery. However, if this were the case, the Fed would have started raising rates years ago (likely in 2012). No other recovery on record saw the Fed maintaining ZIRP for so long.
There is simply no factually credible argument for why rates should be ZIRP if the economy is expanding. You cannot have claims of a “recovery” or expansion while ZIRP is in place. ZIRP is meant to be an emergency policy meant to pull the economy out of a severe recession, NOT a long-term program.