Fed Will Kick Off the Market Meltdown

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Fed Will Kick Off the Market Meltdown
The comic features features Fed Chair Janet Yellen as a contestant on the game show "Who Wants To Be A Millionaire". The audience behind Yellen, which includes former Fed chief Ben Bernanke, are throwing tomatoes at her. Caption for the comic: "After disappointing markets last week, will Yellen make it up to them later this year?" The Federal Reserve's decision last week not to raise interest rates disappointed most market players who were expecting the central bank to hike rates for the first time since 2006. The questions remains whether Yellen and the Fed will make it up to them at some point later this year, or will they delay the move to early 2016. The central bank has two more scheduled policy meetings before the end of 2015, in late October and mid-December.

The market took a beating on Friday to close the week with a loss, but don’t worry — the true panic selling hasn’t kicked in yet … but it’s coming.

 

A couple members of the Federal Reserve sauntered out on Friday to make some hawkish comments that showed they were in favor of lifting interest rates — as if we could have forgotten about the fact the Fed has been murmuring about higher interest rates for a few years now. But Boston Fed President Eric Rosengren’s and Fed Governor Daniel Tarullo’s comments were enough to unsettle traders when it comes to the next Fed meeting on September 20 and 21.

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Of course, higher interest rates are all pinned on a stronger economy. So, let’s take a look at the facts:

  • The Institute of Supply Management (ISM) manufacturing report plunged to 49.4 in August from July’s reading of 52.6. What’s more, readings below 50 indicate the sector is contracting, not growing. This was the first reading below 50 since February 2016.
  • The ISM non-manufacturing report dropped from 55.5 to 51.4 — marking the slowest growth in the service sector since February 2010.
  • August nonfarm payrolls came in well below estimates for 151,000 jobs. And the vast majority of those new jobs were low-paying service jobs, while the better-paying manufacturing and construction industries lost 20,000 jobs last month.
  • Construction spending slowed in July, coming in flat compared to estimates for a 0.5% increase.
  • Durable goods orders bounced in July, with the Commerce Department reporting that capital goods orders (the kind of orders that tend to indicate that companies are reinvesting and expanding their operations) have grown for two consecutive months. However, and this is the kicker, capital goods orders are still down 4.3% over the first seven months of the year versus the same period a year ago. We’re still a far distance off from good here.

These are not the signs of a roaring economy that can easily swallow down a rate hike or two and keep pushing ahead. This is an economy that’s hobbling along on its last leg — the consumer — and that leg’s already got some nasty fractures nobody wants to look too closely at.

But the Fed is going to raise rates. Maybe not in September, but it’s coming soon. When it does, the final support of the American economy will be kicked out, and everything will come tumbling down.

That doesn’t mean you need to stuff all your cash under your mattress for safekeeping. You can take steps now to not only protect your wealth from the coming collapse, but even position yourself to profit as well.

We’ve pulled together more than a dozen wealth-solution experts for our Total Wealth Symposium next week in Bermuda. Along with our own editors Jeff Opdyke, Ted Bauman, Bob Bauman and James Dale Davidson, these experts will be presenting on unique asset-protection strategies, ways to diversify your wealth with real estate or even “quiet wealth” assets. There will also be experts who will speak about moving offshore and setting up a second residence or citizenship. If you can’t join us next week in Bermuda, you can still see these presentations from the comfort of your own home. Learn more by clicking here.

The Fed may be choosing to ignore the data right in front of it, but you can’t. The center cannot hold. This economy will soon fall apart. But you don’t have to let your wealth get crushed under the rubble.

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