From A Tremor To An Earthquake? Who Woke The Bear.

As the Federal Reserve continues to tighten monetary policy by hiking interest rates, we are seeing tremors in the stock market.  Sometimes tremors are the prelude to a full earthquake, but often not.  We are in our 11th year without an earthquake, but we sure have had a few tremors since then.  July 2011, July 2015, January 2016, Feb 2018 and of course now October/November 2018.  The wisest economists attribute it to the Federal Reserve and it's is hard to disagree.  Our roundup of expert opinion on "Trumps stock market rally" revealed some interesting insights about the Federal Reserve rate hikes that are believed by economists to be scaring the markets.

I argue that our western economies have become Fed Rate Intolerant (FRI).  Over the last 30 years, the peak at which rate hikes have triggered earthquakes has gone from 10% in 1988, to 6% in 2000, to 5% in 2007.  By that rationale, rates hitting 3% now could cause the seismograph to wobble, and we are two-thirds of the way there already.  I mean could you even imagine a base rate of 5% today.  This would mean you would have to pay 7% interest on your house.  It would translate into a real-estate and stock market catastrophe.  The last 20 years have driven huge improvements in the quality of life of all of the free world, and improvements some dictatorships e.g. China, Jerome Powell, do you want to throw that away?