Redneck Review!
No. 188 - 11/26/2018
Well folks, time to hang on to your hats and hold tight to your wallet!  As has been stated here several times over the past three years, things might well be coming to a head, and conditions which have been brewing for years could well be on the verge of exploding!
Why "hang on to your hats?"  Essentially the recent roller coaster up and down, more down than up, of our stock market,  is resulting in a wild ride for all invested there, and with it, a potential end to the past years of easy profits we in this country have experienced! Though not a disaster yet, the Dow Jones high,  approaching 28,000 in early 2018, is now close to dropping below 24,000, with a closing price last Friday of 24,280.
And as has been claimed here several times in past RNR's, increased interest rates, very slowly inched up by the FED, have caused the DOW to shudder a bit, causing  a slow retreat if not a halt in the long increasing climb to new records in stock prices.  And of course, why is this not a surprise?  Much like low interest rates in the "Roaring Twenties" our near zero interest rates since 2010 have encouraged borrowing at every level. We are repeatedly told that debt is at all time high, not only for our country, and the world in fact, but also for consumer and business debt in our country!  So even the modest increases in rates by the FED puts a big strain on servicing debt at every level, a definite factor in market investing, especially when a significant part of that investing is purchased by easy credit.
But why does the FED seem determined to raise interest rates?  This is the "hold tight to your wallet" comment, recently becoming more obvious. Years of "quantitative easing" (QE) with billions of new dollars in our economy since 2010, with the related large increases in our national debt, now over $21 trillion, has resulted as predicted here, in increased inflation pressure which is becoming more obvious to all of us. The average housewife knows this is true, and a recent report from the Wall Street Journal confirms this. Reported by Zero Hedge recently, "Unsuspecting U.S. consumers are about to be blindsided by a coming inflationary shock.  Many U.S. consumer companies are either already in the process  of raising prices, or have plans to do so in the near future... Clorox is raising prices on its products... Coco Cola also reported higher prices for the last quarter... the food giant Mendelez International also plans increased prices in America next year... passing rising costs along to consumers."
Should this be a surprise to any of us!  The answer here is a simple "NO" as has been said over and over in these past articles.  A little common sense should tell anyone that 1) Low interest rates near zero for years has encouraged debt at all levels, with our government leading the way!  And it takes only a dab of common sense to know that 2) Huge increases in the nation's money supply resulting from "quantitative easing" (QE) is an important factor in recent inflationary pressures!
As has been repeated here many times in the past, the FED, blindly following the economic theories of Keynes, is now between a rock and a hard spot!  Keep interest rates low and near zero, and inflation will get out of hand, inevitably!  But raising those rates a bit too much or too fast accompanied by their efforts today to use "QT" (Quantitative Tightening), the process of withdrawing money from the economy, will doom the stock market and put big new pressure on holders of debt!  The situation does suggest a wild ride ahead and increased pressure on our government and individual wallets!  Time will tell... it could be a wild ride!  (And for the record, copies of bound past RNRs are now available from the Chronicle, myself, or a few selected restaurants or businesses around the area.)
Jake Wren

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