Will The “Trigger” To A Stock Market Selloff Be The Fed Raising Rates?

Will The “Trigger” To A Stock Market Selloff Be The Fed Raising Rates?

$DIA, $SPY, $QQQ, $VXX

Participants may be better off getting out of stocks or selling them short until the Fed goes back to looser monetary policy.

The notion that the Fed will only raises interest rates once this year or early in Y 2016, and then stay on hold has no historical basis and is just wishful Wall Street thinking.

The Fed has kept rates a Zero +% since Y 2008, when the global economy shrank the most since the Great Depression. As US business activity has bounced back and unemployment has fallen to a 7.5 year low of 5.1% (the real rate is 7.5%), some Wall Street economists are forecasting that the central bank will raise rates as early as this week or at the December meeting.

Once the FOMC starts raising rates, it will not stop until there are signs of an economic slowdown. The historical precedence of hikes in the past 30 yrs and to the “dot plot” estimates by FOMC members that show rate increases through Y 2016 once they start, if they start..

The Fed will only be able to move the fed funds rate higher by 50 to 75 bpts before it becomes obvious that global markets and economies are in serious trouble. This is why wise participants should now be out of, or short, the stock market. At least until the S&P 500 trades near 1,600, or the Fed transitions to an easing stance.

The S&P 500 stock market index would have to fall 18% from its current mark 1,978.09 to hit that buy zone.

Tuesday, the US major market indexes finished at:  DJIA +228.89 at 16599.85, NAS 100 +54.75 at 4860.51, S&P 500+25.06 at 1978.09

Volume: trade was light with under  760-M/shares changing hands on the NYSE

• NAS 100 +2.6% YTD
• Russell 2000 -3.1% YTD
• S&P 500 -3.9% YTD
• DJIA-6.9% YTD

The CBOE Volatility Index (VIX) 22.56, -1.69 (NYSEArca:VXX) the markets fear indicator finished lower by nearly 2 points

When the Fed begins to tighten and try to normalize rates, the stock asset bubble will likely burst and cause an even bigger crisis than in Y 2008.

The longer the Fed leave it at Zero+%, the more excess will be accumulated, the worse the ultimate deflationary bust will be So they might as well just get on with it now, trigger the market to take its drive due South, and let the pain happen.

Stay tuned…

HeffX-LTN

Paul Ebeling

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