Don't Blame China
Monkeys, it blows my mind that there are folks on Wall Street that believe the Federal Reserve can raise rates. China devaluing their currency is NOT why our markets are in turmoil. If you take a look back, there are some folks that have forecasted what is occurring now. In short, it is...
The Federal Reserve stopped Quantitative Easing and has yet to raise interest rates, however the truth is that they CANNOT raise rates without sending equities plunging. Even the expectation of a future microscopic increase of 25 basis points is killing the market. But, perhaps the Federal Reserve wanted to have this correction as an excuse to further delay the rate hike?
There is flat out too much debt based on dollars for the Federal Reserve to ever raise interest rates to a free market level. If interest rates were allowed to float here, it would be FAR worse than what occurred in the late 1970's. 80+ months of 0% interest rates has consequences, but the Federal Reserve will "have their cake and eat it too" so long as other countries buy into their promises of a rate hike, which they never intend to deliver.
I admit, I don't know what the Federal Reserve's play here is. I expect them to delay raising rates forever. Like some economists(and even some hedge fund heads) say, I even think QE4 is on the way in 2016. The fundamentals of the U.S. and much of the global economies are completely broken. We need Congress to get the Fed to drop their employment mandate if we ever hope of stabilizing our nation. Then, the Fed must not monetize the massive deficits that Congress is not willing to pay for.
With that said, the "surprise" is just funny at this point. It is a market driven completely by cheap money. Earnings are propped up by share buy-backs, paid for by cheap debt and valuations are asinine for many industries.
In short I expected this, but I don't have any brilliant insight other than I expect this to be a temporary buying opportunity and the Federal Reserve will eventually throw the market a lifeline with rhetoric about delaying a rate hike. If they do hike rates, they will have to just lower them again or an actual financial crisis will occur which is badly needed. This Fed driven market will march upwards until the party actually stops.
Politically, it's shameful to watch Presidential candidates blame China for OUR problems. If China floats their currency, or allows their Yuan to rise, we are toast as the economic superpower of the world. I think the Chinese government has been aware of this for a long time, but are content with taking over slowly over the course of 10 years or so, for fear that their citizens will demand more political freedoms upon experiencing a greater influx of wealth than the American Middle Class did in post-WWII. China's economy is only weak because we export our inflation to them. In exchange they lend us money, to buy goods they produce.
That won't last forever.