As the central banking hoax is exposed, don't fight the tape

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The public should soon catch on to central banking failures suggests Bob Hoye from In another fascinating interview with Jim Goddard, Hoye calls out central bankers for implementing policies based on theories that do not work. In the meantime, stocks look like they are in the early stages of a bear market, but a bounce is due.

Click to listen to Bob Hoye's December 21st broadcast

The market tone has changed according to Hoye, and buying the dip mentality is over. Investors will need to adapt to the new reality and not fight it. Moreover, recent developments are exposing the flaw in believing the economy can be centrally planned, particularly through central banking:

There used to be a saying ‘don’t fight the Fed’, but it is much more practical to say don’t fight the tape. The market is much wiser than you or me, and much wiser than a committee of central bankers. The market is implacably adjudicating the notion that a committee can manage a national economy which is utter nonsense.

Hoye believes it is only a matter of time before the public start to understand the role that central bankers have played in the current downturn. Once they realize that trillions of dollars of taxpayer money have been put to risk to support central bank theories which assume they can stop bad things from happening, things could get very interesting.

The common sense of the public will look at this and, say hey, these economic theories of intervention are not working...Maybe we might have in Canada and the US the equivalent of the yellow vest protests, but this would be perhaps against central banking and interventionist things too, as the saying goes, to prevent bad things from happening.

We would add that in Canada billions of dollars of taxpayer money has been pledged against mortgages, much of this took place during in the aftermath of the 2008 financial crisis under the Harper government. This is what the IMF terms shadow deficits because they are more-or-less off the books, but the chickens could come home to roost in a downturn

Hoye reminds readers that part of the rationale behind central banks was to prevent financial setbacks that proceed recession. However, he believes the whole business of central banking is a hoax.

Indeed, we believe the track record speaks for itself, as Hoye points out:

There have been 18 recessions since the Fed opened its doors for business. It doesn’t work and the public is going to realize it doesn’t work.

In fact, Hoye believes that at times like this, central bankers follow the market, they do not lead it:

In exciting times like this, the history of the senior central bank, is that its move in the administered rate can be 3 or 4 months behind the change in the market rate of interest.

Hoye expects T-bill rates to start rolling over in the next 5 to 6 weeks. As such, he believes the December rate hike was the last one.

In terms of the implications for investors right now, Hoye cites a report in the Economist when similar pressures were taking hold in the fall of 1873:

While the panic may be over, the results of the panic are not over.

Hoye notes the economy subsequently went into a 5-year bear market, and it was the beginning of a great depression. Nevertheless, right now he believes stocks are oversold and due for a bounce.

We could see some rebounds out of a bottoming process over the next few weeks and rebounds into the first quarter, industrial commodities, you might have a slightly more favourable on credit markets, and a bounce in the stock market. Nothing ever goes straight down forever.

Click for larger

Hoye is not sure how long the rebound can last, but he believes it has the marks of perhaps the early stages of a bear market and one has to adjust for that. One of those adjustments includes realizing that the market is more or less on its own for now. Hoye does not believe we are at the point where the Fed would start to panic. However, when it gets worse, then they will be inspired to fix things.

We would add that when that when central bankers do step in to cut rates, implement a new form of QE or some other new experiment, central bankers will start spinning their self-serving line about how important they are in fixing the mess. Of course, they will never admit it is a mess that they created.

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