by Jim Sinclair:
1.
First
interest rates rise
affecting the drivers of the economy, housing, but before
that auto production goes
from
bull to a bear markets.
2.
This
impacts many other industries and the jobs report. An economy is either
rising at a rising rate or business activity is falling at an increasing
rate. That is economic law 101.
There is no such thing in any market as a Plateau of Prosperity or
Cinderella - Goldilocks situations.
3.
We
have witnessed the Stock Markets rise on economic news indicating
deceleration of activity. This continues until major corporations
announced poor earnings, making the markets fall faster than it rose,
moving it deeply into the red. (November 2008)
4.
The
formula economically is inherent in #2, which is lower economic activity
equals lower profits.
5.
Lower
profits
leads
to
lower National/Federal Tax
revenues.
6.
Lower
Federal tax revenues
in the face of increased National/Federal spending causes
geometric, not arithmetic, rises in the National/ Federal Budget deficit.
This is also true for cities.
7.
The
increased Budget
deficits in the face of the
Trade
Deficit
increases the Current Account Deficit.
Dramatic for the USA and Europe. (see what happens in Greece)
8.
The
Current Account Balance is the speedometer of the money exiting
a country into world markets (deficit).
9.
It is
this deficit that must be met by incoming investment in any form. It could
be anything from businesses, equities to Treasury instruments. We are
already seeing a fall off in the situation of developing nations carrying
the spending habits of industrial nations; a contradiction in terms.
10.
If the
investment by non domestic entities fails to meet the exiting
dollars, euros, british pounds… by all means, then this specific country must turn within
to finance the shortfall.
11.
As the
action under #10 starts to become reality, and a country turns inside to
finance all maturities, interest rates will rise with the long term rates
moving fastest regardless of prevailing business conditions. (ex. Greece,
Portugal)
12.
This
will further contract business activity and start a downward spiral of
unparalleled dimension because the size of for example the US debt already
issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This
is an economic downward spiral.
The
question then boils down to what takes priority, the US dollar (The Euro)
and inflation or the degree of activity of the US/EU economy. Will
Bernanke/Trichet enter his new position and immediately set the economic
downward spiral off?
However, at this time the Fed/Trichet does decrease the Interest Rates but
just print the failing Money. In this case, we shall possibly see LOWER
interest Rates and a LOWER Dollar ??
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