The Central Bank Titanic: The Current State of the World’s Central Banks

January has been a bleak beginning for equities: the Dow is down 5.5 percent year-to-date, the Russell 2000 at negative 8.85 percent, the NASDAQ off 6.84 percent. Not to mention, stocks are still not considered “cheap” by any means. Recently, the Wall Street Journal’s Market Watch recently wrote that the Dow could lose a further 1000 to 5000 points and still not be “cheap” compared with long-term stock valuation measures. Stocks worldwide are down as well and it’s likely that February will also be a down month.

“What was Friday’s rally about, then?” asked Dawn J Bennett. “One reason could be month-end set dressing by hedge and mutual fund managers eager to have the appearance of a win after a particularly brutal start to the year. Even more, though, was another round of ‘more of the same’ central bank manipulation like we’ve seen for the last six years, as the Bank of Japan reversed a position announced a week earlier and moved to negative interest rates, joining Switzerland, Sweden, Denmark and the EU.”

She continued, “The primary role of central banks is to influence capital allocations and spending behavior by adjusting liquidity, and over the past seven years they have gone crazily overboard regarding that objective, engaging in every possible way to influence consumers away from a saving mindset and into purchasing riskier assets. Even given this, net purchases of stocks and bonds have been nearly flat since the middle of 2015. Seeing Japan’s equities markets still faltering, Bank of Japan Governor Haruhiko Kuroda took interest rates into negative territory on Friday, hoping to chase investors into stocks and bonds in order to reach his inflation goals.”

And it doesn’t seem to be working out well. Their stock market continues to fall and Japanese Government Bonds have moved to negative yields. The New York Times recently wrote that “moving to negative interest rates reflects a measure of desperation on the part of the central banks. Their traditional tools have been largely exhausted as most countries interest rates have been pushed to almost nothing.” In fact, that word, “desperation,” has been appearing a lot in this context.

Read more from Dawn J Bennett here:

What’s In Store for The Economic Year Ahead?

Dawn J Bennett, CEO and Founder of Bennett Group Financial Services and host of Financial Myth Busting, recently wrote an article entitled, “The Year Ahead.” According to Dawn Bennett, the so-called “recovery” being promoted by the government and mainstream media is propaganda to cover failed policy initiatives from both the White House and the Federal Reserve. This year’s holiday numbers provide a good example, as consumer spending makes up 70 percent of our GDP; holiday retail sales numbers have been disappointing.

  • Black Friday sales were down by nearly $1.2 billion
  • According to AlixPartners, weak holiday retail numbers are partially a result of upper-middle class shoppers being scared by a fluctuating stock market and waiting until the last minute to shop
  • With 300 point drop in the Dow last Friday, it seems like that volatility will remain a factor for even last-minute shopping
  • Reuters reported that sales growth for the holiday season is expected to be half what it was last year at this time

“2015 has produced an S&P 500 which remains at its highest point in history, but that incredible fact is backed up by nothing,” said Dawn J Bennett. “There’s a measure called the Q ratio, devised by a Yale economist named James Tobin. To find the Q ratio of a company, you divide the market value of the company by its replacement cost. Historically, the Q ratio of the market as a whole tends to average about 0.69. Currently, it stands at 1.04, an indication that the market is sorely overvalued. The Price/Earnings ratio for the S&P 500 stands at 19, when the average in a healthy market is around 15. And the market capitalization to GDP ratio of the S&P 500 is currently 1.82. Just before the crash in 2007, it was only 1.52, and you recall what happened then. Advisor Perspectives recently revised their estimate of margin debt in the New York Stock Exchange. In real terms, margin debt is now 20% higher than it was at the peak of the dot-com bubble.”

Below are Dawn J Bennett’s predictions for 2016:

  • Prediction 1: The Fed will continue tightening monetary policy (not a one-and-done rate hike) until our fragile economy rolls over even more.
  • Prediction 2: The junk bond asset class is going to continue to liquidate. This started in August and September of this year, but really became apparent in the last several weeks. The media hasn’t given it much focus, but they should, since every major crash traditionally starts with a single asset class the first domino to fall.
  • Prediction 3: Corporate profits and revenues will continue to be weak, along with manufacturing and exports in general, pointing to the fact that we are already in a recession.
  • Prediction 4: The Fed’s rate hike will prove to be very painful. It will continue to soak up liquidity for 2016, which could be as much as $800 billion in excess liquidity taken out of an already fragile and illiquid system.
  • Prediction 5: Greece’s problems will become exponentially worse, and Europe’s along with them.
  • Prediction 6: Gold and silver have a strong potential to rise 25 to 50%.

Read more from Dawn J Bennett here:

Fantasy vs. Reality: Who Are the Jobs Truly Going To?

The most recent biggest headline grabber that the Bureau of Labor Statistics (BLS) released was its October payroll job numbers – announcing that a remarkable 271,000 jobs were created. This number is well over the consensus expectation of 184,000. This was the highest print since December of 2014, and those new jobs dropped the headline unemployment rate to 5%, the lowest since April of 2008. The media and government are sure to focus on these two numbers. This may sound great in theory but it’s important to delve deeper into what these number truly mean.

A full 54% (or 145,000) of those jobs were added to the total because of something called the birth-death model. According to Dawn J Bennett, the author behind the article, “The birth-death ratio is a number representing the net jobs provided from newly started business vs. business closings during the reporting month. The BLS uses a rolling average to determine the monthly total based on historical averages over the past several years. That sort of math assumes an economy that is functioning normally, which ours has certainly not been for the past seven years, and so that figure of 145,000 jobs is, simply put, fiction.”

There are even more disturbing trends within the overall picture. According to the BLS, 271,000 of these jobs can be accounted for by employees age 55 or over, while males between 25 and 54 lost 119,000. Also, multiple job holders increased by 109,000. This means that that older Americans are taking part time jobs, and some of those losing full time work are taking multiple part time positions to compensate. The jobs are mostly low-paid personal service jobs such as food service, retail, temporary work, and healthcare services.

It’s not hard to see from these numbers that young people aren’t in the position to build households or plan for the future; 50% of 25-year-olds live with their parents.

Read more from Dawn Bennett here:

Listening for the Rhymes in Our Global Economy

Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” Dawn J Bennett wrote that we heard the rhymes loud and strong last month in the break of the news of renewed easing from the People’s Bank of China and the European Central Bank and in the market’s reaction.

FactSet said that blended earnings declined 4.6% in the third quarter; if this trend continues, this will mean we will have had back-to-back quarters with a decline in earnings for the first time since 2009. If we look ahead into the fourth quarter, nine companies have issued declining earnings-per-share guidance and to date only one company has issued positive guidance meaning the year is unlikely to improve.

“This data seems to point toward the conclusion that the U.S., and in fact the global economies are in the contraction phase of our current business cycle,” said Dawn J Bennett of Financial Myth Busting. “And since the philosophy of the central banks seems to be doing whatever they can to paper over the impact of that contraction, we saw last week that the PBOC and the ECB announced that they would be printing yet more money to ease the natural effects of that contraction. The markets shot up on that news, a few winners disproportionately impacting the indices to lead to a massive rally.”

However, it’s important to remember that stocks as a whole tend to decline during a recession. For the last few years, hedge funds, mutual funds, ETFs have been performing poorly. According to recent reports from Reuters and the Wall Street Journal, adjusted third quarter revenues for Morgan Stanley fell 42 percent.

Dawn J Bennett said, “A change is coming—history does tell us that change is inevitable—but with change comes opportunity, especially for those that listen carefully for the rhymes.

Read the full article by Dawn J Bennett here:

The Republican Debate: Ignoring Tax Realities and Tackling the Fed

There’s no doubt about it – the first Republican debate didn’t cover much aside from ego-baiting between the candidates. And now that the third debate has passed – which was supposed to cover financial policy – we haven’t gotten much extra information. Several of the candidates talked about tax plans and regulating the Federal Reserve, but most didn’t elaborate on how they would do so, or flatly denied any issues with their plans when the numbers didn’t add up. Conversation often veered into completely unrelated topics, no thanks to moderators who have been broadly criticized for their trivial questions and basic inability to control the course of the debate.

There’s some cause for hope, in the simple sense that the candidates are now at least talking about financial issues. However, hammering out specific plans of action that take the realities of our system and its existing problems into account will be difficult when candidates are only looking to score another “hit” on one another. And viewers often aren’t fact checking, something that clearly frustrated Ohio senator and candidate John Kasich, who labeled the tax plans of some of his rivals “a fantasy.” That didn’t stop them from making a stronger showing in the debate than he did – numbers or no numbers.

On the topic of the Federal Reserve, however, Ted Cruz and Rand Paul both called for an overhaul of the system. Cruz went on to call for greater accountability for the institution and to register his concern about the Fed’s influence on inflation. “I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold,” Cruz said. Rand Paul suggested legislation that would assess the Fed’s monetary policy making.

Ted Cruz
Image courtesy of REUTERS/BRIAN C. FRANK

Financial analyst Dawn J. Bennett points out the fact that the Fed has been avoiding raising interest rates, citing the potential breakdown of interbank lending. Bennett deems this interference unhealthy for the system, and Cruz clearly agrees. He criticizes high inflation rates and how they are making it difficult for average people to get by, something that raising interest rates at the Fed might actually control.

These ideas are a start, and a welcome one, at addressing a topic that has been largely ignored by the candidates thus far. However, whether these plans would receive the support they need to be effective is another question. And the specifics of their policies would have to be ironed out.

Dawn Bennett Examines the Possible Effects of China’s Currency Devaluation

Last month, China made what economic expert and radio host Dawn J. Bennett sees as a drastic move by devaluing their currency. The aim of this action is to increase employment rates and enrich the country by lowering the prices of goods going out into the international market. The Chinese Premiere was hoping that this would lead to more investment and long-term stability for the country. However, analysts like Bennett believe that there’s an ulterior motive to this move: namely, to hurt the currency of their competitors by cutting into their profits.

Chinese currency

How does this happen? When currency is devalued, it doesn’t just cut the price of outgoing exports; it raises the cost of imports. The result of this is that people within the country will be more inclined to purchase domestic products, regardless of their quality, because they can no longer afford the higher price of goods from other countries. Thus, anyone selling in China is going to be seeing their profits go down, meanwhile China will make a killing on its cheaper-than-normal goods. This is definitively bad for the U.S., and could have ripple effects across the globe.

Why else is this bad? Aside from the simple fact that it will harm many international businesses, devaluing currency can actually hurt the country that chooses to do it. Having such a disparity between exports and imports can actually fuel inflation.

On top of that, America knows from experience that destabilizing currency can be dicey. When Nixon dropped the gold standard, as adopted by the Breton Woods agreement towards the end of World War II, it caused international currencies to appreciate, and opened our own system up to control by the central government and the market. The gold standard, in this case, meant that the U.S. dollar could be directly converted to gold, providing a set worth for it and avoiding the unnatural manipulation of our currency by foreign markets. Since the so-called “Nixon Shock,” we have had multiple financial crises and our inflation has only gone up and up over time.

Dawn Bennett foresees this same result in store for China, if they keep lowering the value of their currency. And according to many experts, China could go as far as decreasing the value of the Yuan by as much as 10% before they are finished. The world will need to brace itself.

Why Financial Experts Hunger for Answers

All eyes are on the Federal Reserve this August as we await Chairwoman Janet Yellen’s announcement regarding potential adjustments to national fiscal policy and—experts hope—a long-awaited increase in interest rates. However, some financial experts, like long-time money manager and radio host Dawn J Bennett, believe that whatever Yellen announces this month, the odds aren’t likely to be in the nation’s favor. As Bennett states, a growing number of economic indicators point to the reality that the Fed has lost a handle on the economy as a result of its focus on exclusively finding solutions for the present, rather than the future.

Is Government Overreaching?

Regardless of whether the Federal Reserve increases interest rates and delivers the recommendation that the country has anxiously awaited, the larger problem at hand is the presence of the government’s ever-extending, unwarranted hand into economic outcomes. As Bennett points out, the economic upheaval and excruciatingly slow recovery from 2008’s recession was the product of a “wait-and-see” economic experiment by the Feds, not a method grounded in sound fundamentals.

Forgetting about Long-Term Gains

The performances of central banks around the world point to the consequences of this type of approach to economics; many are currently experiencing some of their worst numbers in over 2 years. While central banks are suffering the stock market is still holding up, but Bennett argues that this, too, is a deceptive cover for the manipulation that’s really at play. In fact, there’s a significant lack of real “volume” behind the stock market; the internal financial health of companies does not match up with the external sky-high values that irresponsible policies have propped up.

In fact, FactSet predicts that year-over-year declines in earnings per share will continue for the majority of companies on the market into the 3rd and 4th quarters. Yet, central banks and other large companies continue to make choices that improve conditions in the short term while ignoring opportunities for growth in the long term.

A Realistic Perspective

What can and should be done to prevent an impending market slump (an inevitable consequence of a market not backed by real volume)? According to Bennett, the government and central banks should first come clean and offer an honest, transparent forecast of the economy. There’s no denying that the odds aren’t in our favor. What’s done is done, but moving forward, we can improve our situation by holding a strong cash position, investing more heavily in gold, and hedging with short-term bonds.

We can only hope that (as unlikely as it may be) Ms. Yellen’s announcement will address these points.



Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill.

For more information, call 866-286-2268 or visit

Securities offered through Western International Securities Inc. (WIS), member FINRA/SIPC. BGFS and WIS are separate and unaffiliated entities.

About Dawn Bennett

Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting

She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.

She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett