FOMC Rate Increase Decision & Analysis

We will be the first to say that most if not all of the Evolution 4.0 systemic research information that we have been seeing indicated a no-rate hike from the Federal Reserve on 12/16. As we have since seen, in addition to some of the top banking firms in the united states as well as the world, we were incorrect. (Apparently that does happen once in a while as our development team sarcastically stated). Interesting data point: This is the first rate hike in nearly a decade (since the institution of ZIRP post 2008 lending implosion).

The question of "what is the Fed really saying" in terms of an 25 BP interest rate increase perhaps was best summarized by one of the members of our development team:

"So a 25 basis point increase after almost a decade of ZIRP (zero interest rate policy) is the equivalent of a quarter turn on a fire-hydrant valve bolt thats been wide open for a month".

Therefore all FOMC hawkish / dovish language aside, what can investors and traders expect in terms of "real world" results from Yellens recent quarter point interest rate increase:

Firstly, the markets took the news rather well with all three major indexes posting substantial gains following the 2PM announcement. Amongst them, the S&P posting a 1.45% increase (29.66 points) and the Dow blasting off to the 17,750 level. For those who study economic history, increases following rate hikes are few and far between with federal reserve interest rate increases typically being "bad" for equities markets. As we have so often spoken about in metals markets (in reference to the disconnect in economic fundamentals from a markets valuation), we present "exhibit number: we lost count" of economic fundamental disconnect. Suffice to say, real effect of a 0.0-0.25 to a 0.25 to 0.50 increase is negligible at best. In fact we dare say entirely symbolic given much of the macro-level information that we have seen recently (even in researching non-economic topics). To directly quote the Fed "they are most concerned about growth and healthy inflation". From that statement, is it possible that the 0.25 basis point increase was something of a "trade off", opening the door for future "stimulus packages, treasury buy backs, or other ECB like "velocity / supply of money increase" policy". That is something we are going to be researching for the next edition of Wirehaus (December 2016).

Attention metals investors: We should point out that a slight increase in Federal Lending rates, on the surface does indicate an "increase in dollar strength". This information would indicate that accuracy of the "short side supply squeeze" in terms of generating metals supply for purchase vis a vi the "transference of wealth" narrative. The slight increase in basis points in no way makes up for the wild printing of money for the last decade and the longer term effects of ZIRP policy. Therefore, is it possible we are seeing something of a "help" from the fed in terms of creating an artificially strong non asset backed currency (US dollar), to create metals market supply by investors selling off metals to "avert further losses". That is entirely possible. In fact, we dare say based on our metals market research, entirely plausible too.

All that aside though, what federal rate policy does not address is the following additional economic information that we have been researching:

- Student loan debt in the form of SLABS (student loan asset backed securities) continues to grow faster (and have a higher default rate) than consumer revolving/non revolving credit lines. We are researching just how deep into global economy SLABS (which are "backed" by the US Department of Education" have gone). We have identified SLABS as either a potential catalyst or at the very least a major secondary component of any anomalous economic event. Based on December 2015 Wirehaus research, the secularization (similar to the Mortgage crisis of 2008) has been done on a much larger scale with SLABS. There are also derivative variants thereof and with "real" economic data points (un/underemployment, consumer confidence, consumer spending, etc) the likelihood of said student loans ever being repaid to be ever decreasing.

- Commercial Real Estate Implosion: While much news was made of the residential real estate implosion of 2008, a far less talked about subject was the commercial real estate implosion that is pending. Many of the terms and conditions associated with commercial real estate loans / re-fi's were much longer and far more convoluted. As we have discussed before, any "mark to market" valuation or reset on commercial properties could spell disaster for not only commercial real estate backed MBO's / CDO's, but also be catastrophic for banks. As our late college mentioned, many lending institutions do predicate their liquidity levels to operate as a lending institution on their real estate holdings. Any "implosion" or mark to market event could by proxy trigger a run on banks, or economic implosion at a systemic level.

- Energy Prices: As energy prices continue to plummet (most notably the petroleum market space), the question of what longer term impacts do low energy prices have on global economics start to arise. Many research firms (including ours) did not foresee the continued repression of energy prices (according to our research, intentionally by producer nations), lasting as long as it has. In fact, what effect does the repression of many commodity prices start to have long term is probably a better topic of discussion. Based upon our initial research, lower commodity prices if nothing else mean less liquidity being spent on said commodities which means additional liquidity for more speculative investments such as global debt and capital markets. Net end result: A continued artificial inflation of both debt and equity markets both domestically and internationally.

Another note we would like to add: What a 25 BP increase does not really have any tangible effect on is the already tremendous amounts of "hidden" liquidity (in the form of both cash and securities) that are already in circulation. For those that are thinking that the "fed liftoff" means a truly stronger dollar, think again is all we to say. In other words:

25 Bp increase in non asset backed dollar vs Metals / asset backed Yuan or Yuan consolidated currency...