In front of the imminent interest-rate hike, keep this in mind …

by Dawn Pennington on December 14, 2015

If you think the usual ho-hum economic news, inflation data and all the other “known knowns” are set to sink the stock market right now …

Spoiler alert: They won’t.

But there is something that really could sink the stock market.

It is a real threat.

And it will always be a threat as long as markets are an extension of a tightly-coupled financial system micromanaged by policymakers via artificial interest rates and “peace-time” quantitative easing.

So as the markets get started this week, keep this in mind:

More than 20% of North American companies (even outside the energy market) are losing money and a subsequent rise in defaults appears increasingly likely.

Credit spreads on junk bonds and investment-grade bonds are widening.

Credit conditions are beginning to tighten after a trend of easing for most of the last five years.

Remember: Policymakers have adopted “financial stability” as their primary mandate since the 2008 credit crisis.

Ironically, their efforts have merely helped to sustain a fragile financial system that’s prone to instability — even if just a single psychological domino falls.

In light of this week’s expected interest-rate hike at the Fed, the threat of reduced liquidity is a real danger for the type of market that policymakers have incubated.

Don’t get caught overexposed, because the market falls a lot faster than it climbs.

That said, there are times when it pays to bet against the crowd …

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