Wow a 25 basis points rise after massive printing of money and unprecedented debt creation. The Global captial markets are now so distorted they are actually celebrating the rise. At least for a day or two but don't expect the rally to last !

A $4.5 trillion balance sheet when it was $800 billion pre-crisis. This is not a responsible Fed it is a money printing Fed intervening in markets on an unprecedented scale. Time will tell whether the Fed engineered a real recovery or in fact sowed the seeds for yet another crisis. Printing money was the easy bit... extricating themselves out of the inflated balance sheet problem will be far more challenging. 2016 will likely be a very challenging year for US stocks as interest rates rises, emerging markets struggle and labour market pressures lead to a fal in profitiability. 2016 will likely be a very difficult year for some tech stocks as many are now on very inflated values.

The last 6 years have been great for US companies. Record low interest rates have enabled firms to borrow and refinance expiring borrowing cheaply. Low interest rates have also kept up consumer demand, inflated stock and property prices and therefore also had a wealth effect on consumer expenditure. Low interest rates have also led to capital outflows to emerging markets and helped emerging market economies do well. In turn this has boosted US export demand further helping profits. In addition wage pressures have been muted as workers have accepted low wage rises as they have been happy just to keep their jobs as the recovery took hold. But I have a feeling things are about to change, as the chart below shows while profitability is close to a peak as measured by share of GDP (13%) wage compensation is near record lows (62%). With interest rates about to rise and labour markets relatively tight with US unemployment at 5.00% then we can expect profitability to start to fall and workers to start to demand a bigger share of GDP. Recessions in the actual economy seem to occur when wages shares are around or above the 66% of GDP level. So a recession is not necessarily lying ahead but a fall in profitability for corporates probably is as shares above 13% do not seem to hold for long.