Funding Markets just called The FOMC's bluff. Policymakers are acting out rational expectations theory or at least how they see it. In other words, their job is not to analyze actual economic conditions, but to condition economic thought toward the end goal. If they convince you that they believe the economy is on track they further believe you will act accordingly (“you” being both investor and economic agent). The more the economy diverges from the “preferred” projection, the more emphatic the cries of “recovery” become. At some point, desperation becomes palpable.
Simple near-term outlook.
Straight forward look at the Federal Reserve and what to expect.
"It isn’t really about interest rates or “inflation”, obviously as gold is rising as inflation “expectations” dramatically sink here, so much as gold is insurance against central banks being wrong. That seems to be the common theme all over the world ever since June when the ECB placed its desperation and impotence on full display. Everything that has occurred since then has only confirmed the monetary illusion being exactly that, including the US and its central bank’s place at really the central point of the miscalculated insanity."
The Fed's own favorite mouthpiece Jon Hilsenrath (for more see "On The New York Fed's Editorial Influence Over The WSJ"), just released a piece in which he claims, or rather his sources tell him, that the Fed is "on track to start raising short-term interest rates later this year, even though long-term rates are going in the other direction amid new investor worries about weak global growth, falling oil prices and slowing consumer price inflation." In other words, just like the ECB in 2011, the Fed which has hinted previously that it will hike rates just so it has "dry powder" to ease once the US economy falls into recession, will accelerate a full-blown recession in the US when it does - if indeed Hilsenrath's source is correct and not merely trying to push the USDJPY higher (for reference, see Reuters "exclusive" report on the Samsung takeover of Blackberry, denied by both parties within hours - hike some time this summer.
Top ten things that investors will likely be watching in the week ahead.
Data and market positioning can explain movement in the currencies. It does not prove that there is no manipulation or a great conspiracy. It just means the markets are understandable without resorting to such explanations. Try it.
Market Wrap: Evans' "Catastrophe" Comment Blasts Overnight Futures Into Overdrive, 10-Year Rises To 2%Submitted by Tyler Durden on 01/08/2015 06:56 -0500
After subdued trading in the overnight session until a little after 8pm Eastern, algos went into overdrive just around the time the Fed's 2015 voting member and uberdove Charlie Evans told reporters that "raising rates would be a catastrophe", hinting that the first rate hike would likely be - as usual - pushed back from market expectations of a mid-2015 liftoff cycle into 2016 or beyond (but don't blame the US, it is the "international situation's" fault), in the process punking the latest generation of Eurodollar traders yet again. Whatever the thinking, S&P futures soared on the comments and were higher by just under 20 points at last check even as Crude has failed to pick up and the 10Y is barely changed at 2.00%.
Amid all of the confusion stemming from the December dissents and disinformation, the hope was that the Minutes might add some color on global risks, inflation, and lift-off timing.
- *FED OFFICIALS SAW RATE RISE UNLIKELY BEFORE APRIL, MINUTES SHOW (Patient)
- *MANY ON FOMC SAW DOWNSIDE RISKS TO U.S. FROM GLOBAL WEAKNESS (Fear)
- *FOMC SAW OIL, DOLLAR MOVES TEMPORARILY PUSHING INFLATION LOWER (Transitory)
So The Fed is positive (jobs, US Econ), negative (global risk contagion), and neither (everything's transitory). Pre-FOMC Minutes: S&P Futs 2018.5, 10Y 1.97%, Gold $1210, WTI $48.16
The rash of “unexpected” declines in PMI’s this morning in the US, of all places, seems to have abraded at least somewhat the pervasive belief in the American “decoupling.” But... The FOMC sees 5% GDP and a serious workdown in the unemployment rate; credit markets are worried about how continued mistreatment of economic fundamentals may mean another disastrous trip like the one from the housing bust to the Great Recession. Worse than that, the treasury curve, in particular, may be going a step further by envisioning that we may already have replicated that period and are now very deep within it.
How did the investment ideas we discussed throughout the year play out
And thus the utter craziness of monetarism is on full display, in that after arguing that declining oil prices are good for American consumers, they are also suggesting that monetary policy is “too tight”, and thus oil prices are contradictorily “too low.” That betrays the central aspect of this orthodox embracing of lower energy prices as nothing more than a shaky rationalization – they still are not comfortable with low prices but accept them lest anyone get worried about what they really suggest. Orthodox monetary theory is, when stripped of its academic trappings, dedicated to high oil prices and low wages.
The stock market takes off in holiday celebration of the FOMC being even less clear than it really has been in some time; perhaps going all the way back to Alan Greenspan’s intentional mush. Equity “investors” are happy that the Fed may be happy about the economy, even though there is nothing in actual markets (outside of stocks) to suggest that anything the Fed proclaims carries even the slightest validity. The recovery is over because it never was. The Fed is now kamikaze and stuck on this course, having painted itself into a smaller and smaller corner in which to operate. Their only hope is that their confidence turns into your confidence, but credit and funding markets are impenetrable at this moment to such utter nonsense. For many places, it is already “look out below.”
"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."
Moments ago, after Yellen earlier explained that the Fed may hike rates at any moment, and certainly not only during press-briefing days, she also explicitly, and very unexpectedly, said that the Fed will likely not hike for a "couple" of meetings. And when she was subsequently asked to explain what "a couple" means, she further explained that it means "two." As a reminder, this comes from a Fed chairwoman who had a trial by fire when, fresh after replacing Bernanke, she locked herself in the "6 month" calendar interval. In other words, she knows not to give the market a timing bogey. And still she did so. Which, quite explicitly, means that anything starting with the 3rd meeting, currently scheduled for April 28-29, 2015, and onward is very fair game and the market will be foolish to expect the Fed not to follow through with this warning, a Fed which is already dangerously close to losing all credibility it has.