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Everyone's Fighting The Fed Now
Yesterday we noted the fact that Biotech stock investors has 'fought the Fed' and won (for now) in the last few months after Janet Yellen's "stretched valuations" warning. With bond yields continuing to collapse, despite Bullard's ongoing demand that the market 'sell sell sell', we thought a glimpse at just how dovish the market is compared to the 'hawkish' Fed would be useful...
FOMC 'demanding' the market take them seriously...
But the FOMC even admitted previously that it over-estimated rate rise pace...
"nailed it"
But, despite all the exuberance over stocks, jobs, and growth, the 'real' easiness of the Fed remains at record levels...
An alternative measure - a “shadow” policy rate developed by Jing Cynthia Wu and Fan Dora Xia - captures the combined impact of the Fed’s conventional and unconventional policies into a single indicator that estimates just how easy Fed policy has been in terms of Fed Funds rate equivalents.
Estimates suggest that the U.S. shadow policy rate has declined sharply in the postcrisis recovery period, and is now in negative territory to the tune of -3%. In theory, this is where the Fed Funds rate should be trading if not constrained by the ZLB.
* * *
We suspect that red line will stop falling pretty soon... or The Fed needs another (war?) excuse
Charts: Bloomberg and BofA
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"a “shadow” policy rate developed by Jing Cynthia Wu and Fan Dora Xia - captures the combined impact of the Fed’s conventional and unconventional policies into a single indicator that estimates just how easy Fed policy has been in terms of Fed Funds rate equivalents."
No click-through link for how they calculate that (or who they are and who they work for)? Of everything in this article, that's probably the one thing I'd like to know more about.
Here is the working paper in which Wu and Xia describe their shadow funds rate calculation. Interestingly, the original concept seems to have been developed by Fischer Black, of Black-Scholes fame.
http://faculty.chicagobooth.edu/jing.wu/research/pdf/wx.pdf
ambrose hyphenated-name sez (in the lars schall interview) that the fed will raise rates, leading to a new "cycle", we know that, and it may be sooner rather than later
and that gold's not going to like that
maybe better to don't show ambrose these charts
BTW.
While all seems fine and dandy with the intellectual concept of froward rates (break-even analysis of sorts) and in spite of their imputed calcs being intimately, explicitly imbedded in options pricing and derivatives forward calac, they have ZERO proven predictive capability.
We's already done the research thereupon.
It's the second chart tells all.
Everybody is thinking along the lines that the current environment is similar to the past with respect to the efficacy of the transmission mechanism and economic effect of low rates and expansive availability of credit.
We're not in the same environment. Ain't been for at least 8 years.
We're in a Liquidity Trap.
EOC
chart 2 is The Show
it is the fortune you used to get in the Weight and Fortune machines
if it gives you a good forecast, you're more likely to pay for another round
the occasional "bear" forecast is just to establish that it's a very honest forecaster
https://www.youtube.com/watch?v=bmOF-No8zc4
When I started studying economy, I thought it was a science. Well it's not, they made unsupported assumptions all the time, with no basis. The only reasons for the assumptions seems to be to support whatever they want to say.
For instance, why in hell would they assume that the economy is a stationary system when there is ample proof it's not. Nevertheless, most valuation models, including the
CAPA model are based on stationarity assumptions.
another example is that the entire neolib model (any eco model -for those that never studied that- is a set of complicated mathematic calculations & demonstration just like physical sciences but with macro eco variables) is based on the HYPOTHESIS that information on markets is transparent. this hypothesis never being questioned nowhere in the model...
add to that that those models takes the reserve rate to create debt paradigm as a given that also never comes into questionning
the only viable eco model of our time is very simple, takes 2 equation :
1) bs + bs + bs + ... = BS
2) sum of profits of the 1% = sum of the losses of the 99%
Del
It took me to the US Senate in DC...lol. But of course, goggle is evil, so who knows. You shouldn't have deleted your comment, it was interesting.
Even if it didn't lead to NATO ;-)
all your savings are belong to us
It's the debt, stupid!
It's getting fun watching the fight! This is how the Fed will lose control... A big ole fight with people who won't act like they thought they would.
Here is the working paper in which Wu and Xia describe their shadow funds rate calculation. Interestingly, the original concept seems to have been developed by Fischer Black, of Black-Scholes fame.
http://faculty.chicagobooth.edu/jing.wu/research/pdf/wx.pdf
EDIT: Dup. Reposted as reply to NoDebt above.
In June 2013, Fed's Fisher said "'feral hogs' are testing the central bank". The Fed knew all along that their free-money monster would eventually turn on them too.
Fisher is full of beans. The fed is now and will forever be the permanent roost of full retard dovetards. All his tough talk ain't worth jack. The untaper will be on full bore the very minute the stock market goes down 10% and everybody knows it. Liars all. Don't listen to what they say, especially not Fisher, instead watch what they do.
edit: Hell, one look at the rotting, festering, mbs-stink on the BHC's putrid books tells you everything you need to know about what kind of scurvy ship the fed runs.
Oh, their dinghy will be swamped I have no doubt. It's the smell of desperation on Fisher and the others as they watch the sea pour in.
Too many fuckers waiting to buy long tbonds on the dip. We need a good scare (bogus jobs report?) so I can get some cheap.
wu-xia ????? Gesundheit
Muahaha. Now you have us right where we want you. - The Fed
When the buy-and-holds are exterminated in this next cull, all you will be left with is a multi-year range-bound trader's only market run by machines.
For some reason "charge of the light brigade" keeps running through my head. http://poetry.eserver.org/light-brigade.html
I don't understand these charts, just tell me how I can make money off this shit...
Go Long "Depends" and "Tums".