This page has been archived and commenting is disabled.

Everyone's Fighting The Fed Now

Tyler Durden's picture




 

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

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 08/27/2014 - 20:46 | 5152010 NoDebt
NoDebt's picture

"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.  

Wed, 08/27/2014 - 20:53 | 5152037 GooseShtepping Moron
GooseShtepping Moron's picture

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

Wed, 08/27/2014 - 21:54 | 5152248 SafelyGraze
SafelyGraze's picture

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

 

Wed, 08/27/2014 - 22:05 | 5152295 knukles
knukles's picture

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

 

Wed, 08/27/2014 - 22:34 | 5152381 SafelyGraze
SafelyGraze's picture

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

 

Wed, 08/27/2014 - 22:38 | 5152393 Spine01
Spine01's picture

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.

Thu, 08/28/2014 - 05:03 | 5152851 hairInTheSoup
hairInTheSoup's picture

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%

Wed, 08/27/2014 - 20:49 | 5152018 EmmittFitzhume
EmmittFitzhume's picture

Del

Wed, 08/27/2014 - 20:52 | 5152030 nmewn
nmewn's picture

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 ;-)

Wed, 08/27/2014 - 20:48 | 5152019 ImUncleSam_That...
ImUncleSam_ThatsWhoIAm's picture

all your savings are belong to us

Wed, 08/27/2014 - 20:52 | 5152033 Escrava Isaura
Escrava Isaura's picture

It's the debt, stupid!

Wed, 08/27/2014 - 20:51 | 5152025 SilverIsMoney
SilverIsMoney's picture

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.

Wed, 08/27/2014 - 20:55 | 5152028 GooseShtepping Moron
GooseShtepping Moron's picture

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.

Wed, 08/27/2014 - 20:55 | 5152041 Rompoculos
Rompoculos's picture

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.

Wed, 08/27/2014 - 21:16 | 5152089 buzzsaw99
buzzsaw99's picture

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.

Wed, 08/27/2014 - 21:52 | 5152246 Rompoculos
Rompoculos's picture

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.

Wed, 08/27/2014 - 21:56 | 5152256 himaroid
himaroid's picture

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.

Wed, 08/27/2014 - 21:02 | 5152059 Remington IV
Remington IV's picture

wu-xia ?????        Gesundheit

Wed, 08/27/2014 - 21:07 | 5152077 catch edge ghost
catch edge ghost's picture

Muahaha. Now you have us right where we want you. - The Fed

Wed, 08/27/2014 - 21:26 | 5152133 Rompoculos
Rompoculos's picture

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.

Wed, 08/27/2014 - 22:13 | 5152324 KnuckleDragger-X
KnuckleDragger-X's picture

For some reason "charge of the light brigade" keeps running through my head. http://poetry.eserver.org/light-brigade.html

Wed, 08/27/2014 - 23:12 | 5152479 Captain Jack Sparrow
Captain Jack Sparrow's picture

I don't understand these charts, just tell me how I can make money off this shit...

Thu, 08/28/2014 - 05:21 | 5152878 Notsobadwlad
Notsobadwlad's picture

Go Long "Depends" and "Tums".

Do NOT follow this link or you will be banned from the site!