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5 Things To Ponder: What Hath The Fed Wrought
Submitted by Lance Roberts via STA Wealth Management,
I was having lunch with a very dear friend of mine yesterday, who is also a very successful financial planner and advisor, who stunned me with an obvious question: "Has the dumb money become the smart money?"
What we were discussing is that, collectively, the majority of the conversations that we were having with our clients was "when will all of this Fed manipulation end in the next crash?"
What is more interesting is that, despite the media rhetoric about the surging bull market, the vast majority of our interactions with individuals has been focused on the preservation of their invested capital rather than chasing returns.
Of course, after two major bear markets, and now just barely getting back to even after 15 years, you can certainly understand their concerns.
As discussed yesterday, the Federal Reserve's monetary interventions have certainly boosted asset prices, but has done little for the real economy. With asset prices excessively extended and valuations at the second highest level in history, it seems to be a "fire in search of a match."
This is the crux of this weekend's reading list which is a variety of views on the Fed's latest actions and the potential of a major correction. But this reminds me of something I heard once about the "fear of flying:"
"The good news is that you will be the first to the scene of the crash."
1) Bond Market Got It Right by Josh Brown via The Reformed Broker
"This week’s FOMC statement and presser provides just one more example demonstrating the power of markets. The nation’s top economists had arrived at a consensus for the first Fed Funds rate hike of the cycle to take place at the June 2015 meeting. The bond market, stubbornly, had indicated a traders’ consensus that pegged the first rate hike for the September meeting or even later."
Read Also: Dot-Dot-Dot-Dash-Dash-Dash-Dot-Dot-Dot by Macro Man via Macro Man Blog
2) No Rate Hikes In 2015 by Peter Schiff via Yahoo
"The Fed has been bluffing the entire time,” says Schiff. “It has no intention of raising rates. But it can’t come clean and admit that, so it has to pretend that it is going to do something it’s not going to do,” he believes, “so it doesn’t reveal the fragility of the U.S. economy.“
Read Also: It's Already Too Late To Raise Interest Rates by Akin Oyedele via BI
And Read: Slow Growth For US Interest Rates by Alex Friedman via Project Syndicate
3) Ray Dalio Warns Fed Of 1937-Style Rate Risk by Henny Sender and Stephen Foley via FT
"Ray Dalio, founder of the $165bn hedge fund group Bridgewater Associates, said in a note to clients and followers that he was avoiding large bets on the financial markets for fear that the Fed’s expected change of policy could have unintended consequences.
'We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,' Mr Dalio and Mark Dinner, his colleague, wrote. 'What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over. We hope that they know that before they make a move that could knock over the apple cart.'
'We are cautious about our exposures,' they added: 'For the reasons explained, we do not want to have any concentrated bets, especially at this time.'"
But Also Read: IMF Fears Emerging Market Instability by James Crabtree via FT
4) The Black Swan In Plain Sight by Charlie Bilello via Pension Partners
"Based on Taleb’s criteria, it would seem that the Dollar’s advance over the past nine months would qualify as a Black Swan event. If King Dollar is indeed a Black Swan, though, why haven’t we seen reverberations in the U.S. equity market? Probably because it has not yet been elevated to that status among the consensus.
Similar to how stocks ignored the initial decline in housing in 2006-07, the stock market is dismissing the abnormal strength in the Dollar.
The bullish narrative that has supported shares has been that a strong dollar is a positive because it means U.S. growth is booming. A quick examination of the facts, though, dispels this notion as U.S. real GDP growth in this expansion continues at its slowest pace in history.
The truth is that the Dollar is strong this time around not because the U.S. economy is booming but because Europe and Japan (the largest components of the Dollar Index) are intent on crashing their currencies."
Read Also: Extremes In Every Pendulum by John Hussman via Hussman Funds
5) A Correction Is Still Coming by Rana Foroohar via Time
"Up until yesterday’s Fed meeting, America’s central bankers said they were going to be “patient” about the timing of an interest rate hike, which most experts believe will ultimately result in a significant stock market correction (see my recent column about why). So why did that make markets go up so dramatically yesterday?
Because everything else about the Fed’s communication said “we’re going to be more patient than ever” about when and how to raise rates. The central bank downgraded its forecast on the US economic recovery, saying that the pace of the recovery had “moderated somewhat,” in large part because of the strong dollar."
Read Also: The Stock Market Top Is In by David Stockman via Stockman's Contra Corner
And Read: The Next Bear Market Could Be A Whopper by Cam Hui via Humble Student Blog
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A market in search of the greatest fool.
"Has the dumb money become the smart money?"
The Fed and TPTB have the smart money.
Their little game is letting the endlessly supplied dumb money be chased by dumb investors who think the game is actually fair.
Smart money, dumb money...
It doesn't matter until the money starts jumping from skyscrapers....
Then it becomes amusing money.
An interesting quote from this article.
"What is more interesting is that, despite the media rhetoric about the surging bull market, the vast majority of our interactions with individuals has been focused on the preservation of their invested capital rather than chasing returns."
In order to achieve that goal takes substancial hedging, which takes us back to an article Tyler posted earlier this week.
Here Is Why The Fed Can't Hike Rates By Even 0.25% | Zero Hedge
When it hyperinflates it will all be silly money.
Yes, Lance, why not cut the fireside chat and tell us where your money is.
There is no more smart or dumb money and no markets.
There is only debt used to enslave, still euphemistically called money, available for the taking at a rigged casino by the syndicate cartel.
When someone says what he likes about America, you can say No,no,no,no,no unless he is talking about personal relationships, sports games, and local government.
Capitalism eliminated by the FED
Free Markets eliminated by the FED
Fair Trades eliminated by DOJ, FBI, SEC, FINRA, FDIC
Democracy, No we were always a Republic
Interest Free Money, Debt Free Money, Money printed and controlled according to the US Constitution, NO
Freedom from Usury, NO
Control over your personal information, No
Does the Private FED appear to solve problems or have a light touch on the Economy and Markets? NO
Does the Private FED appear to be in a secret alliance with Wall Street Banks? Yes
Is is Mind Control that people think the FED has responsibility for Fixing the Economy instead of the US Congress... and it we eliminated the FED would US Congress be directly in the Cross hairs of the US Citizen?
Yes it is Mind Control by the MSM.
Yes, getting rid of the FED would put pressure on the US Congress to Address Banking and Economic Problems
"What, hath the Fed, ROT"? -- fixed it
Money for Nothing!
And chicks for free!
Ignorance is bliss at least if you are an investor who swallows the time worn advice to income average invest regularly in the stock market, especially into index funds.
Lucky Lemmings
https://www.youtube.com/watch?v=oPu_DwK4dOk
Patriotism is as dead as the dollar.
Hope you don't need it.
Everybody knows this bitch is gonna crash, But timing is everything: 'The market can stay irrational a lot longer than you can stay solvent' - Keynes himself said that.
The quote about the fear of flying:
"The good news is that you will be the first to the scene of the crash."
Is a takeoff on the old saw about twin engine aircraft after a single engine failure: "The second engine will have enough power to get you to the scene of the crash".
It ain't gonna be slow when it breaks: Black Monday, anyone?
http://www.zerohedge.com/sites/all/modules/blockquote/images/menu-leaf.g...); background-position: 100% 100%;">THERE WILL NEVER BE A RATE HIKE!
AS GLOBAL FINANCIALS WOULD COLLAPSE.
QE 4,5,6, until election, 2016 then rate hike like Bush era, and Repubs get the crash/ recession,
rinse recycle repeat. suckas. buy houses in Collifornia and Fla, and foreclose.
Seriously. Does the Fed have a 5 year plan? 10 year plan? 20 year plan? It sure doesn't seem that way. It seems to me like they have a 6 month plan, and then when that plan fails, they move to the next 6 months, and so on, all the way down the road to the edge of the cliff.
For Fed watchers, the next year is going to be very interesting to watch.
Will the Fed attempt to maintain the illusion of a recovery still in place and actually raise rates, however slowly - and risk a market implosion?
Or will it lose its nerve, effectively admitting the economy can't handle rising rates?
Whatever it chooses, I'm relishing the Fed's angst.