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One Trader's FOMC Take - "A Rate Hike Is Coming And It Is Not Priced In"

Tyler Durden's picture




 

A rate hike is coming. It is coming because the economy is not in crisis and zero rates are crisis rates, Bloomberg’s Richard Breslow writes. It is coming because the benefits of starting down the path to monetary policy normality are vitally important to the future health of the economy and restoring the Fed’s reaction function.

I think the Fed knows it is the right thing to do and desperately wants to reach this milestone. Yet, it wants to ensure it comes off smoothly. Hence the not so subtle hints and suggestions about the time drawing nearer.

I think September is the better choice, even if the arguments for December are reasonable. With the PBOC, BOJ and ECB all in easing mode, it actually makes it a better time to go.

The world can share the benefits and the costs. But one thing I do know, is that with all the hinting and polling and talk of trajectory, it is not priced in.

  • First, and most simply, economists can make forecasts, but investors can’t be totally sure and we are talking about the portfolio allocation choices of trillions of dollars that have been built up over a decade. There is a reason that today’s CPI number has at least the potential to move the market hard. I have yet to read an economic preview that suggests we ignore today’s FOMC minutes as irrelevant. I read two just this morning discussing the finer nuances of the word “some.” Minneapolis Fed president Kocherlakota wasn’t trying to fool anyone in an article in yesterday’s WSJ under the headline “Raising Rates Now Would Be a Mistake”
  • Another reality is that we can’t know the extent and speed of changes to interest rate differentials that will emerge, say what you will. From a systematic trading systems programming, rate changes are binary events and the finer points of 48 percent or 52 percent priced in have little meaning. On a more fundamental level, predicting inflation trajectory has not been a strong point for central banks. Remember how the ECB came to embrace QE?
  • We also have no way of knowing how liquidity-infused equity markets will react. It is a well observed phenomenon that we have been in a bad news is good news world for years. To equities a hike is very likely the polar opposite. But if there is a selloff, the Fed most likely won’t be the central bank that increases stimulus to fight it. It’s okay, stocks need to relearn how to pedal without training wheels. It’s a good thing
  • The other reality which is difficult to model a priori is that once the Fed raises rates the institutional momentum will be to push on. To go backward in rates will truly be a choice of last resort, the flip side of where we have been since the crisis. Most other central banks still find easing the path of least resistance.

And as if to confirm this perspective, Breslow notes, there is lots of movement in very mixed markets where sentiment showed itself ready to turn on a dime. What has made recent markets interesting is that moves have not been in lockstep.

 

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Wed, 08/19/2015 - 09:31 | 6443298 This is it
This is it's picture

So....BTFTop??

Wed, 08/19/2015 - 10:55 | 6443624 Headbanger
Headbanger's picture

WHAT I BEEN SAYING!!

THE FERAL RESERVE WILL RAISE RATES SOON NO MATTER WHAT!

 

Wed, 08/19/2015 - 11:26 | 6443743 Pool Shark
Pool Shark's picture

 

 

Sorry, Banger...

You were wrong in June, and you're wrong again.

So, China is devaluing, Asian currencies are dropping like rocks, and you think the Fed will raise rates and strengthen the already strong US$ and kill all remaining American exports???

 

Dream on...

 

[The Fed is in a box]

 

Wed, 08/19/2015 - 11:10 | 6443700 Sanity Bear
Sanity Bear's picture

Welcome to 1987

Wed, 08/19/2015 - 09:34 | 6443308 dimwitted economist
dimwitted economist's picture

REALLY going to do it?  fool me once... how many more lies Janet?

Wed, 08/19/2015 - 10:02 | 6443407 CrazyCooter
CrazyCooter's picture

They are raising their voice this time, so you better believe it!

They have no credibility left. They do presser after presser and plant article after article vie the MSM. They only do that because no one believes them (and shouldn't). They can't raise rates unless they want to crash this mother fucker, which is why they put Old Yellin' (a gal) in the hot seat.

Is it going to be a left black eye or a right black eye, because you are geting punched in the face either way.

Regards,

Cooter

Wed, 08/19/2015 - 09:37 | 6443313 buzzsaw99
buzzsaw99's picture

bloomturd slop

Wed, 08/19/2015 - 09:38 | 6443316 youngman
youngman's picture

I dont think its priced in either....it will move the day of the announcement..and then move again 9 months later when the effects kick in...

Wed, 08/19/2015 - 09:38 | 6443317 Bill of Rights
Bill of Rights's picture

If it happens it won't be the FDR who does it but market forces only, but with all this noise I have my doubts it happens.

 

Scammers scam, and then there's the Federal reserve.

Wed, 08/19/2015 - 09:39 | 6443320 Dr. Engali
Dr. Engali's picture

This is hysterical, it's a quarter fucking point and we have all this angst. The whole system is prone to collapse with a.25% hike and these people pretend to believe rates will ever normalize. Unfuckingbelievable.

Wed, 08/19/2015 - 10:06 | 6443430 CrazyCooter
CrazyCooter's picture

Fucking exactly. Pay off debt, keep savings in hard cash, guns/gold/grub, and hunker down ... this is going to suck for us peons ...

Regards,

Cooter

Wed, 08/19/2015 - 10:27 | 6443525 ebworthen
ebworthen's picture

Yup, or that the FED is "concerned" and "wants to do the right thing", ROFLMAO!

All by design - the FED works for Wall Street not Main Street.

Wed, 08/19/2015 - 09:40 | 6443324 Carl Menger
Carl Menger's picture

The error of the "beneficial mild inflation"

 

All inflation is so very dangerous precisely because many people, including many economists, regard a mild inflation as harmless and even beneficial. But there are few mistakes of policy with regard to which it is more important to heed the old maxim principiis obsta. 1 Apparently, and surprisingly, the self-accelerating mechanism of all engineered inflation is not yet understood even by some economists. The initial general stimulus which an increase of the quantity of money provides is chiefly due to the fact that prices and therefore profits turn out to be higher than expected. Every venture succeeds, including even some which ought to fail. But this can last only so long as the continuous rise of prices is not generally expected. Once people learn to count on it, even a continued rise of prices at the same rate will no longer exert the stimulus that it gave at first. Monetary policy is then faced with an unpleasant dilemma. In order to maintain the degree of activity it created by mild inflation, it will have to accelerate the rate of inflation, and will have to do so again and again at an ever increasing rate every time the prevailing rate ofinflation comes to be expected. If it fails to do so and either stops accelerating or ceases to inflate altogether, the economy will be in a much worse position than when the process started. Not only has inflation allowed the ordinary errors ofjudgement to accumulate which are normally promptly eliminated and will now all have to be liquidated at the same time. It will in addition have caused misdirection of production and drawn labour and other resources into activities which could be maintained only if the additional investment financed by the increase in the quantity of money could be maintained.

 

 

Friedrich Hayek - The denasionalisation of money - The argument refined- 1977  p. 95

Wed, 08/19/2015 - 10:04 | 6443420 froze25
froze25's picture

I was thinking to my self "how very Austrian" then I read the last line.  I agree with your assessment.

Wed, 08/19/2015 - 09:43 | 6443328 BringOnTheAsteroid
BringOnTheAsteroid's picture

Rate hike?

Wouldn't this strengthen the US dollar in the face of many other countries devaluing their currency?

Wouldn't this make the monumental mountain of debt accrued by governments, corporations and individuals more expensive to service?

Wouldn't all the Fed insiders get massively short the market just prior to this announcment being made?

Wouldn't this then be the finale to the greatest transfer of wealth in history?

Sometimes my utter brilliance seeing through this charade even amazes me.

Wed, 08/19/2015 - 09:41 | 6443329 Martial
Martial's picture

He lost me at "economy not in crisis".

Wed, 08/19/2015 - 09:59 | 6443389 falak pema
falak pema's picture

Biflation : Oligarchy economy is rising, as people's economy is falling. Its an illusion on the whole but a real transfer of wealth in progress worldwide; even after the fall the Oligarchy OWNS it all !

So for those on the rise its not a crisis. There are lifeboats for THEM on the Titanic.

Wed, 08/19/2015 - 09:49 | 6443350 BringOnTheAsteroid
BringOnTheAsteroid's picture

There's more chance of Janets hem line being raised than rates.

Wed, 08/19/2015 - 09:52 | 6443363 sheikurbootie
sheikurbootie's picture

I'm absolutely fucking sick and tired of the relentless never ending BULLSHIT of a rate hike.  Do it or shut the fuck up.  Deflationary collapse or hyperinflationary collapse, either way it's going to collapse. 

Wed, 08/19/2015 - 09:56 | 6443377 falak pema
falak pema's picture

The ZH chart that speaks volumes : the increasing divergence between commodity prices and WS assets...

Hot money has to go SOMEWHERE on its mad, destructive trail. Its Medusa's head.

Wed, 08/19/2015 - 09:58 | 6443384 Kickaha
Kickaha's picture

I stopped reading here: "the economy is not in crisis".

 

Anybody who outs themselves as a closeted idiot by putting something so stupid in print cannot possibly have anything of value to say.

Now he could have said something really intelligent, like "the TBTF banks and their lickspittle lackies at the Fed and in the government have painted themselves into a corner by publishing utterly false statistics about GDP, inflation, and unemployment over the past 6 years in a suprisingly successful effort to hornswaggle the general public into thinking that maybe the economy is in recovery despite what their lying eyes are continuously telling them to the contrary.  But they have reached the point where the phony statistics have become too rosy.  They either have to: (1) Admit that the statistics are totally phony (not really an option); (2)  Put the lie to 100 years of Fed policy and fail to tighten in the face of the fabulous economic recovery depicted by the phony statistics (maybe an option which will be imposed upon them by their banker overlords); or (3) Raise interest rates like policy would dictate they should do (and crash the system, unless they keep the Bernanke put in place with several trillion in security buys).  

Would you choose death, or bunga-bunga?

 


 

Wed, 08/19/2015 - 10:17 | 6443491 metaStable
metaStable's picture

For Bernanke and other central/non-central bankers, death by bunga-bunga!

Wed, 08/19/2015 - 15:28 | 6444793 Dick Gazinia
Dick Gazinia's picture

OK  Death by bunga-bunga.  .

Classic joke

Wed, 08/19/2015 - 10:20 | 6443502 bgilliam83
bgilliam83's picture

Im sure it would be tempting to take everyone out that's betting on No, but that would be a definite murder/suicide.  Option 2 is -1200 at my casino

Wed, 08/19/2015 - 10:00 | 6443396 Well Hungarian
Well Hungarian's picture

That was definitely the The Three Hole Monty of articles. The guy talked out of both sides of his mouth, AND his ass at the same time. Bravo!

Wed, 08/19/2015 - 10:04 | 6443421 Hohum
Hohum's picture

We had to raise rates in order to lower them (later).

Wed, 08/19/2015 - 10:10 | 6443450 bgilliam83
bgilliam83's picture

This must be some econ grads first rodeo?

Wed, 08/19/2015 - 10:24 | 6443455 SSRI Junkie
SSRI Junkie's picture

i'm up for a government shutdown and a credit downgrade (i actually think it's coming soon)

Wed, 08/19/2015 - 10:14 | 6443476 bgilliam83
bgilliam83's picture

To believe this you'd have to believe the Fed actually believes in what they are doing.  To me it's quite clear everything is just meant to buy the government time to prep before SHTF in a royal way.  The only bullet left in the chamber is to threaten to raise rates.  It's rather pathetic and you can take it to the bank it's not priced in for a reason.  I have a better chance of winning the 2016 election as a write in...

Wed, 08/19/2015 - 10:26 | 6443524 bgilliam83
bgilliam83's picture

We need to let all the Science and Engineering majors run the show.  I've taken MBA classes, I know why we are in the spot were at.  We took a bunch of people who can't pass the hard classes and made them feel all good about themselves.  Now they think they are the smartest person in the room for learning new math to run a ponzi scheme. 

Wed, 08/19/2015 - 10:31 | 6443537 large_wooden_badger
large_wooden_badger's picture

CHANGE ALL THE NUMBERS!

Wed, 08/19/2015 - 12:16 | 6443973 natxlaw
natxlaw's picture

NEVER GONNA HAPPEN. QE4, MARK MY WORDS! IT MAY COME AS A TAX CUT.

Wed, 08/19/2015 - 15:05 | 6444169 Sanity Bear
Sanity Bear's picture

<-- The anonymous blog commenter with the comedy-anime avatar who says no rate hike ever before TSHTF is more likely to be correct
<-- The professional trader who believes a FOMC rate hike is coming is more likely to be correct

 

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