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Which Asset Class Will Be Most Impacted By A Rate Hike?

Tyler Durden's picture




 

Going into Thursday, everyone - and we do mean everyone - is scrambling to predict which asset classes are most susceptible to a Fed hike. 

As we explained over the weekend, there’s quite a bit of ambiguity this time around and not just because a third of Wall Street has never seen a rate hike in their professional careers.

The prolongation of ultra accommodative monetary policies across the globe (to the point that what was once “unconventional” might now fairly be classified as thoroughly “conventional”) and the failure of the Fed to normalize while it had the chance, has served to create a situation where Janet Yellen is effectively boxed in. Liftoff risks destabilizing an already precarious situation in emerging markets where a Fed hike risks exacerbating capital outflows, pressuring already beleaguered commodity currencies, and ultimately magnifying the scope of the tightening far beyond what 25 bps would normally entail by forcing EMs to liquidate more FX reserves to support their flagging currencies.

There’s also a risk that a hike forces some LatAm central banks to adopt pro-cyclical measures (i.e. hikes) to ensure that continual currency weakness doesn’t result in too much pass-through inflation - this is a potential landmine, as hiking into a soft economy risks choking off growth at a pivotal time. And then there is of course China, where the PBoC’s schizophrenic attempts to find an elusive middle ground between a free float and hard management of the yuan would be immeasurably complicated by a hawkish Fed. 

All of the above is made that much more confusing by the possibility that a hike triggers a sudden flight to safety, leading to a rally in the long bond only for everyone to quickly realize that such behavior (the flight to safety) would effectively prove the Fed has lost all credibility at which point the UST bid dries up, creating a situation where risk assets are selling off, yields are rising, and commodities falling, leaving the risk-parity crowd with nowhere to go. As Deutsche Bank notes, it’s all downhill from there, because the only place to hide would be the dollar, and that would only serve to perpetuate the effect of the hike: “In this case it is not entirely clear how risk-parity funds would rebalance: A potential candidate for inflows would be currencies, and in particular the dollar, which could be the only game in town. Of course, this would only put additional upward pressure on the dollar, reinforcing the “policy error” nature of the hike via additional traded goods price deflation (including commodities), weakness in net exports, and exacerbating pressure on dollar peggers.

Amid the rampant confusion, BofAML asked fund managers to weigh in. Unsurprsingly, the turmoil that's gripped markets in the wake of the mayhem that unfolded across equities in late August has fund managers quite skittish about how stocks may react in a liftoff scenario. Here's BofAML: "After recent market volatility, it should come as no surprise that 1 in 3 investors now view stocks as most vulnerable to upcoming Fed tightening cycle."

We present the results with no further comment and leave it to readers to discuss:

 

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Tue, 09/15/2015 - 14:19 | 6551686 Maplehood
Maplehood's picture

Um, my bet is that gold goes down no matter what the Fed does.

Tue, 09/15/2015 - 14:20 | 6551695 kliguy38
kliguy38's picture

that's not fair.........of course they'll slash the paper gold

Tue, 09/15/2015 - 14:27 | 6551728 ZeroPower
ZeroPower's picture

I may have never experienced a hike during my career, but i've certainly read about this fictitious act you speak of... It's like a unicorn, right?

Tue, 09/15/2015 - 14:53 | 6551860 Hype Alert
Hype Alert's picture

Rate hike?  Wahahahaha  Went out with the buggy whip.

Tue, 09/15/2015 - 14:57 | 6551893 Save_America1st
Save_America1st's picture

they aren't going to raise it.  They can't...the only reason they're faking about it is just to use the rhetoric to keep the market at a someone calm level...then they'll say "maybe next month", and then maybe the month after that and on and on and on. 

If they raised the rate it wouldn't last long because of the violent shit storm it would immediately cause and they would have to lower it again, thus admitting to the world that they made a huge mistake and that they've destroyed everything long ago and that there is no fix by raising rates.

Then they will have to print Trillions in more QEternity to get out of it, so to speak...which is just more heroin for the already dying junkies. There is no "getting out of it"...

They want to use the excuse that the IMF or World Bank, etc. talked them out of it...that they really want to and think they should, but they're going to comply with the "begging" of the other CB's not to just yet.  But they know they can't do it and this is just a cover for them to try and last a little longer.

They're just hanging by a thread and trying to push this "market" along without it exploding or imploding long enough to get into next year at some point. 

Remember 7 years ago they timed it just right so that Bush, o-fuck-tard, and Romney could all go to Washington to look important while the Fed threatened needing 800 Billion in TARP money or the world would end.  Which it just might have.

Well they'll do this again...only this time, 8 years later, it'll be Trillions. 

and there will be no rate hikes.  By then it'll probably be NIRP.  And by then there will probably be bank closures/holidays/runs, account confiscations/bail-ins, and dollar revaluations from 30 to 40% overnight.

Just sayin'...

 

Tue, 09/15/2015 - 15:43 | 6552157 KnuckleDragger-X
KnuckleDragger-X's picture

Right now it's mostly drawing straws to see who jumps off the cliff first. The FED has screwed up badly and the least worst thing they can do is really gonna suck......

Wed, 09/16/2015 - 06:26 | 6554336 redd_green
redd_green's picture

Yep!  Like the exotic dancer with the big boobs who actually did NOT have a boob job!

Tue, 09/15/2015 - 14:21 | 6551702 agent default
agent default's picture

Which way does the physical to paper ratio go?  That's the real question.

Tue, 09/15/2015 - 14:32 | 6551752 Kaervek
Kaervek's picture

Paper to phyz ratio goes to infinity and beyond. Our children will think Gold in fact was made of paper.

Tue, 09/15/2015 - 14:37 | 6551773 youngman
youngman's picture

I am going to give my girlfriend an orgami ring....that should do it

Tue, 09/15/2015 - 17:26 | 6552679 MSimon
MSimon's picture

I'm giving mine a flesh ring filler. Just to hear her moan.

Tue, 09/15/2015 - 14:28 | 6551729 Latitude25
Latitude25's picture

No doubt.  Just BTFD but make sure it's the real thing

Tue, 09/15/2015 - 15:53 | 6552207 LoneStarHog
LoneStarHog's picture

I call this fiasco The Annie Recovery with Rate Hike:

 

The Annie Recovery

The Recovery will come tomorrow
Bet your bottom dollar that tomorrow
There'll be The Recovery

Just thinkin' about tomorrow
Clears away the cobwebs and the sorrow
'til there's none

When I'm stuck with a day that's grey and lonely
I just stick up my chin and grin and say, oh

The Recovery will come tomorrow
So you gotta hang on
'til tomorrow, come what may!
Tomorrow, tomorrow, I love ya, tomorrow
A Rate Raise is always a day away.

Tue, 09/15/2015 - 14:21 | 6551696 Chuck Knoblauch
Chuck Knoblauch's picture

Follow the margin debt.

Tue, 09/15/2015 - 14:21 | 6551703 AccreditedEYE
AccreditedEYE's picture

When correlations are this tight, the answer should be fairly obvious

Tue, 09/15/2015 - 14:37 | 6551772 spastic_colon
spastic_colon's picture

the use of words like "impacted" and "susceptible" do not always mean a negative event......money will move from and to where they should.

Tue, 09/15/2015 - 14:24 | 6551719 Oldballplayer
Oldballplayer's picture

I think I will go long Emerging Markets, gold, and silver.  Glen Beck tells me to buy lots of gold and silver.

 

How can I go wrong?

Tue, 09/15/2015 - 14:24 | 6551721 xtop23
xtop23's picture

".... failure of the FED to normalize when it had the chance......"

Riiiiiiiight. 

Let me just give you this one straight; at no time did they have a true ability to exit this market.

They are in this till it blows up. Period.

Tue, 09/15/2015 - 14:27 | 6551732 jtmo3
jtmo3's picture

Looks to me like the big money houses have an inside to what will happen with the fed announcement. 200+ points before the announcement? Buy the rumaors, sell the news. Who's the idiot holding the bag?

Tue, 09/15/2015 - 14:33 | 6551738 taketheredpill
taketheredpill's picture

"All of the above is made that much more confusing by the possibility that a hike triggers a sudden flight to safety, leading to a rally in the long bond only for everyone to quickly realize that such behavior would effectively prove the Fed has lost all credibility at which point the UST bid dries up"

 

Huh?

 

Fed credibility centres on the Fed doing what they said they would do...which is to hike rates.

 

At the end of a rate hike cycle nobody buys bonds then sells them because if they make money it proves the Fed's last rate hike(s) was a mistake.

 

And the US economy today looks more like a typical pre-2008 cycle just before the last hike / first cut.


Tue, 09/15/2015 - 14:33 | 6551756 NRGTDR
NRGTDR's picture

Operation $USD Hot Potato

Tue, 09/15/2015 - 14:36 | 6551767 arbwhore
arbwhore's picture

Does this include input from the PPT and other CBs and CB front men? In that case "commodities" are most vulnerable... clearly.

Tue, 09/15/2015 - 14:40 | 6551787 youngman
youngman's picture

Everyone is waiting for the rate hike.....what happens if it does not happen...lots of eggy faces I think

Tue, 09/15/2015 - 14:41 | 6551794 Glass Seagull
Glass Seagull's picture

 

 

Stocks:  the new pogs.

Tue, 09/15/2015 - 14:41 | 6551800 Seasmoke
Seasmoke's picture

Why would anyone buy physical Gold TODAY when no matter what that cunt Mr. Yellen does (I say no rate hike for the record because she is a lying scumbag) the price of Gold will get hammered. And if you stop and think about that, it should really really piss you off.

Tue, 09/15/2015 - 14:58 | 6551896 Consuelo
Consuelo's picture

For insurance, primarily, but...

 

It's out of 'our' hands now.   That duty belongs with a nation - or series of nations to the East to decide at a time of their choosing, most likely when the U.S. has gone completely non-linear in its foreign policy, or is on its knees economically, whichever comes first...

Tue, 09/15/2015 - 14:42 | 6551806 Banker Buster
Banker Buster's picture

PPT will probably be in there to "prove" the rate hike did no damage and wasn't a big deal.  Then the real prices will come out.  

What will happen to housing after a rate hike?!?!  hmmmmm.....

Tue, 09/15/2015 - 14:50 | 6551841 vincent
vincent's picture

 

So, I'll go with .25% (the one and only 4 eva) with metals getting slammed.

 

Tue, 09/15/2015 - 15:39 | 6552138 Stuck on Zero
Stuck on Zero's picture

I'll go with 0.0025%.  The Fed could then claim it raised rates because the economy was growing fast and yet it would do no harm to the banks.

Tue, 09/15/2015 - 14:55 | 6551875 JJdog
JJdog's picture

40%+ premiums on  sliver eagle today. crazy!  are they low in inventory? 

Tue, 09/15/2015 - 14:56 | 6551891 A is A
A is A's picture

Where are you shopping? Goldline? lol

Tue, 09/15/2015 - 15:40 | 6552053 Bunghole
Bunghole's picture

He's pretty much spot on.

Premiums are between 33-46% over spot on ASEs.

https://comparesilverprices.com/

40 junk quarters will run about $145 on ebay today which is about a 40% premium.

Tue, 09/15/2015 - 15:42 | 6552148 FlacoGee
FlacoGee's picture

You need to find a better vendor.

Why anyone would be buying silver is beyond me, but if you want to light your money on fire and watch the losses pile up quickly...  buy from a nationwide vendor and have the shit shipped to your house.

 

 

Tue, 09/15/2015 - 14:55 | 6551882 SheepDog-One
SheepDog-One's picture

'Raise rates' LOL good one.

Tue, 09/15/2015 - 14:56 | 6551890 Bill of Rights
Bill of Rights's picture

The more I hear " Gold will get hammered " the more and more I'm thinking bottom. All the trolls come out of the ground when this shit gets ready to pop...shorts will get creamed.

Tue, 09/15/2015 - 15:11 | 6551989 Seasmoke
Seasmoke's picture

No troll here. And I put my money where my mouth is (at a bottom of the lake). I did my part. And I did it for the right reasons I believe. And actually what's happened over these 5 years I would have thought would have raised the price of Gold. So I guess that's what's bugs me most. Being correct and still being wrong. But I've watched this shit show for 5 years now and I just hate that we know what's coming. And there's nothing you can do. Do I just sell the physical since it's only insurance and o can just pay a lower "premium" in the future as it somehow got put into a corner of rate hike gold down or no rate hike gold down. It's just disgusting to me ...... But maybe I'm just inpatient and should give it 50 more years to find it's true price......

Tue, 09/15/2015 - 15:20 | 6552045 Bill of Rights
Bill of Rights's picture

5 years try doing it for 20, sure I made a bundle on the run up and the run down and I own lake gold as well, but I trade to make money not marry a position. Not saying you were scammed but many people were roped in, some way to late in the game and are sitting on $45 dollar silver coins now worth $14...its tuff I know but just another fine example of don't marry an investment.

Ive seen many sky is falling situations that never came to fruition, I know and share your frustrations, but its way to late in the game to sell yourself short now wait till you at least recoup 75% of your loses then make a decision.

Tue, 09/15/2015 - 15:46 | 6552170 FlacoGee
FlacoGee's picture

Its a 30 year cycle.   It take a new generation to fall in love with metals, get burned, new generation comes of age, financial calamity, metals rise, then the bubble pops.

Rinse repeat.   1950 to 1980  to 2010 to 2040 (some time around 2035 will be A-OK for buying)

Lessons learned... Primarily:  gold is a shit hedge.   It is a bubble play (like everything) that you need to ride up and sell out of.  Don't fall in love with your bars of gold...   or oil drum.   Although the oil has more uses.

Tue, 09/15/2015 - 15:47 | 6552183 Bill of Rights
Bill of Rights's picture

You're forgetting one thing, this is all being done by design, not actual market forces.

Tue, 09/15/2015 - 15:04 | 6551937 Not if_ But When
Not if_ But When's picture

So, awful new reports and figures on the economy and things are so f*cked up that the market (DJA) goes up 250 points because this lowers the probability of a rate hike???  What a joke everything is.  Incredible!  The FED's #1 priority has obviously become to ensure that the stock market is an ever-rising one.  Remember this when the same group of Wall Street CEOs and star traders are cashing their bonus checks after the next bailout.  And the HFTs who profit from moves both up and down have made a killing.

Tue, 09/15/2015 - 15:09 | 6551976 Bill of Rights
Bill of Rights's picture

Lower lows higher highs = a disaster is brewing.

Tue, 09/15/2015 - 15:09 | 6551974 In.Sip.ient
In.Sip.ient's picture

In practice, I'd say the FEDs will raise rates come whatever.

Primarily to preserve their precious reserve currency status.

 

But...

 

With deliberate currency devaluations from Canada to China,

and USTs getting sold off in Asia to cover margin calls, I

don't think the pressure is on the FED to hike.  QE4

is more like it...

 

Tue, 09/15/2015 - 15:11 | 6551981 SillySalesmanQu...
SillySalesmanQuestion's picture

Who are the Rich Alex. Oh, we're talking about investment class...sorry.

Tue, 09/15/2015 - 15:13 | 6551998 SmedleyButlersGhost
SmedleyButlersGhost's picture

Did they crop the graph to make it fit?  apparently my asset class was just to the right

Tue, 09/15/2015 - 15:18 | 6552035 Chuck Knoblauch
Chuck Knoblauch's picture

The government cannot confiscate your metal if its undocumented.

Tue, 09/15/2015 - 15:24 | 6552067 Bunghole
Bunghole's picture

I lost mine in a drunken poker game.

Cant even remeber the fellows name I lost it too.

Tue, 09/15/2015 - 15:32 | 6552100 SmedleyButlersGhost
SmedleyButlersGhost's picture

That's the spirit - claim the 'fellow' was undocumented too

Tue, 09/15/2015 - 15:49 | 6552193 mt paul
mt paul's picture

traded mine to the eskimo crips

for fermented walrus blubber 

Tue, 09/15/2015 - 15:25 | 6552078 Bill of Rights
Bill of Rights's picture

We are at the point in the commodity sector ( CRB ) that the vulchers are picking the bones of the already picked dry carcass, a bounce is coming and will will be massive. Like all violent Bear markets, the bullish phase is just as turbulent, the key is to stay focused keep the vomit down and hope you catch the ride up.

Tue, 09/15/2015 - 16:07 | 6552268 smcninch
smcninch's picture

We are talking about the U.S. Federal Reserve...right?  The Central Bank that was created by the banksters for the banksters is going to do what is best for the banks.  Period.  Everything else being said is what they and their media want us to think.  They printed (digitized) trillions.  They bought all of the banksters' bad collateralized crap.  They kept them out of massive class action litigation for selling/duping the public into tranched CMOs and CDOs that sucked.  They allowed extend and pretend until lower rates could right their own ship.  Now for increased profits the banksters need higher rates.  The most powerful folks in D.C. are the the most powerful folks in the banksters.  Welcome to Govopoly.

Tue, 09/15/2015 - 16:14 | 6552299 Not if_ But When
Not if_ But When's picture

Agree with you, but I think the banksters have figured out the way to do quite well under ZIRP with the fractional reserve banking.

Tue, 09/15/2015 - 16:31 | 6552377 smcninch
smcninch's picture

You're right.  They are doing okay now but I'm not convinced they have more arrows in their quiver.  Since the article is about which asset class works if she raises rates, I would guess financials.  If she doesn't, probably housing.  From a rate-of-change in economic conditions standpoint, there doesn't seem to be any reason to raise rates.  Maybe she should have raised in 2013. 

Tue, 09/15/2015 - 16:59 | 6552517 gcjohns1971
gcjohns1971's picture

QE is like drinking alcohol when you're thirsty.

It makes you thirsty for more...

...while at the same time causing you to lose water faster than you can consume it, and...

...simultaneously destroys the ability to make good decisions, engage in productive behavior or...

...to do the things needed to mitigate the next-day-effects of the alcohol.

Tue, 09/15/2015 - 17:23 | 6552662 SmedleyButlersGhost
SmedleyButlersGhost's picture

Geezuz, i've been a QE guy and  didn't even know it

Tue, 09/15/2015 - 17:33 | 6552720 MSimon
MSimon's picture

A rise in rates will cause further "flight to safety". More bank deposits. More US mfg owned by Chinese.

 

Rates will go up to stick it to China. The US economy gets a temporary boost.

Tue, 09/15/2015 - 23:56 | 6553984 hedgiex
hedgiex's picture

Disagree on China. The hard choices taken in controlling the volatility in domestic interest rate in order to manage a long soft landing. Long can be decades like Japan but with focus on debt reductions. This is managed concurrently with eaual sufferings hence the ongoing anti corruption drives that will not end soon. The trade off is the volatility in its currency. A trade-off accepted as China has no delusion that it can influence whatever Others will do, particularly the Fed. Not saying that China will achieve its aims but at least it has taken the hard choices. 

Apart from reading spins, please read the PBOC guidances in Mandarin or get good translations not just analyses from afar who congeal to the mindset that the PBOC are retards and walk less of their talks. (Yes they are if you use the wrong benchmark that China has a large financial economy and where monetary policies can signal changes as effectively as US/EC). If you play China, read Michael Pettis.

 

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