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Will The Market Force Yellen Into 'None-And-Done'?
The market has a way of getting what it wants. And right now, it surely does not want Yellen to hike this week. Will she nevertheless, as is widely expected? Or will the buoyant markets force yet another delay, ultimately resulting in a 'none-and-done'?
There's no denying that the Fed policies fueled this stock bull market. The liquidity of QE 1 to 4 propelled the markets to new highs with every shot. At the completion of the QE tapering in October 2014, the S&P 500 hovered around the 2,000 mark. Today, we're trading at exactly the same levels. No QE, no advance.
Leon Cooperman, manager of Omega Advisors, argues that interest rate hikes are positive for stocks. That might historically be the case. But this time around, things could be different. We know, that's the most dangerous sentence in the world. But this is not your average business cycle. Nowhere near. The cumulative GDP-addition since the end of the financial crisis might be equal to the the point of prior rate hike cycles, as bond king Jeff Gundlach pointed out early last week. But there's barely GDP growth to be found.
Also, inflation usually picks up in the late expansion of the business cycle. Commodities outperform as the slack in the economy diminishes. That's the point where the Fed normally starts tightening. Right now, we're looking at the worst commodity crash in decades. Inventories-to-sales are rising as well. The yuan is plummeting. There is just no slack.
What about the job market? Isn't the unemployment rate at the 5% target? Well yes, it is. And at first glance, it's looking much better than Europe's 9% unemployment. But wait a second. If we adjust the unemployment for the participation rate, like GMO's Jeremy Grantham did recently, we're looking at worse employment figures in the US than in Europe. While even counting in Italy and Spain. You know, the same Europe where ECB-president Mario Draghi just put the QE-pedal further to the metal.
But the Fed seems to want to hike anyway. Why? First of all, there are two tools for monetary policy: words and deeds. And if you use too much of the former compared to the latter, you lose credibility. The Fed put itself in a corner. It is pretty much forced to act.
Secondly: the US elections are coming up next year. President Obama would like to finish on a positive note. And of course, he would like to see a Democratic successor. To that end, he needs to 'build confidence'. And a rate hike is a sign of confidence - whether it's just keeping up appearances or not. If you don't believe politics matter: it was Obama himself who nominated Yellen as Fed chair in October 2013.
Now, let's be crystal clear. These are not valid reasons for a rate hike. On the contrary.
To make matters worse, market conditions have already significantly tightened since mid-2014. The stress accelerated during this year, culminating in the high yield turmoil we're currently witnessing. But it's not just the the well-known HYG and JNK junk bond ETFs that are crashing. Another example is the BKLN Senior Loan ETF pictured below, which includes leveraged loans. There are some rumors of margins calls on total return swaps, which participants use to leverage loan portfolios.
Even spreads in investment grade credits are widening sharply.
We are on the cusp on a surge in corporate defaults. Does that sound like a good time to hike rates?
In August 2007, with the first mortgage shockwaves hitting the market, Jim Cramer of all people literally begged Fed chairman Bernanke to "wake up" and "open the discount window". The CNBC commentator noted: "We have armageddon in the fixed income markets". The stock market shrugged and made new highs in October, before slipping somewhat. It was not until early 2008 before the summer lows were breached. And it took more than a year for the market to eventually melt down.
Will the Fed disregard the current bond market turmoil, either on purpose or because of basic ignorance? Or will it hold rates steady yet again, forced by the high yield markets and making 'none-and-done' the new mantra? We will find out shortly.
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They won't raise rates.
that creature looks like tommy gaylord
Obviously the federal reserve instructed the PPT and its other agents to artificially boost the stock market today. That means they want to raise rates 0.25%.
And that means they want to create an excuse to start QE4ever AKA QE4folks AKA QE4mainstreet.
That's how it looks to me this afternoon. My nominal estimate for 7 years has been the fed will never materially raise rates ever again (until massive inflation strikes).
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BTW, unless I'm reading this wrong, it appears the federal reserve instituted 0% rates PRECISELY 7 years ago (on December 16). Since the predators-that-be are fixated on numerology, and especially love the number 7... that also makes me think Yellen will raise rates on Wednesday (or never do so).
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BTW, there are several technical peculiarities and strange consequences of 0% interest rate that [barely] go away at 0.25% to 0.50% interest rate. So the predators-that-be may have come to realize they need to place at least a teeny, tiny cost/restraint on insane financial [borrow and gamble/speculate] activities by raising rates into the range 0.25% to 0.50% even if they never raise rates again. That does make some sense.
i agree and there is no liquidity problem if they open the discount window as cramer suggests. then go figure out the massive 1/2T worth of REVERSE repo they force fed the market a few months ago. that gives them control so that rates wont be set outside the feds purview, so it all makes sense to me as well. soem negative rate fallout, but no POLICY, that what the raise spares them, making NIRP a POLICY decision
A good indicator right now would be the dollar spend by the government compaired to the dollar growth in the economy.
The higher the markets get with the underlying PE's that should grow with it, the more expensive it all gets.
And as PE's are dropping, even a sideways movement gets more expensive for the FED.
So a short term crash would make their efforts more effective.
Cramer is a fucking idiot! Please retire.
What would happen if the FED were to do a currency devaluation followed by a rate hike?
"How" exactly do they 'devalue'? In previous episodes of 'devaluation' there was a reference asset (gold) against which the devaluation was accomplished. With the Fed buying up every ounce the gold miners could produce (or FDR's goons could confiscate) at the higher price.
So in order to devalue, the Fed will have to find something to monetize. We already know that trying to monetize long-term RE and government bonds through QE has produced a predictable disaster.
They will not raise rates.
Asset prices will go up.
Nothing will change except that the new normal will become the norm.
You will realize that you have no rights, that you lost all that your ancestors fought to gain.
There is no law, only what the ruling classes say.
Nothing will change, except you will stop seeing through rose colored glasses.
Here, put these on. See how ugly and pointless you are.
The rest of your life now begins.
Janet Yellen looks like Edward G Robinson with a wig. Edward played gangster roles and Janet tries hard to play a role as economist although the roles are interchangable in real life. Steal from seniors and those on fixed income and give to corrupt wealthy bankers . 1/4 % increase in interest rate is still extortion of savings for the mob.
Fixed income people have done very well in the deflationary environment as they receive a real return that attracts very little income tax. Those with assets always had/have the option of diversification. "Low interest rates" is mostly used as scapegoat for inadequate savings and improper investment of such savings. Rather than an outcome that would be materially different in any other interest rate environment. High rates are probably more damaging to cash 'savers' on account of negative real after-tax returns.
"The Market" Ha ha! The FED might as well be the Market for fuksake
the economy is the Iraq war, where Colin Powell said, "you break it you bought it". the Fed now owns the market, but to take that analogy back to its counterpart in the ME, what happened in Iraq? i would say we broke it and we walked away except for a few sorties and boots on the ground they only nibble at the edges to keep Iraq from descending into chaos where it is surely headed, just as the economy is headed for chaos, or what is this volatility, hyperinflation in some places, deflation in others. is this centrally planned hegemony of the global finanical markets really working? everyone has a role to play, and in this role Mario implements QE and Janet keeps the carrytrade alive (safe haven for foreign money to get away from NIRP Europe) i just wonder if this global good old boys club is going to break up like a late night poker game after too much too drink and some sore losers
Leon Cooperman, manager of Omega Advisors, argues that interest rate hikes are positive for stocks
In the past, Central Banks probably didn't start hiking at the end of a "recovery" but well before...
Then did stocks go up BECAUSE of rate hikes? I'm not sure. Were the rate hikes POSITIVE for stocks? I'm not sure...
Correlation vs. Causality is a bitch
Bomb scare, meeting cancelled.
ISIS blamed, guns taken.
Xmas spending tanks, rate hike in Jan. when it will make no difference anyway.
Win, win, win.
Here's an idea - stop manipulating the interest rate!
There is no market... good night.
There is a market, there is just no "Free" Market.. The market will go in the direction "They" Decide it will...Because ONLY THEY KNOW where it should go???... Its goes against everything this country stands for.. Our leaders are out-of-control scum... They simply need to be eradicated... Because they dont have a FUCKING CLUE. This is not a government for or by the people anymore... Its a dictatorship where they dictate what the market will do next... Isnt it GREAT!
Out-of-control SCUM! Using LIES as a method will never work. They have no clue that they need to be working to make structural changes and they are not... by not doing the structural work its almost an admission they are trying to do harm to the people.
The institution of the FED is about as anti-American as Communism. The FED has no place having the freedom they do in America, talk about BLIGHT. They are spreading a Virus of thought, that everything is easy...and its not. FUCK THEM! and their fake reality. They continue to make the RICH..RICHER and the POOR.. POORER.. and refuse to admit it and even though its right in front of us.. We refuse to admit it. Another shot of morphine please! That will do the trick!...GREAT JOB!
Let me get this straight. The "market" does not want a rate hike and it demostrates that by a ramp into the close?
The 401k crowd is growing fearful of fixed income, probably a fair amount of people switched out of their fixed income funds yesterday. Most of them only have a limited # of places to park their money, if not in fixed income, they pretty much have to be stocks. Most of the fund exchanges are rated at "close of market" pricing... If you are willing to front run your clients, what could be better than have the muppits "sell fixed income low, buy stocks high" (given a predictable $ flow with recent news/events).
But they're all still severely overweight fixed income. That and the pension funds.
It is planned, this is not happenstance.
How do you rob three generations without killing them?
With a big club you knock them all down and out with every 7 years.
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my argument is the fed raises rates. the market tanks. the dollar devalues. earnings rise. all is right in the world with a dash of inflation.
please do not confuse the term "business cycle" with the terms "banker cycle" or "flimflam-man cycle" or "election cycle" (the last 3 terms are synonymous)
If history is a guide to the current and future environment under banker rule, they will create an environment where more goes to them and less to the humans in a way so as the make the humans less capable of defending themselves or challenging the the bankers.
This time there is a twist, because due to automation and outsourcing, they have little need for our cheap labor anymore, and soon we'll be pretty worthless as consumers too.
A short rope and a tall tree will fix that minor problem.......
They can always carbon tax our breath (those of us still working, that is.)