Hedge Fund CIO: "Why The Hell Did The Fed Hike This Week?"

The start of another week is upon us, which means it is time for another excerpt from the latest letter to clients by One River Asset Management CIO Eric Peters, who today writes about last week's Fed decision, the upcoming balance sheet unwind, the lack of inflation, and "disruptive" companies which may themselves soon be disrupted.

We will have more from today's letter shortly, but for now here is Peters on a topic still fresh on everyone's minds: the Fed's latest rate hike decision, and what it really means:

You make poor people richer, or rich people poorer,” bellowed Biggie Too, global chief strategist for one of those Too-Big to Fail affairs.


“Ain’t no other way to reduce inequality.” The Fed had just fired off another .25 caliber shot – Pop! “Brexit, Trump, Corbyn,” barked Biggie. “They all promised to make the poor richer.” But in no time, they’re cutting healthcare for the most vulnerable. Wage growth remains subdued. Stocks are at all-time highs. And poor people don’t own any.


“So maybe those central bankers finally think it’s time to make the rich poorer.” 


Why the hell did the Fed hike this week?” asked Biggie Too. “GDP is too strong?” he asked, laughing, shifting into a slow groove. “CPI is running away? Wages are taking off? ISM is on a tear? Business confidence has raced through the roof?” he asked, liking the sound of his own voice. “Why’d they do it?” asked Biggie. I shook my head.


“It’s all about the green,” he said, pulling out a knot, throwing it in the air, crisp Benjamins raining down. “There’s no red on the screens anywhere. All they ever see is green. Day after day. It’s time to subdue Wall Street.”


“Can they do it? Should they?” asked Biggie Too. “Should the Fed hike when they see no inflation?” he asked. And of course there’s no right answer, only different choices, consequences.


“It’s fine when you shift from maximum liquidity and minimal growth to minimal liquidity and maximum growth,” mused Biggie, in baritone. That’s typically the end of the cycle. Certain assets fall, others rise, the overall ascent slows.


“But if we’re headed toward minimal growth and minimal liquidity, that ain’t gonna be so pretty,” rapped Biggie, a wry golden smile.


me123me Sun, 06/18/2017 - 11:41 Permalink

They should have never let interest rates get this low in the first place. Why would we take advice from a hedge fund manager who would like nothing more than a bubble in stocks to grow and grow and grow. 

Rabbi Chaim Cohen Silver Savior Sun, 06/18/2017 - 12:31 Permalink

Well, in a NORMAL market, (which we DO NOT have) anything in a hyperbolic curve is in a bubble. The further up that hyperbolic curve the price goes, the sooner (and potentially larger) the correction that looms ahead. (What goes up must come down and all that.) Most of the visible market has delivered at least a couple of that very same hyperbolic ramp/then crash pattern since the late 1990s because of the Fed's monetary policy, the repeal of the Glass-Stegall Act and the bad laws and regulations that followed the popped bubbles in 2001 and 2008.

Crypto, ESPECIALLY BITCOIN, is WAAAAAAY up on the hyperbolic curve, well into the danger zone. However, much of that is ostensibly in response to the artificial bubbles everywhere else, who really knows at this point. Just know that as soon as Crypto threatens anything the NWO wants, it will be captured by them just like every other capital market. A giant bubble-bursting crash with banks losing lots of $$$ might be just the trigger they are looking for. The banks have slowly begun speculating in Crypto over the past year or so. FWIW...

In reply to by Silver Savior

Anarchyteez Sun, 06/18/2017 - 11:45 Permalink

To bring it all down.

Credit issuance has already collapsed, and that was enough by itself.

There is always more debt than money by monetary nature.

The contraction is near. Mass forclosures and crashing equities are baked in the cake.

WestVillageIdiot Anarchyteez Sun, 06/18/2017 - 11:52 Permalink

Why should we have mass foreclosures?  Prices are soaring right now.  The housing talk in my office is just sickening.  That has become the number one topic of conversation.  Of course I am the bad guy because I interject facts and logic into their emotional discussion.  I would be there are a lot of people cashing out with HELOCs, now.  Those people will be the "victims" of this bust, if the housing market should turn down. Of course the government never understands the evil of driving up housing prices.  Probably because their sheep-like constituents scream out how the braindead politicians need to "fix" housing which means driving prices up beyond any fundamental metrics. 

In reply to by Anarchyteez

montresor Sun, 06/18/2017 - 11:44 Permalink

It would be so they can cut rates by 50 basis points before year end, reversing the 2 quarter point hikes.. They can't ever sell their balance sheet because the securities on their balance sheet are fraudulent.. That's why they're not reinvesting any maturing principal balances, it's the only way to take cash out of the system without also selling the fraudulent securities on their balance sheet..  These are the final moments of the body dying.

Dewey Cheatum … Sun, 06/18/2017 - 11:56 Permalink

Remember when Hank Paulson told Congress, that Tarp and all the other manipulations would be transitory and short lived. Yeah right, they certainly didn't miss their oppurtunity to capitalize on their self made disaster. In their eyes they saved the world, and in a blink of an eye, they eviserated the notion of savers ever receiving interest income...forever more.

GooseShtepping Moron Sun, 06/18/2017 - 11:58 Permalink

"Should the Fed hike when they see no inflation?"I don't know how anybody can ask this with a straight face. The entire bull market in stocks since 2009 has been nothing but inflation, brought about by the central banks flooding the market with $15 trillion of ZIRP money. Inflation is rampant in stocks, bonds, and real estate; it is comparatively minor in wages and consumer prices because there is no actual organic growth. Anybody who says there is no inflation while looking at wages and CPI is conveniently overlooking the biggest asset bubble in world history. That's where all the money is going. And this is why econometric phantasms like GDP, CPI, and BLS statistics present a very distorted view of what is actually happening in the real world.

xrxs Sun, 06/18/2017 - 12:00 Permalink

Trying to save the pensions. Also, and this is the way they think, they want to give themselves the ability to lower later when shtf. NIRP insurance.

Arnold xrxs Sun, 06/18/2017 - 14:31 Permalink

Masterful 'Royal Wave' to the savers.

Nothing saves the Pension funds, the presses cannot, and will not roll fast enough to cover insolvent Banks, Companies, States and Pension funds at the same time.

We as a ZH group are small and have some excellent venues of narrow focus.
Mom and Pop, My Dad, who is 80, have no interest in my light probings as to what they financially know.
Their plan is for the day after tomorrow, maybe Eat' n Park.
They bought a new used small car.
The Lake level is too high and the float boat is lifting the dock.
There was a coyote in the front yard this morning.
Plans for them have been set in stone since they retired, a bunch of years ago.

In reply to by xrxs

1033eruth xrxs Sun, 06/18/2017 - 13:11 Permalink

I read a lot of responses.  You're the only one with the right answer.  Many, many pension funds are restricted by what they can invest in and most of them are not making any kind of return.  Lots of them are in bad shape, just like state of Illinois finances.  Either Fed starts raising interest rates (which it should have done long time ago but the lobbying for free money was too great) OR lots of pension funds go bankrupt and the Pension Benefit Guarantee Corp does not have the assets to cover very many bankruptcies.  Apparently that doesn't mean anything to most of ZH, cite most of the responses off in left field.  Don't believe me that a lot of pension funds are getting ready to go tits up?  Just do the google search.  This is a cool little snapshot where if something doesn't affect you personally, it doesn't exist.  Again, note the responses in this thread.  Here is a great article on current funds that are tits up and others that will fold in the near future.  https://www.lewrockwell.com/2017/03/tyler-durden/ny-teamsters-pension-f…

In reply to by xrxs

adanata 1033eruth Sun, 06/18/2017 - 13:25 Permalink

You may be missing the point. ZIRP was intended to kill pension funds and starve savers while further enriching the oligarchs. Globalists seek scorched earth and death to the middle class, the elderly and vulnerable. They're just taking rates up so they can screw with Trump and bring them back down when TSHTF. I'm old and have a dying pension. It's not the focus of my attention. I'm more interested in plan B. We cannot save pensioners/savers but that doesn't mean we don't care.

In reply to by 1033eruth