Janet Yellen and the FED take center stage tomorrow and the consensus is for NO CHANGE. The market believes the FED will be on hold until March. BUT I OFFER THIS: If I was the FED chair I WOULD RAISE RATES 50 BASIS POINTS to take some of the risk out of the U.S. equity markets. The S&Ps are virtually unchanged since the December FOMC meeting but the market’s enthusiasm for anticipated tax cuts, regulatory relief, and possible currency intervention means the FED cannot wait to let the economy run “hotter for longer,” especially because of the 4.7% U3 unemployment level. If Chair Yellen wishes to burst the TRUMP exuberance it is time to move aggressively to stem the rise of a potential inflationary threat.
Posts Tagged ‘silver’
Everybody has opinions on the recent election outcome but as usual most of the opinions are from the echo chamber and not factual in any way. This blog is dedicated to seeking profitable investment and trading opportunities as I sort through the noise of the financial media. As with Brexit, the punditry found itself trapped in its own rhetoric and every prediction but the weakness of the pound proved to be WRONG, at least in the short to medium-term. British Gilts (10-year notes) rallied substantially in the post-Brexit confusion and most importantly the Footise stock index rallied 15% off its election night bottom. The POUND did weaken substantially against the U.S. dollar and the euro currency but I have argued for a few years that the British current account made the relative strength of the POUND to its key trading partners unsustainable.
First quarter is winding down and after a great deal of volatility it is time to reflect on the markets. The SPOOS are virtually unchanged while the Nasdaq 100 is down 5%, the Nikkei is down 10% and the German Dax is down 8%. The global equity markets have been riding a wave of liquidity for a long while but with the aggressive QE programs from the ECB and BOJ the first quarter one would expect the German and Japanese stock markets to have been the star performers. Maybe more QE is losing its power to impact the markets? The DOLLAR INDEX is lower by 3.2%, which is also in contravention of conventional wisdom as QE is done to weaken one’s currency in an effort to aid the domestic economy. In examining the individual currencies the euro is +3%, Swiss franc +3%, yen +8%, Canadian dollar +5% and Aussie dollar +3%. Yes, the easing banks have seen their currencies strengthen against the DOLLAR.
(Larry Summers had to run to his medicine cabinet to take Prozac (not Diazepam as in the Rolling Stones song) after he read the G-20 communique. The finance ministers and central bank heads meeting in Shanghai failed to come to terms with any of the issues concerning the global economy. There was no PLAZA ACCORD and no deep discussions about the need for massive fiscal stimulus. The tone of the Communique was TEPID at best and views the present state of the global economy as slow but steady. There was certainly NO URGENCY about a rise in the prospects of a global recession. The finance ministers downplayed the recent volatility and slide in global equity markets, suggesting by those domiciled in ivory towers and model-based rat holes that the MARKETS ARE MISTAKEN AND THE MODELS ARE CORRECT. The arguments among the participants was such that there were some issues that seem in direct contradiction of any policy response.
The markets are in turmoil and it gets the mind to thinking: What could possibly have caused today’s reversal in the stock market and the long end of the BOND MARKET? The market seemed like it was on the edge of a complete risk capitulation. The dollar was dropping, bonds all over the world were in rally mode and the precious metals were finally finding some technical strength as the GOLD (in pure dollar terms) had finally rallied through its 200-day moving average. Even the SILVER was able to synchronize with the GOLD and break out of three months of resistance. (The silver 200-day is at 15.13, still a bit above its closing price.) The global stock markets were cascading lower as the Nikkei and German DAX took out their lows made the night of the BOJ’s surprise move to a three-tiered negative interest rate policy.
In the Beatles Album “Let It Be” John Lennon introduces the phrase, “Doris Gets Her Oats.” It’s supposedly just typical Lennon gibberish. But in a nod to the Beatles, Janet Yellen got her oats and the Fed did not LET IT BE. The “oats” that Janet got was that the FED increased its interest on excess reserves (IOER) to 50 basis points and overnight reverse repo (O/N RRP) rate to 25 basis points in order to pull the fed funds into the corridor. The most astounding outcome was that FOMC vote was unanimous, 10-0. With the recent über-dovish comments from Fed Governors Brainard and Tarullo, how could they have voted with the Fed Chair? Some commentators remarked that the “historic” occasion of Yellen presiding over the first Fed hike in almost nine years needed a unanimous vote. Question: What did Chair Yellen have to promise the über-doves in order to garner their votes and suffer the wrath of the Shadow Fed Chairman, Larry Summers? This will be an important question going forward for it may mean that Yellen may have compromised herself to lower for longer.
The U.S. jobs report was in line with market expectations colored by the Wednesday release of the ADP data. The market’s response was interesting in that BONDS, STOCKS AND THE DOLLAR reversed some of the reaction to ECB President Mario Draghi’s press conference on Thursday. While the jobs report seemed to SOLIDIFY an FOMC rate hike next week, the settlements on Friday raises questions about the Fed’s current strategy. Even though a rate increase is a “certainty” and with the ECB promising more liquidity at lower interest rates, the settlement prices at the week’s end were perplexing:
In the realm of physics, absolute zero is the temperature at which every element freezes and molecules are no longer in motion. The FED and other global central banks seem to be mimicking their scientific betters by keeping rates at a low enough level to prevent the movement of capital from their balance sheets and into the real economy. Yes, the ECB, Riksbank, Swiss National Bank are at negative interest rates but it is the velocity that measures absolute zero rather than the relative level of interest rates. This brief analysis is based on the CONTINUED FRUSTRATION of trying to understand the basis of FED communication and signalling to the markets.
It is time to end the SCAM of “journalists” receiving embargoed FOMC and data releases 60 minutes before the market so they can prepare their stories. In a financial world where volatility is measured in nanoseconds the SEC and CFTC are doing a major disservice to the world of CAPITAL FORMATION by letting the algo headline readers create nanosecond pandemonium through key-word reading algos. I would argue that some “journalists” write the headlines specifically for that purpose.
Notes From Underground: The Fed Will Raise Rates at the October Meeting (Wait For The Press Conference)October 6, 2015
This afternoon, San Francisco Fed President John Williams delivered a speech that I believe signals a rate rise at the October meeting. It seems that the chorus of criticism from all corners of the political and economic spectrum is causing the FED to reconsider its September decision to keep rates at zero bound, even with the weak September jobs data. The voices of Summers and Krugman have been drowned out by the criticisms from investors and other academics. Why do I think the rate increase is coming? Williams gave three hints in a speech he delivered today, “The Economic Outlook:Live Long and Prosper.”