Discussion About The Fed
I expect the Fed to cut rates, create new QE and/or go to negative interest rates in months ahead… not sure it will take an EU banking crisis or any other headline crisis or if they’ll just do it anyway. Here’s a question, does the stock market itself now drive the Fed’s next move? I.E., if stocks sell off if the months ahead, regardless of why, will the Fed definitely cut rates? And if stocks rally strongly in the next few months will the Fed “have to” raise rates? A flat stock market means any next Fed move will be on hold? Sad state of affairs when short-term stock market moves drive monetary policy.
I think most of the economy is doing pretty well in the US. The places that are weak are tech startups (lots of layoffs in the tech start up world at companies with 10-500 employees, and there’s definitely been a slowdown in NM and West Texas on account of oil’s crash and the ongoing energy sector depression.
I’ll believe the Fed will raise rates again when they actually do. I think most signs point towards them staying up and/or cutting and/or creating new QE in months ahead.
Here’s a quote from a month ago in one my articles on this topic: “What’s interesting is that pretty much every bearish macro-economy, geopolitical, currency, corporate earnings, energy and commodity bullet point we mention, basically everything ailing the global economies and stock markets, would be helped by a weaker dollar. Meaning that the Fed’s got a helluva lot of reasons to cut rates back to 0% and even kick-start another round of QE and try to come up with newer ways to print some money. You certainly can take any further rate hikes off the table.” For additional reading, please see my full report entitled “Everything You Need to Know About Negative Interest Rates.” You can also check out my interview on the subject with Investor In The Family.
And here’s ere’s a discussion I had today on Scutify about the Fed with some of the smartest people on Wall Street:
Scuttle Conversation/Replies
5h ago
Still think there will be a European banking crisis, and the ECB will step in and will sink the Euro, then the FED will have to start cutting rates to 0.
5h ago
@deerpuncher13 @deerpuncher13 I expect the Fed to cut rates, create new QE and/or go to negative interest rates in months ahead… not sure it will take an EU banking crisis or any other headline crisis or if they’ll just do it anyway. Here’s a question, does the stock market itself now drive the Fed’s next move? Is it really that simple? Sad state of affairs when short-term stock market moves drive monetary policy. @RobertMarcin @HowardSimons@LunaticTrader @ScottRothbort @JeffMiller and everyone reading this.
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5h ago
I.E., if stocks sell off if the months ahead, regardless of why, will the Fed definitely cut rates? And if stocks rally strongly in the next few months will the Fed “have to” raise rates? A flat stock market means any next Fed move will be on hold? @RobertMarcin @HowardSimons@LunaticTrader @ScottRothbort @JeffMiller et al.
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5h ago
@CodyWillard – I stand firm in my opinion that the FOMC will raise rates by 1/4% once or twice this year. The economy is growing but at a small pace which is evidenced by many economic data points. The credit market will continue to drive the US equity market. Demand for credit remains very strong which will fuel M&A and buybacks. I will get worried when individual investors are big buyers, but they remain net sellers. The FOMC does not give a darn about short term stock market swings or traders.
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5h ago
@CodyWillard We have seen multiple instances of market downturns being met with rate cuts and potential rate hikes being deterred by market stresses.
The big deterrent now is the dollar. While 25 bps is trivial for businesses, a rising dollar poses all sorts of headwinds and stresses to all global banks with USD liabilities.
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5h ago
@CodyWillard might they wait until 2017/Hillary for helicopter QE? If it’s Trump they might let him burn.
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5h ago
@CodyWillard I may be in the minority here, but I don’t think we get QE4 or negative rates in response to a market downturn. Not only do these crush banks’ interest rate margins, lengthen pension liabilities and kneecap insurance firms, we have an election coming up where anything seen as even a backdoor bailout of either Wall Street or Washington will not be received well.
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5h ago
@CodyWillard I think it could be a perfect storm brewing, oil prices could start declining soon after the OPEC “production freeze” meeting Apr 17th and then start crashing into the Brexit vote June 23rd, that’s all right around the next quarter’s earnings season, which will again not be a very good one.
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5h ago
@deerpuncher13 I expect some very hard bargaining by the UK. It will look like a Brexit as popular vote will indeed dictate that they leave but, we’ve seen that before… the Grexit vote didn’t mean anything when they voted to leave.
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5h ago
@deerpuncher13 but Grexit was a little different, that was Eurozone not EU membership.
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5h ago
@CodyWillard – Part 2 of my response – THE FOMC has a longer term view – think investor not trader. There will be no QE4. There will not be any negative interest rates driven by the FOMC. I would add that the US stock markets and economy have performed relatively well given the fact that the Fed balance sheet has been flat for two years now https://www.federalreserve.gov… and I see it’s B/S flat to lower in the future.
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4h ago
@ScottRothbort @HowardSimons I’ll believe the Fed will raise rates again when they actually do. I think most signs point towards them staying put and/or cutting and/or creating new QE in months ahead.
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4h ago
@CodyWillard any stock rally will be because the economic news is bad enough the market perception is that the Fed cannot raise rates.
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4h ago
@ScottRothbort @CodyWillard then why float “helicopter $” balloons? I think you see $1-2 trillion new on Fed balance sheet the next few years. They’ll eat it down the road.
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4h ago
@Tmelvin So you’re saying that for the near-term, good economic news is bad for the stock market and bad economic news is good for the stock market?
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4h ago
@Snuffaluffagussy – Not at all. There will be no QE4. The Fed’s balance sheet will remain flat to lower, as maturities roll off. The economy will be reflated not deflated by the Fed. Expect rate increases to be few and of small proportions.
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4h ago
As for the broader US economic cycle – I think most of the economy, including the consumer, is doing pretty well in the US. The places that are weak are tech startups (lots of layoffs in the tech start up world at companies with 10-500 employees). And there’s definitely been a slowdown in NM and West Texas on account of oil’s crash and the ongoing energy sector depression.
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4h ago
@CodyWillard The FOMC’s stated intention to achieve greater transparency has devolved into an “often wrong but never in doubt” reality.
We spent most of 2015 oscillating between when the first rate hike would come or whether QE4 would come. By the time they raised in Dec., their case was weak. Now that they have not raised, their case is weak again.
But the worst part remains is no one can tell you what the outcome of any policy change will be.
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4h ago
@CodyWillard, it’s a shame to admit, but the Fed most certainly is tailoring its rate hikes to short term moves in the stock market. This is twice now it pulled them because of market volatility. I am sure there are economic considerations tied to the choice as well, but it’s clear stock action is very important to the Fed as well.
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4h ago
@CodyWillard pretty much the case right now.
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4h ago
This is a terrific debate about the Fed and why it does what it does. Thanks everybody and keep the discussion going! I agree with @RobertMarcin on his points here: “it’s a shame to admit, but the Fed most certainly is tailoring its rate hikes to short term moves in the stock market. This is twice now it pulled them because of market volatility. I am sure there are economic considerations tied to the choice as well, but it’s clear stock action is very important to the Fed as well.”
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4h ago
@CodyWillard just another example of every bank in the world getting killed in the commodity/energy space http://www.bloomberg.com/news/…
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4h ago
@CodyWillard. Think the FED has a long term view on all move’s…. Yet the Algo’s and investing community micro manage every word out of every FED Member across the board….$$$
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4h ago
@deerpuncher13 It seems to me that UK has already done it’s bargaining and done well in terms of EU special status. The opposition now uses the issue as a domestic political tool. I think the actual phrasing of the referendum question will be the key, and I assume the UK-s government will set it up in such a way, that there will be no “yes” for Brexit.
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3h ago
@CodyWillard I think two things are forgotten here: 1) QE was never meant to revive the economy. Its only purpose was to rescue banks and buy them time to repair themselves. To the extent they have “succeeded” to do so further QE now makes no sense, even if economy stays weak. 2) Gold is denominated in US$. Making US rates negative would risk causing a stampede into gold. Countries like China, India and Russia would be rolling over with laughter. Fed would be grilled for it. $GLD
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