The Fed

  • Gross Says Investors Must Embrace ‘Financial Methadone’ of QE

  • El-Arian says a March Fed Rate Hike Now Less Likely
  • Bloomberg postulates on How likely is a March Rate Hike?
  • Bloomberg video: Fed Leaves Rates Unchanged
  • Kudos to Mnuchin
  • The US spent a lot of money on foreign conflicts. “In the past 30 years, America had 13 wars spending $2 trillion … no matter how good your strategy is you’re supposed to spend money on your own people,” Ma said. “The money goes to Wall Street. Then what happened? Year 2008 wiped out $19.2 trillion in US income … What if the money was spent on the Midwest of the United States?” Jack Ma, founder of Alibaba, said his favourite film was “Forrest Gump” because he saw something of Alibaba in Gump’s shrimp boat. Ma quoted Gump as saying “Nobody makes money catching whales — people make money catching shrimps.””That’s how we make money” at Alibaba, he said.He also revealed that he wanted to retire early: “I don’t want to die in my office,” he said. “I want to die on the beaches.”
  • Almost all Bitcoin trading has shifted to China.  Good sign for the dollar.

  • GM layoffs signals for Fed to stop in their tracks.

  • Trump Son-in-Law, Real Estate Mogul, Poised to Serve as Senior White House Adviser

  • HSBC: The “euphoria” surrounding the dollar will end once reality sets in. “The USD rally will reverse as belief in Trump-flation turns to realization that the scale of policy overhaul is relatively modest (‘Trump-lite’), and that the results are underwhelming as a consequence (‘Trump-failure’),” they wrote. “We expect a retracement from mid-year to the end of the year.” according to Business Insider.
  • Investors will be attentive to how Fed officials respond to what could be a new regime of faster growth and stronger inflation pressures. For now, they haven’t. Gradualism continues to anchor their strategy and behind that is the view that the neutral interest rate is still very low, Yellen noted. It’s a view that will be tested inside and outside the FOMC.“The Fed not being behind the curve — that argument is getting more and more tenuous,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York. “Even independent of the impetus of fiscal stimulus, you could make the argument that the Fed has their work cut out for them in 2017.”“If you get a fiscal boost, even more so,” he added.  Editorial Note:  Strong dollar will quash exports and Trump administrations goals of 3-4 percent growth.  If the Fed keeps raising rates, rising yields in the United States could make it harder for China to manage its exploding debt problem.  Could be why Alibaba is in the red today.
  • Investors are ramping up bets against the $13.9 trillion U.S. Treasuries market ahead of the Federal Reserve’s interest-rate decision on Wednesday. A weekly survey by JPMorgan Chase & Co. on Dec. 12 found the most short positions since September 2014 among active clients, which include real-money and speculative accounts. The central bank is expected to raise the fed funds target by 25 basis points to a range of 0.5 percent to 0.75 percent.
  • The Fed is widely expected to announce an increase in the target range for its federal funds rate to between 0.5% and 0.75% when its two-day meeting wraps up Wednesday, analysts agree.  Janet Yellen may keep rates the same because of tepid results from Black Friday and a questionable December jobs report.  Chevrolet, Fiat Chrysler and other automaker layoffs are barometer of weak economy and the twelve days of Christmas.
  • According to Bloomberg, Fed Rate Hike Probability in December jumps from 53% to 67.6%.
  • The headline number (according to Yahoo Finance) for the jobs market came in as a big miss, with US companies adding just 156,000 jobs. Economists were looking for 172,000. Meanwhile, the unemployment rate ticked up from 4.9% to 5.0%.

  • The author disagrees with Bloomberg and interprets low jobs report to mean there is a substantial probability there will be no Fed Rate Hike in November AND December:
  • The report, however, reflects underlying economic strength: See Real Estate Employment.

    And all this means good things for stocks. Why? The disappointing headline doesn’t increase pressure on the Fed to raise rates near-term, something that has caused at least temporary downward pressure on indices. But the underlying economic strength reflects long-term improvement. In other words, the so-called “Goldilocks scenario”—which the latest jobs report fits perfectly into–continues to mean good news for the markets, according to Renaissance head of economics Neil Dutta.

    “This is a good number for the equity market,” Dutta said. “Steady growth in aggregate hours and gains in earnings imply solid consumer spending. Meanwhile, the unemployment rate ticked up …This allows the Fed to move slowly as it implies rising potential growth,” Dutta said.

  • Chicago Fed President Charles Evans would be “fine” with raising U.S. interest rates by year end if U.S. economic data continued to come in firm, though any further moves would need to see inflation moving higher. According to Bloomberg.com, “For inflation to be a solid threat more gains are needed on wages.”  Author’s note:
    • As a barometer of inflation, Crude oil was up yesterday 1.95%.  Today, it is up 1.45%.  
    • The number of Americans seeking unemployment benefits last week felt to the lowest level since mid-April, another sign that workers are enjoying job security despite sluggish economic growth.

    Speaking to reporters after a speech in New Zealand, Evans said any hike would likely come at the Fed’s December policy meeting, though he would not rule out a move in November. (Courtesy of SeekingAlpha.com)

  • The next meeting of the FOMC concludes on Nov. 2. As of Sept. 28, financial markets saw only a 17 percent chance that the Fed would raise rates on that date, vs. a 53 percent chance of raising rates on Dec. 14. Why the low expectations for November? One reason is that there’s no press conference scheduled then, and Yellen uses press conferences to explain rate moves. But another reason is that markets don’t seem to think the Fed will call attention to itself by hiking rates six days before the election … She told reporters she thinks “it’s a very good thing that the FOMC is not a body that suffers from group-think.” (Source Bloomberg.com):  Ammunition backing Yellen’s actions is: For August, purchases of durable goods fell 1.3 percent, with most of that decline reflecting the fall-off in auto sales. Purchases of non-durable goods were down 0.2 percent. Sales of services, which include utilities, rose 0.3 percent according to the AP through Yahoo Finance.
  • Land prices, not construction costs, hold the key to understanding the trajectory of house prices in the long-run
  • If history teaches anything, (George Santayana: “If we do not learn from history, we are doomed to repeat it) it is that government cannot be trusted to manage money. When currency is not redeemable in gold, its value depends entirely on the judgment and the conscience of the politicians. (That is the situation in this country today.)

    Especially in an economic crisis or a war, the pressure to inflate becomes overwhelming. Any alternative may seem politically disastrous.

  • The Trump Factor:
    • Societe Generale sees a rotation from monetary to fiscal stimulus underway, which means yields are poised to rise further — especially “if Trump continues to progress in the polls.”Trump’s spending promises may boost economic growth enough to force the Federal Reserve to pursue a more aggressive tightening of monetary policy than investors have currently priced in, and protectionist trade measures proposed by the candidate are also inherently inflationary.
    • Trump’s nationalist rhetoric bad for travel industry

      CEO Arne Sorenson of Marriott International (MAR:Nasdaq), a registered Democrat, said he would not endorse a particular candidate, but explained that the nationalist and protectionist rhetoric dominating the campaign could be destructive to the travel business.

      “I am a student of politics,” Sorenson said. “We don’t seem to be trying to find a way to resolve issues as opposed to demonize issues.”

      “I do worry from a travel perspective about tone in the US and in other countries around the world which is increasingly nationalistic, which is stressing closing borders,” Sorenson said. “We’ve gotta be really careful about that, because the world creates opportunities—not just in travel but in commerce—when people move around, when trade occurs, when we welcome each other.”

  • How does the Fed Funds rate affect Real Estate?
  • The Fed leaves rates unchanged resulting in Global Rally.
  • Why the Fed probably won’t raise rates on Wednesday.  “Economic growth improved in recent months. But in the last two, data on consumer spending and the manufacturing sector were less than encouraging.”
    • In a Bloomberg survey conducted Sept. 12-14, 48 economists assigned an average probability of 15 percent to a rate hike Wednesday, with 5 percent odds assigned to November and 54 percent to December.
  • U.S. prices also remain tame, belying strength in other areas such as housing and clouding the policy outlook. Federal Reserve Governor Lael Brainard said on Monday that with little need to lean against an overshoot of inflation or employment, there’s no reason to rush to raise interest rates at this month’s meeting.
  • The Trump Factor in the Bond Market: Recently, Citigroup Inc. strategists suggested that long greenback, short U.S. long bonds, short stocks, and long gold positions would fare well if were Trump to emerge victorious in November … protectionist trade measures proposed by the candidate are also inherently inflationary.
  • A Real Estate Paradise – Negative Interest Rates recommended by Ben Bernanke:
    • “The option of raising the inflation target should be part of that discussion. But … it is premature to rule out alternative or potentially complementary approaches, including the possibility of using negative interest rates.”
  • Froid prediction for Fed Hike – Construction firms cut jobs and manufacturing employment was unchanged.  255,000 in July vs. 177,000 in August.
  • USA economy’s biggest problem now, the smartphone?  “What do we produce? We just go around and text each other,” Carl Icahn, a prominent hedge fund manager and supporter of Donald Trump, told CNN.  Economists agree: The U.S. is in an alarming productivity slump, and it’s not clear how to fix it.”The most important issue is a lack of investment spending,” says David Kelly, chief global strategist at JPMorgan.  Companies are sitting on near record levels of cash. In a healthy economy, businesses typically spend money on new factories, tools and research. That’s not happening. Businesses are either hording cash in their bank accounts or using it to buy back stock. Those activities do little to help the economy.Today there are lots of reasons businesses are holding back on spending. Some blame the U.S. election. Sixty-two percent of business economists surveyed by the National Association for Business Economics this summer said “uncertainty about the national election (Trump’s push to restrict trade and immigration are exactly the opposite of what most economists say the U.S. should be doing to boost growth.)” is holding back growth, mostly because companies are hesitant to invest for the future.
  • A rate move in the short term may not be that welcome by the equities side but from a global growth perspective, it does anchor U.S. as the engine of growth,” said Song Seng Wun, an economist at CIMB Private Banking in Singapore. “A stronger U.S. would be beneficial for global confidence and in turn for export-oriented economies like Singapore and other Asian economies.”
  • CNN Money says it’s unlikely the Fed would raise rates right before the U.S. elections.

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