Tag Archives: FOMC

A Year in Junk

By Jeffrey Snider of Alhambra

“junk bonds traded as if the worst were only just around the corner”

The most important outbreak or story of 2015 had to have been the junk bond reversal. It combined all the major elements of what investors and economic agents are both fearing and, at one point in the past anyway, hoping. It is the confluence of finance, “dollars”, liquidity and economics with or without recovery and the best scenario. The FOMC raising rates is supposed to confirm the brightest outlook, which would only lead to more extension in the credit cycle, and yet junk bonds traded as if the worst were only just around the corner. It isn’t so much the selloff, though that is obviously important, but rather how increasingly the selloff is being treated as permanent.

Continue reading A Year in Junk

Fed Still Behind the Curve

By Tom McClellan

Fed Still Behind The Power Curve

spread between 2-year T-note yield and Fed Funds target, fomc
December 17, 2015

The “power curve” is a term borrowed from the jet age of aviation, referring to the delayed response time of a jet engine to an increase in the throttle position.  In 1979, New York Yankees catcher Thurmon Munson tragically died while piloting a Cessna Citation jet, sinking too low while on approach for a landing.  He had reportedly realized there was a problem and added throttle, but the lag time in the response of the jet engines meant that power was not there soon enough to correct the flight path.  Munson’s one year of experience in piston-powered aircraft, which have a faster throttle response time, was cited as a factor in the pilot-error crash that killed him.

The stock market and the economy have a similar lag time in response to throttle adjustments by the Fed.  And it is the 2-year T-Note yield which tells us what the throttle setting ought to be for shorter term rates.

Continue reading Fed Still Behind the Curve

Partly

By Jeffrey Snider @ Alhambra

There is much less to an FOMC statement than the FOMC minutes, all far less than the actual meeting transcripts. That is why the statement is available immediately, the minutes within a month , but you will wait more than 5 years for the actual discussion. In the case of this “recovery”, that delay worked to our collective disadvantage, for had the actual discussions in 2007 and 2008 been readily available nobody would have followed the central bank path thereafter. Policymakers effectively disqualified themselves with a startling mix of ignorance and obnoxious arrogance, yet from there to here they have remained safely protected as if experts on something meaningful.

That does not mean, however, there is nothing of significance in even the bland and sanitized policy statement. In the current case, as with the past few, the word “partly” obstructs the pure sentiments that the recovery narrative requires for full dispensation. All the rhetoric of the policy statement remains banally hopeful except that one word so very out of place within that structure.

Continue reading Partly

FOMC Word Play Kicks Off a Correction…

By NFTRH.com

FOMC Word Play Kicks Off a Correction That Was Coming Anyway in Gold, May Soon Come in Stocks

What They Said

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

What They Did

What did the Fed do yesterday? Why, they rolled over once again and held ZIRP. They also got mighty specific with some wording that freaked out precious metals players and put in a reversal, not only in the metals, but importantly, in their ratio. See yesterday’s post on the Silver-Gold ratio’s status… What Thing Looks Like the Other. A reversal in silver vs. gold would put the sector on a correction and also issue a warning to other global markets.

So the Fed still has a few tricks up its sleeve. They are backed into a corner in which they are expected to normalize monetary policy because well, they are they Fed, they have perceived credibility (i.e. the confidence of the markets in what is largely a confidence game) and legions of conventional investors to whom they must appear reasonably normal.

What They Are Facing

Here is what they actually have, an abnormal distortion of their own creation in the markets; and if you ask me, an out and out disgrace on their hands. The horizontal red dotted line is post-2008 monetary policy. This while the S&P 500 grew a third hump of epic proportions.

Continue reading FOMC Word Play Kicks Off a Correction…

FOMC, Speed Readers on Your Mark

By Biiwii

Bold mine

Release Date: October 28, 2015

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft [take a bow, Uncle Buck]. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

In other words…

The committee has no effing idea what is out ahead so we do nothing (and hope the hell Uncle Buck calms down).

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Richard Fisher on FOMC: “Egg all over their face”

By Biiwii

Ex-Fed’s Fisher: FOMC members have egg all over their face

“I love my colleagues. You know that. I love the process of the FOMC, but they have egg all over their face,” he told CNBC’s “Squawk Box,” referring to the Federal Open Market Committee, the Fed’s policymaking body.

“Uncertainty is the enemy of decisionmaking. We know that as business people. Make a decision. Act on it.”

Very simply, the process we are in is one of unwinding the bullet proof confidence that has surrounded the Fed and supported financial markets ever since the most vocal, hyper-inflationist gold bugs were banished in 2011 (take another bow Op/Twist and its sanitized inflation signals).  Remember the cat calls of “Helicopter Ben”?

Manifestations of that confidence get aimed at me periodically when I write my Clown Car posts about the FOMC or otherwise show disrespect for authority.  Unbelievably, there are sycophants out there who are actually offended when some blogger has the nerve to question authority and a different flavor of high risk (at best) policy (official vs. commercial credit bubble this time vs. 2003-2007).  They come in the form of other bloggers and people who manage other peoples’ money (and just love Bernanke’s post-Op/Twist creation), among others.

Low lifes is what I consider them, much like those who fell in line behind Stalin and Pol Pot.  Well, that’s a little extreme.  They sanitized populations while our friends at the Fed have only sanitized inflationary signals, ha ha ha.

Anyway, Richard Fisher continues to tell the truth as he sees it.  He’s part of the clown show as microphones get eaten by various FOMC members and former members, amping up the confusion.  But at least he is consistent and in my opinion,  right to critique the current FOMC for its lack of clarity and decisiveness.

Credit Follows the Dollar

By Jeffrey Snider @ Alhambra

Goodnight Janet; Credit Follows The ‘Dollar’ Now

On this side of the “dollar” world, credit markets have all but written Janet Yellen into irrelevance. Despite her pleas (because of?) last week, there isn’t any part of money dealing or fixed income that is taking her “certainty” about recovery and “inflation” as even a partial setting. So lost is the FOMC, that everywhere you turn these markets are moving opposite.

Where that has to sting the most is “inflation expectations.” Proving to be far more than just crude prices (which have largely been stable since August, at least in the view of not crashing again), breakevens are now at lows last seen in the dark days of 2009, surpassing that first “wave” earlier this year. Trading in the past few days has seen TIPS hedging interest drop sharply, which can only count as credit markets giving up on the recovery narrative in full – once (to January 14) might be “transitory”, but twice eight months later and at new lows is goodnight Yellen.

ABOOK Sept 2015 Asian Dollar Inflation Breakevens New LowsABOOK Sept 2015 Asian Dollar Inflation Breakevens Continue reading Credit Follows the Dollar

FOMC: Crystal Ball Time

By Biiwii

[edit] ha ha ha… among the usual ‘blah blah blah’…

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.”

FOMC Statement

Let me gaze into my crystal ball, with the confidence of a genuine guru* and the vision of a mystical Swami.  Sifting through my notes about leading indicators, low unemployment, but also cratering public confidence, I see… (not that you should give a damn what one faulty little participant sees)… but bear with me now as I render the great forecast…

I see the Federal Reserve folding again today, perhaps with some stern words imploring us to stay vigilant for a rate hike coming before year end.  In this scenario another small chink in the armor of impenetrable post-2011 confidence in these clowns would be had.

clowncar, brought to you by FOMC

Until today I had actually been leaning toward the other scenario, that the Fed finally comes through in a show of strength, all the while with QE 4 in its back pocket.  Actually, I am about 55%-45%, so the rate hold view is just a small lean.

The reason for the shift actually has little to do with the reasons we might find for a rate hike or rate hold.  It has more to do with the stock market, which has chosen to stay on our plan, laid out weeks ago, for a strong post mini-hysteria bounce.  In other words (and this is still a guru-like prediction here, which you should always treat as a side show), an FOMC roll over could provide the necessary burst of euphoria to get us to and perhaps even through our Resistance #2 (SPX 2040) and burnish peoples’ happiness again.

That could be a great bearish setup.

* You’re right of course, there is no such thing!  Only people promoting themselves as such with a big boost from the mainstream media, which is inherently lazy in its sourcing.

Yellen Just Doesn’t Factor

By Jeffrey Snider, Alhambra Investment Partners

When I wrote on Friday that I was encouraged for the first time in years over the combined rise of Trump and Sanders I meant nothing by way of suggesting either as an actual candidate or what they might do should they pull it out. If anything, I implied that the political situation might have to follow the economy; that it should get a whole lot worse before it gets much better.

The point was not so much about the candidates themselves but the palpable angst that they loosely but clearly represent. It is a growing bipartisan rejection of the status quo as it relates to the economy. For years now, the political class has been lying about the state of the recovery because economists have so fortified their temple. Monetary policy and fiscal “stimulus” are all that there is and nothing else except that which retains the political hierarchy remains. It joins Tea Party and socialists alike, to tell Janet Yellen and/or Wall Street “enough.” The uniting factor is an as-yet amorphous or ephemeral sense that “something” is wrong and that those that continue to press on as if there weren’t need to be removed.

Continue reading Yellen Just Doesn’t Factor