Still One Fed Hike Thru Q3

May 23rd, 2016|FOMC|

At last October’s statement, the key phrase was “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.”  They basically told you they were about to hike at the next meeting in December 2015.  At the April 2016 meeting, the statement read, “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.”  Those two statements are miles apart.  If they really [...]

FOMC Meeting Analysis

April 25th, 2016|FOMC, Positioning|

[Since the Fed meeting is over, I thought I would post one week earlier my thoughts from last weekend on the various meetings.  Because the Fed statement came out as I had thought, the analysis is still the same.  Over the weekend, I'll post a rehash of the "strategy summary" email I sent out today in the Forum:] Next week is the not-so-anticipated Fed meeting.  It makes sense to take a look at what is priced in, so that we can get an idea of what people are thinking and formulate a plan for how we want to approach value.  Let’s [...]

Splintered FOMC

April 11th, 2016|FOMC|

There are a few points I wanted to elaborate on from the March FOMC minutes.  It relates to the discussion of future meetings.  The minutes stated “several” participants thought that a hike in April would “signal a sense of urgency they did not think was appropriate.”  Typically, the discussion is on just the current meeting, so it’s interesting that a future meeting was discussed. * We have two strong diametrically opposed groups. A “couple” of people wanted a HIKE.  At the same time, “several” people wanted to skip the March meeting AND the April meeting (skip TWO meetings).  The latter [...]

Brexit and the FOMC

March 28th, 2016|Economy, FOMC|

The media seems to think Brexit is a toss-up.  They would be wrong.  What really matters is what the “markets” (people who have money on it) think.  Are you more likely to believe: (1) a bunch of people whose livelihoods depend on something being made to look “newsworthy” or (2) a bunch of people who have looked at all angles and actually put money down on it?  Considering all of you are in the latter profession, I would think your answer would be #2.  According to your brethren in the odds-making world, the betting lines across the major bookies imply [...]

The Dots are not that Dovish

March 21st, 2016|FOMC|

My FOMC thoughts are in the emails I sent out during the week [The FOMC statement was dovish, but not as dovish as people think].  But I did want to discuss a few things in more detail. Think about all the dovish FOMC members you heard from the past month or two.  Everyone thinks we get at least 1 hike.  There is only ONE FOMC member who thinks we get one hike in 2016.  Every other FOMC member thinks at least two hikes in 2016.  Let’s say the uber-dove is Evans (because that would be my guess).  That means – [...]

Everyone thought like me going into the FOMC meeting

March 14th, 2016|FOMC|

The Fed is not hiking next week.  As previously mentioned, the odds of this are “zero,” without it actually being zero.  The trade I sent out Friday via email discusses a good way to play for this, with relatively little risk if the Fed actually does hike.  Get some on - it’s my favorite trade now, if you can get it slightly lower than Friday’s settle. I thought I had a lot more to say about the Fed statement, but I really don’t have much to add from what I wrote last week: The executive summary is that I lean [...]

2016 Fed Meeting Odds

February 8th, 2016|FOMC|

The Fed is starting to sound more cautious, so we should re-evaluate what we see in the curve for the rest of the year.  There are only 17.6 bps priced in for this year, which seems little mind-numbingly low.  So rather than do an absolute analysis (where I say everything is too low), I thought I would do a relative one.  Here are my thoughts: The next hike. I realize the Fed is unlikely to go in March, because there isn’t that much time (and data) left and they probably want to see at least several weeks of market stabilization.   [...]

The Fed’s Lack of Options

January 18th, 2016|FOMC|

We had a number of Fed speakers last week, most of them giving their version of the State of the Union.  In a nutshell, people are generally sticking to their forecasts, with some new downside risk.  Here is the relevant summary: Lockhart (Monday) said that he is “optimistic about the economy’s prospects in the new year, but I will be watching the data trends closely.” He also wanted to “emphasize that the Fed’s monetary policy is still quite accommodative even with the first rate increase last month and the assumption of subsequent increases in 2016.” Rosengren (Wednesday) emphasized downside risk, [...]

FOMC Steps

January 11th, 2016|FOMC|

One of the things that were baffling me a few days ago was how the long end could be so rich when the flies centered in the reds were so high.  We did a trade and cashed in.  Now that the flies in the reds have come off some, I’m still wondering how the long end could be so rich, relative to the curve.  Then I took a step back to look at “valuations,” which for interest rates involves analyzing the path of Fed rates. Here is the CHRONOLOGICAL order of how the Fed would respond to continued economic weakness: [...]

Fed Speak Rated

November 23rd, 2015|FOMC|

I enjoy reading “summary pieces” on what economists are thinking.  While they can be noticeably wrong (like when 80+% of them saw a rate hike in September), they do provide a glimpse into what a subset of the markets are thinking.  Call it my inner Sun Tzu wanting to know my enemy.  Last week, the WSJ did a survey of which FOMC members economists found the most and least useful to gauge Fed policy.  I found the results a little surprising, in that I would not have rated anyone outside of the Big 3 (Yellen, Fischer, Dudley) as highly as [...]