December Rate Hike

November 2nd, 2015|FOMC|

  [this was my commentary before the surprising October payrolls] Despite my better judgement, I was listening to CNBC on Wednesday after the FOMC statement was released. One of the commentators said something to the effect of “the change in wording regarding the next meeting was not very relevant.” I could not disagree more. Not only did the FOMC insert “at the next meeting,” they changed “how long to maintain [the current target range]” to “whether it will be appropriate to raise [the target range].” You need to have a serious reading comprehension problem to think this was NOT a [...]

Why you should be careful of EDU6 (and H7 and M7)

October 5th, 2015|FOMC, Positioning|

The quarterly IMM dates are typically 91 days apart (since the IMM dates fall on every third Wednesday of the month).  This means there is about a 1.25 day mismatch per year, between the four quarterly 91 day IMM periods and the 365.25 days in a year.  So net, every 5-6 years, you have a situation where an IMM period will have 98 days.  Such an event occurs this year between the June 2016 IMM and September 2016 IMM periods.  The difference in day count is only worth about 8% of a Fed meeting.  When the Fed is not fully [...]

Yellen Sees One Hike This Year

September 21st, 2015|FOMC|

“And it wasn't even "close"!  Because it shouldn't have been!” - Email sent on Sep 17   FOMC THOUGHTS: My post-FOMC emails are in the Appendix – read them if you haven’t already.  After some more thought, below are additional takeaways: SIX FOMC members walked into the meeting thinking that there should be a hike. How do I know this?  The projections are submitted before the actual meeting.  There were 5 members who thought we get two hikes by the end of the year and Lacker thought we get three hikes.  The only reasonable way you can get two hikes [...]

Markets Consistently Underestimate Yellen Dovishness

September 14th, 2015|FOMC|

Yellen.  Yellen.  Yellen.  This is basically what Thursday[1] comes down to.  She is either going to have a strong opinion, or she is not.  We don’t know because she has not made a public appearance in a while.  My best guess is that she will err on the side of caution for the following reasons: She has been dovish this year. The statements and minutes this year have generally been more dovish than the markets have expected.  The table on the right shows the dates of the FOMC statements and minutes in 2015, and the change in EDM7 on that [...]

Dec Fed Pricing is Illogical

August 31st, 2015|FOMC|

FED PRICING THOUGHTS: On the right are the Fed probabilities for the next few meetings.  I am dumbfounded that the December meeting has the lowest hike probability (other than January).  If you had 33bps to allocate among the 5 meetings on the right, I would be hard-pressed to have come up with this particular configuration.  Here are my thoughts for each meeting: September. If the Fed hikes, you may hear news reports of a Dallas man whose head exploded.  That having been said, I suppose if we got a strong Employment Report (and not a “constructive” payroll as we’ve gotten [...]

Sept Hike Arguments are Flawed

August 17th, 2015|FOMC|

I saw my brother at an out-of-town wedding last weekend.  We usually don’t chat much about the markets, even though he’s in fixed income sales at a major investment bank.  But we got around to talking about a Fed hike and he gave me a bunch of reasons why he thought the Fed would hike in September.  I seem to be hearing a lot of the same arguments, so I thought I would go over some of  them.  The following (like everything else in the CA) is just my opinion.  If you disagree, it would still be helpful to read, [...]

Low Slope For A Sept Hike

August 3rd, 2015|FOMC, Positioning|

If someone were to have told me last year that a significant majority of economists thought the Fed was going to hike at the next meeting[1] and the highest year spread would be 76bps, I would have referred them to the local drug rehabilitation center.  And yet here we are.  The big issue I am trying to come to grips with is that it seems absurd to me that the Fed could hike when they are not confident they would need to hike well above 100+ basis points.  If you had so much confidence inflation gets back to 2% (enough [...]


February 1st, 2015|Economy, FOMC|

That FOMC statement had something for bears and bulls alike.  Here are my big takeaways from the week: Inflation is the key going forward. The FOMC said they expect inflation to “decline further in the near term” but rise gradually toward 2% in the medium  So no hikes in the near term.  I have no idea what the FOMC considers the “medium term.”  A quick Google search gave the result of medium term being two months to three years.  Thanks Google… for nothing!  That definition must’ve been written by Fischer.  However, considering oil, the strong dollar, global deflation, global stagnation, [...]