All across the land, on Christmas Eve, children will struggle to fall asleep, knowing Santa Claus will soon come and leave presents under the tree.
Market Roundup
But all across Wall Street, traders will struggle to fall asleep tonight. That’s because it’s “Fed Eve” — and they’re trying to figure out if Santa Janet will leave them a lump of coal or a big ol’ pile of easy money.
The stakes couldn’t be higher, considering the Fed hasn’t raised short-term interest rates since June 2006. So what’s likely to happen, and how might markets react?
Well, the Fed clearly has the fundamental economic data to justify a rate hike. Policymakers have focused intently on employment, and the latest figures on unemployment and job creation were strong enough to give the Fed intellectual cover for an increase.
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| What will Santa Janet do and say tomorrow? |
There has been a lot of handwringing about a lack of inflation. But today’s inflation figures even give the Fed some cover there (See the news digest section below for details).
More importantly, the interest rate markets are pricing in around an 80% probability of a hike tomorrow. A whopping 97% of economists polled by the Wall Street Journal recently said they expect the same thing. That means the most likely scenario is, in fact, a rate increase.
What is much less certain is how markets will react to a hike — or no hike in the small chance that’s what we get. Then you have the post-meeting statement from the Federal Open Market Committee and the press conference comments from Chairman Yellen. Either or both of them could impact markets, too.
My best read is that investors are ready for a hike, but they’re worried that the Fed is acting too late in the economic and credit cycle. There’s a significant school of thought the Fed missed its “window,” and may have to quickly stop — or even reverse — any hikes it does implement.
Indeed, this New York Times story today provides a historical perspective on U.S. rates. It posits that they could remain low for a long time even if we get a hike tomorrow.
On the other hand, we’ve never seen a wave of global QE the likes of which we have in the past few years. Nor have we ever seen major world central banks experiment with negative interest rates.
That means the consequences and fallout from a Fed hike could be unprecedented. Heck, we’re already seeing significant turmoil in everything from emerging markets to junk bonds — a sign investors are worried sick about even a discussion of tighter monetary policy, much less actual rate increases.
In this uncertain environment … one that could see several “Bloody Wednesdays” in the capital markets driven by Fed action or non-action … my suggested action plan is as follows:
| “The consequences and fallout from a Fed hike could be unprecedented.” |
Maintain higher cash levels than you have over the past six-plus years …
Take profits and cut losses more quickly than you’ve been doing …
Avoid economically sensitive stocks with lousy Weiss Ratings …
Stay away from investments in higher-risk bonds, currencies, commodities, and economies.
That will help insulate your portfolio come what may tomorrow.
One last thing to keep in mind: Central bankers can influence short-term market action. But once we get past the initial 24-48 hours of frenzied post-Fed trading activity, the underlying fundamental trends will reassert themselves.
To me, the biggest trend is the major turn in the credit cycle we’re seeing. That has been putting downward pressure on vulnerable stocks, and should continue to do so no matter what we hear out of Washington tomorrow.
So with less than 24 hours to go, what do you think the Fed will do? And what do you think Fed policymakers will say afterward? Do you think a hike is bearish for stocks, while no hike is bullish? Or do you think it’s the other way around? What will likely happen to stocks once all the Fed hoopla settles down? Share your thoughts below.
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The great “will they or won’t they?” Fed debate will finally get settled tomorrow. In the meantime, you had some thoughts to share about Fed policy and its potential impact on markets.
Reader Howard said: “The sooner that the Fed gets out of the markets, the better. Yes there will be some casualties, but the markets will begin to become freer again. Bring on a modest rate hike as a sign of confidence and show some directional guidance.”
Reader Chuck B. added: “The idea of the Fed raising interest rates just so they can turn around and lower them a bit later is a real ‘LOL thought.’ At least it may hold off, for a little while, the idea of the banks charging interest to hold your money until you spend it. I fear that is coming sooner or later, as it already has in some countries.”
As for where markets may go in the weeks ahead, Reader $1,000 Gold said: “When people are fearful, be greedy. When people are greedy, be fearful. There’s lots of fear out there right now. My guess is all this negativity means we’re still stuck in the ‘bear trap,’ which is usually the last good buying opportunity before the market resumes its uptrend.”
But Reader Dave sounded a much gloomier note, saying: “We are repeating the same things that caused the 2008 market drop. Only this time, it will be much worse because we didn’t do the right things to correct the mistakes made in the five years leading up to 2008.
“The Fed still wants to raise interest rates and it was predicted that if it does, the market will react with a 1,000-point drop. Why are they all so stupid?”
Thanks for weighing in. If you haven’t done so yet, feel free to use the comment section below to add your opinion.
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The Consumer Price Index flat-lined in November, which matched economist forecasts. But the “core” CPI that excludes food and energy rose 0.2% for the third month in a row. That pushed the year-over-year core inflation rate up to the Fed’s target of 2% for the first time since May 2014. A separate gauge of manufacturing activity in the New York region came in slightly ahead of estimates.
The diversified industrial giant 3M (MMM) cut its profit forecast, citing lackluster economic growth worldwide. The firm now expects to earn around $7.55 per share in 2015, down from a prior forecast of $7.60 to $7.65. 3M also trimmed its outlook for 2016.
So much money has flooded into junk bond ETFs and mutual funds, that even professional managers are worried about a reverse stampede. This Bloomberg story goes into a lot of detail on this issue. Worth noting from it:
“There are now 35 U.S.-based high-yield exchange-traded funds with $43 billion under management, compared with three funds with $1.3 billion in 2008, according to data compiled by Bloomberg. The number of mutual funds has grown to 252 from 100 in 2008 and assets increased to $326 billion from $126 billion.”
That’s a LOT of money that could drain out in a hurry as losses spread.
* Finally, Los Angeles hosted the biggest movie premiere in history last night for the release of “Star Wars: The Force Awakens.” The Walt Disney (DIS) release is expected to bring in as much as $2.5 billion in global ticket sales as it hits theatres this week.
What do you think about the latest inflation figures? How about 3M’s earnings warning? Are you planning to see the latest chapter in the Star Wars saga soon, and do you think the movie will move the needle on Disney’s earnings this quarter? Let me hear about it.
Until next time,
Mike Larson
P.S. Did you know Larry Edelson’s VITAL new report, “Supercycle Bonanza!” could prove to be the most PROFITABLE report you read all year?
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Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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investors always overreact to any little thing in the market – this rate hike is just another little thing.
It’s a little thing unless it can not be sustained and gets reversed.
What happens in a 1000 point drop?
Sell, sell, sell will be jumping out the window and buy, buy, buy will be waiting at the bottom. Patience will trump impatience and select stocks will be worth a look.
This won’t be printed but I’m going to write it anyway. I’ve been a subscriber for nearly 10 years now and remember very well what happened back in 2008. Weiss made it sound like life was going to end; I literally changed my life because of the “World is going to End” blather. Yes, it was an “event” but not even close to the way you guys presented it. Although I agree that we have a serious economic reckoning coming; it is obvious that you are once again over dramatizing what’s going to happen tomorrow; just to sell newspapers;shame on you. This is not nearly responsible guardianship of your subscribers. Scaring the absolute begeesus out of everyone like you did in 2008 isn’t responsible. It’s one thing to “warn”; another to tear down just to get another subscription sold. I’m sure it’s paying off for you as I’m sure you feel you need to sell as many subscriptions as possible before the bottom falls out; as very few will be able to afford a financial newsletter once the “flush” happens. And oh, by the way, nice move years ago in eliminating all the good newsletters and moving toward “Trading Services” so you can side step those of us who gave you money for “lifetime” newsletter memberships; nice move.
To Michael C. Brown,
Question for you,
I was wondering, when Weiss made the dire warnings that sounded like life was going to end, was that before, during, or after the stock market and every ones retirement savings were cut in half in a very short order? I.e., if it was before the carnage happened, I would thank them for it. Not trying to defend them, I just don’t know that they actually were able to warn folks like they (and many others) lay claim to.
Walt,
If you back into the archives, you will find NOTHING warning of the Crash that was about to happen under Cheney/bush and the Majority Republican Congress… If you remember it began in November 2007…. It wasn’t until later in 2008 with the Crash in full on free fall that they began the “World will end”…. And ever since Obama was elected they have been “warning”… (And been dead rwong)…. Sadly there is far too muck\h of a political leaning here in my opinion!… :(
I tend to agree look at the Tues Supercycle warning a big flop. No huge moves gold got creamed again. It was supposed to shine. I guess you can say that no prediction is spot on. Look at all the end of the worlders. They are pretty much silent. I in turn would not say that 2008 was not a big thing. 1987 still sticks in my mind when I called my broker to panic sell. She told me yes she will take the sell orders but unfortunately there were no buyers. Something big is coming on the downside when I do not know. All this debt funny money party cannot continue forever. Government meddling is at an all time high. Years ago I got a good COLA increase in my pension now governments have adjusted the goody basket to the point where their explanation of inflation is a joke a laugh how stupid do they think we are. We shop for out food not some guy in a monkey suit that drives their car. Governments sicken me liars cheats and more.
I believe the markets have already absorb this rate -hike news & have discounted its impact .Also, we r just talking about a 0.25% hike !
If the FED raises rates at all, it will be a quarter percent. Why? The American economy is hollowed out and highly exaggerated. Any little shock will cause the entire debt based economy to crash with the financial system. Second, any raise in interest will make our debt so huge that we can never repay it. What Bush and Obama did to this nation was to bankrupt us.
It’s already too huge…. You can not repay 20,000,000,000,000….. Especially when it is constantly rising…..a complete and utter crash is in the cards…. Silver, gold, beans and bullets. Let’s Roll……
oh i forgot to suggest to you that being a private bank…..they can do anything they want and stuff the country. maybe a 3% hike..have you thought of that? has the time come to play wargames?..russia is just itching to blast off…putin is sick of being stabbed in the back by the ‘allies’. u.s., brits, french, etc. but russia has an alliance with china and iran. a formidable trifecta .. i would suggest that obama is leading the usa down a very dangerous path..and he knows it. america has never seen a war on its own soil(forget pearl harbour..that was a setup)… is it time?
Mike,
Thanks for the timely updates and insights; they’re greatly appreciated. Re. the fed, yes they will raise, but they will put in every caveat under the sun regarding how things will proceed going forward. I have believed for some time that rates should have been raised about 4 years ago, but that choice was not made most likely for political reasons. The caveats that Dr. Yellen will drown us with tomorrow are based in the reality that they are late to the game on raising rates, and more importantly we are tilting violently towards deflation. I have a hunch that the rate increase(s) have a better than 50% change of turning the other way. The state of the world economies, and commodity prices are yelling that so loud that even the fed can hear.
The Fed has been data-based all along. No economic justification for higher rates has existed, despite right-wingers like Mike begging for a rate raise and berating the Fed for not doing so. Even, perhaps especially now, there remains little, if any, economic justification. While some old geezers like me will get some more bank interest, the younger people will suffer from deflation and a reduced economy, in part due to rising Federal interest payments (more taxes, too). Any rate raise is purely for psychological reasons.
As another old geezer your right. The advantage of being an old geezer is that we can see through all this non transparent government crap for what it is. Lies, lies and more lies. This cannot end well.
IF there would be an interest rate hike, it is unlikely to be more than about 0.25%. However, that hike would be a DELIBERATE gimmick, as the Fed would most likely reverse that hike in early 2016. (i.e. the Fed might increase interest rate KNOWING that they would have to reverse it in early 2016). The reason for such a gimmick is that much of the economic “improvements” you hear coming from the US Government and the media are deliberate exaggerations (to deceive the American people). Improvements in the REAL US economy have been very weak (at best) and in some cases the US economy is really getting worse (e.g manufacturing jobs continue to be shipped OUT of the USA, with no end in sight, while good paying jobs in the USA continue to shrink). The US economy APPEARS to be improving because the economic situation in much of the rest of the world (EU and Japan for example) is much more decayed than that of the US (causing flight capital to rush to “safe” USA – for the time being). But eventually, the rotting/decaying US economy will eventually be exposed for every American to see, feel and experience.
50% chance that the Big Cartel will raise % rates a tiny 0.25 of 1% … or blame it to Santa Claus that he’s overloaded with Junk bonds…better Drink your wine and enjoy your meals with your family…and Pray that America return to God.!
Merry Christmas to you all
Ed.
I strongly disagree! Jim
translator:
Umnichka as always, thank you always
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every investor who sells a junk bond fund today, will be looking for a stock fund to buy tomorrow. this is the beginning of the “great rotation” that everyone seems to have forgotten about.
Who knows, ten cents on the dollar might just buy a lot of stock once you are able to get your money out to make the stock purchase.
if there’s anything left at all.
Isn’t there a song called “We Never Learn” Its like a pyramid those that got in a couple of years ago and then got out made money. For the rest the music will soon stop and no chairs will be available. Deck chairs on the Titanic.
OK, tell the Fed to take a hike and let’s get back to work. Christmas is almost here and our children and grandchildren will be Yellen if there isn’t anything under the tree, or menorah.
If you haven’t been to the grocery store lately, the inflation there is even higher. Of Course Clueless Leader used falling gas prices as an offset for the higher food prices to give Social Security no benefit increase. Considering about half of seniors don’t drive, that’s pretty flimsy. And food banks are seeing more seniors. Given the state of the economies of the rest of the World and how much heavy equipment export this country does the numbers could change fast. I personally think next year will be iffy. The Saudis are trying to shut down our oil industry by undercutting prices which leaves other oil producing nations in bad economic straits, and given the unstable, very unstable condition in the Middle East who knows what could happen to the oil supply, how fast and badly it could be disrupted and how fast the domestic suppliers could crank up production and well can it be moved to where it is needed.. Chicago already has oil train gridlock.
Ted F, I fully agree with you; and would even go further to say the Saudi Soveriegn Funds are needing to sell stocks and bonds to offset lost oil revenues to prop the house of rags up.
America has broken its covenant with Saudi Arabia. The deal was the USA buys Saudi oil and protects the Kingdom and the Saudi’s in turn accepted the Greenback as a form of payment. Now with fracking the USA has given the Saudi’s a kissoff saying we do not need your oil any longer thank you. Throw in the fact that Saudi has a new fresh younger king in control with more smarts and the game changes. The Saudis just formed a protective alliance with 34 other Muslim countries which eliminates the need for USA protection. They not only want to kill the frackers I think they want some revenge on the USA as well and you could see a big move in the methods of payment that they will accept for their oil. The Yuan may step in here and fill the breach.
I think the market (stock market) is looking for a one and done type message. If we get that, the slight uncerntainty will be removed and prices will go a lot higher after the last of the tax selling and triple witching are out of the way.
You are the first to mention tax selling and I think you are spot on. I would also contend that a raise in the short rate doesn’t necessarily effect the rates in the tens, twenties, and thirties. If that’s the case it’s not I big deal what the Fed does tomorrow. Jim
Go higher on what more stock buybacks no expansion. In the end to make money companies must build and employ workers not just buyback stock. Look at what is happening to Walmart and their warnings and Catapiller. Walmart on retail sales and Catapiller on industrial manufacturing. Your reasoning is like so many others that the market climbs up on hot air.
Mike, I have a question for you:
Could you please analyze for us, how Fed rate increases might affect the US debt, if it will? There was one theory that the only way the Fed could ever afford to repay our debt would be to inflate it away! If this is true, then would the Fed really rather want to encourage inflation than to try to prevent it? It would seem that raising rates would just make our debt that much harder to repay. Maybe you could shed some light on this for your readers.
Thanks,
Walt
With 80-90% expecting an increase of quarter point I’ll be the contrarian. Fed will say no hike until they get a read on 4th quarter GDP. If things don’t get better, they only have one bullet left: Negative rates.
I wish I understood (and could afford to act on) machinations of the stock market. Instead I read and understand only the dire predictions of certain financial writers, those who write of bank closures, empty shelves at supermarkets and cessation of Social Security. We’ve had several dates lined up: one last April; another in October; and now the pre-Yuletide promise of economic chaos. Yes, it’s scary, BUT reality and veracity should converge. Or maybe it sells more newsletters when people are worried.
You are probably right.
But, I also wonder if the real reason we see so many dire preditions spanning many dates, is that when something actually does fall apart, they can then just go back and say that they predicted it! Heck, why not just put out a prediction everyday, then you are guaranteed to have “predicted every major move” in the price of gold, the stock market, etc. Never mind that the rest of the predictions were worthless, or worse yet, caused folks to actually trade and lose money on them.
Now more than ever people need to take responsibility for how they conduct their lives. The can was kicked down the road much farther since 2008. The pile at the end of the road will be big, rusted and full of holes. For all the discussions about dire predictions, no one should follow them blindly and all are responsible, at least to a great extent, for their own destiny. That is, unless you think the bureaucrats can live your life better for you than you can.
The posts I have read tonight are the best ever. Thanks! Jim
I don`t think the Fed will raise the rates tomorrow simply because the stock market is probably President Obama`s only positive note in the economy. Raising the rates will have a negative effect on the stock market and he doesn`t want that. I`m sure he is talking to the Fed and saying not now.
The question we should be looking at is “What is the systemic risk of systematic falsification of the cost of money applied to mitigate systemic risks resulting from the systematic falsification of the cost of money?”
Will
We face systemic risk.
I think that the fed should raise rates a full percent. They should promise no further rate increases until 12-2016. Low rates are very bad for economic growth as we have seen the last few years.
Blast off. No Christmas Grinch steal. Stocks on sale and year end clearance deal. Enjoy the movie and Happy New Year.
No hike now, threaten hike later.
You betcha buddy!!
Obama is no better OR worse than past destroyers of the American economy. Put them all together and you get a pyramid. America has its own poor tent cities that should be addressed before borrowing money to help others and fund refugees and immigrants.
Read Alan Grayson’s Article entitled “Poor Dumb Rich People”… Grayson was a dirt poor kid who worked his way through Harvard where he earned a Masters in Economics and then completed Law School… He is now a Practicing Attorney and a Congressional Representative from Florida…
Hi Jim
Interested to hear your thoughts. I must confess, I am uncertain as to whether to agree or not. Ha ha.
I would point out that many said much the same about FDR as he was helping America recover form the Republican Stock Market Crash and Depression of 1929 (90% loss)… In due time it was demonstrated that those were wrong and America elected FDR more than ANY President in American history…
Obama that you call a “Communist”, is basically doing what FDR did (They also called FDR a “Communist”).You do know that the Stock Market Crash of and Depression of 2007-2009 (60% loss) happened on the watch of Cheney/bush and another Republican Majority Congress, don’t you?
Weiss Research is the only place your going to get some honesty about what is happening in the worlds markets and wars when all others cover it up. Do any of you honestly think that any of this on going manipulation and carnage is going to end well? Perhaps you just might wish, like the Movie “The Matrix”, be hooked up like a battery and a mushroom unknowing of what is really happening! You have to make your own decisions, ok. Without this type service, I can assure you, that you won’t end up on the right side of the equation. Here is some personal advice, learn from what you read here, research and get into some real things at the bottom here and get out when Weiss team tells you. Get your gold and silver insurance and don’t get locked into the paper losses that are coming. I’m betting none of you have the time… so… watch Weiss.
Hmmmm, Oct 7….nothing.
December 15……nothing.
Larry, you’d best quit dating.
Something occurred to me while listening to Mike’s interest rate presentation this morning. Money is being pulled out of bonds. At least 2 more smaller bond funds have failed in the last week. Some of this money, at least, might move into the stock markets, and this could help explain why stocks aren’t yet falling as fast as bonds. Stocks’ time will come, however.
If you are in junk bonds, especially, get out NOW, and take your loss while it is relatively small, unless you are buying quality companies’ bonds which have been reduced to junk by raters, and have already dropped substantially in price and should pay off as scheduled in 2 or 3 years. Those can be very profitable.
Obama is nowhere near as smart or clever as FDR. I agree about Cheney/ Bush, but Obama hasn’t handled the Bush crash nearly as well as FDR did the Hover crash.
Don’t know how this got up here. It should have followed Eagle495, below.
Hi Chuck,
In all fairness, the only thing that is missing is a WPA/CCC program, but the Republicans kept that from passing… They were fine with saving the idiot Bankers that lobbied to remove Glass-Steagall which brought the Crash of 2007-2009, but to hell with the 97% that needed jobs. That is why this recovery has ONLY been Wall Street and not Main Street
With my health care costs going up 44% and my house assessed valuation up 20%, I’d say inflation is up big time.
My healthcare costs have not gone up 44%. As a matter of fact, they have only one up about 8%….