The Fed hikes interest rates, and interest rates go … down?
Market Roundup
Sounds crazy, I know. But that’s precisely what is happening in the market. And that begs the question: “What are interest rates trying to tell us?”
Before I provide some possible answers, let’s cover some important background information. When the Fed says it will “raise rates,” it doesn’t raise every single rate in the market. It can only directly control a couple of very short-term rates.
The main benchmark is the federal funds rate, which is an overnight rate at which banks borrow money from each other. The other rate is the discount rate, the rate at which banks borrow directly from the Fed on a short-term basis. The Fed hiked both by 25 basis points, or a quarter of a percentage point, last week.
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| The Fed raises interest rates and interest rates go … down? What’s going on? |
The level of all other rates is a function of supply and demand in the marketplace. If investors really, really want to own, say, 30-year Treasury bonds, their buying will drive bond prices up and bond yields down — regardless of what the Fed says or does.
Sure enough, they’ve been buying the heck out of ’em since the Fed moved. The iShares 20+ Year Treasury Bond ETF (TLT) is a solid proxy for longer-term bonds, and you can see it has risen in price the past few days. Since yields move in the opposite direction of prices, we’ve seen the 30-year Treasury yield fall to as low as 2.89% today from an intraday high of 3.03% on Fed day.
What’s more, the “2-10 spread” has collapsed in the wake of the Fed move. That is simply the difference between the yield on the 2-year Treasury Note and the yield on the 10-year Treasury Note. At 124 basis points, or 1.24 percentage points, it’s hovering around its lowest level in eight years as you can see in this chart:
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| The lowest level in years. |
This isn’t normal behavior for the beginning of a Fed rate-hiking cycle. Typically you see almost all interest rates rise in the early stages of a cycle. Then later on in the cycle, if investors get worried the Fed is overdoing the hikes and threatening to crush the economy and inflation, longer-term yields fall and spreads compress dramatically.
So why is it happening now? My leading theory is that investors are worried the Fed is making a policy mistake. They believe the Fed either shouldn’t have hiked at all, or fear the Fed waited too long to start the hiking cycle. Now, the theory goes, the Fed is hiking into the teeth of a credit market collapse and sharp slowdown in the economy.
That would explain why investors are flocking to all kinds of short-term, intermediate-term, and longer-term Treasuries. They usually rise in price, and fall in yield, when the economy slumps and investors are looking for “safe haven” plays. It would also explain why interest rate spreads are compressing.
| “This isn’t normal behavior for the beginning of a Fed rate-hiking cycle.” |
It’s true that interest rate investors can be just as wrong as stock traders sometimes. If the economic and inflation data get much stronger in the weeks ahead, these trends may reverse.
But I have my doubts about that outcome. I’ve been very worried about a major turn in the credit and economic cycles for months, and haven’t been shy about sharing those concerns here. I wouldn’t be surprised if these nascent interest rate market trends get even worse as we head into 2016 — and that has significant implications for your wealth and investing strategy.
I’ve shared some of my general investment themes and ideas here. I provide specifics, including “buy” and “sell” signals, in my Safe Money Report service. I’ll be covering these topics in great detail in my first issue of 2016, which will go to press early in the new year.
Meanwhile, I’m interested in your thoughts on interest rates. Is the market trying to tell us something about the outlook for stocks and the economy? Is the Fed making a policy mistake? Or are rate investors worried about a phantom threat, one that will dissipate with the passage of time? Hit up the comment section below to add your views.
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We had a heck of a tumble late last week, and I asked in my Friday piece who you blamed and why.
In response, Reader Kevin R. said: “The monetary system is being run and ruined by incompetent fools, buffoons, and crooks. Along with the crooks on Wall Street, they are collapsing what’s left of our system, our lives, and our sanity.”
Reader Ted F. also called out policymakers for recent failures, asking: “Does anybody in any of the central banks have a clue as to what is going on? Have the central banks so over-managed the world’s economy that they have killed it? It doesn’t seem to be responding to life support.”
Reader Michael S. added that the markets look extremely vulnerable, saying: “The Dow, S&P, and Nasdaq have a long way to plummet. The true infirmities will come home to roost. There is no avoiding it. What are they?
“Huge national debt … bad corporate debt … huge consumer debt … including student debt … a corrupt Congress … and a passive, iPhone toting public. The termites have eaten out the interior. A thin facade remains, but not for long.”
On the other hand, Reader Robert P. sounded a somewhat more optimistic note. His take:
“The fact is that the old saying ‘Don’t fight the Fed’ still applies, and even with the recent 0.25-point hike, the Fed promises to continue to be extremely easy with monetary policy and has taken great pains to make that message clear. Bottom line, that equals more gains in the stock market regardless of who’s president.”
Thanks for taking some time to sound off. Trading may be a bit volatile and thin during the next two holiday-influenced weeks. But the stock market looks like it’s facing some major longer-term challenges to me. That means 2016 may get off to a rocky start. If you agree or disagree, share your comments and rationale below.
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Brent crude, the global oil price benchmark, fell to around $36-a-barrel in London this morning. That puts crude at its cheapest price since the summer of 2004, though analysts at Goldman Sachs say oil could drop as low as $20 in the weeks ahead.
China’s National Chemical Corp. is reportedly trying to buy Syngenta AG (SYT) in the largest Chinese acquisition to date. It is reportedly willing to pay as much as $44 billion for the Swiss chemical company.
The head of the global soccer organization FIFA, and the president of Europe’s UEFA soccer organization, were banned from overseeing the sport for eight years. Sepp Blatter and Michel Platini were accused of ethics violations and financial shenanigans.
The reports are in, and Walt Disney’s (DIS) Star Wars: The Force Awakens movie took in more than half a billion dollars in ticket sales in its opening weekend. That includes $238 million in gross sales in the U.S. and another $279 million overseas. Personally, I saw the movie with my daughters over the weekend and definitely came away impressed.
Any thoughts on the ongoing struggles in the energy markets? What about China’s latest foray into the M&A arena? Do you believe FIFA needs to clean house? And if you saw the latest Star Wars movie, what did you think about it? Share your thoughts on those or other topics here at the website.
Until next time,
Mike Larson
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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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Hi Mike
I sometimes find I am trying to second guess myself as well. I take a thoroughly researched position and then after a time ask myself if this still makes sense.
Because the United States Economy is so unstable I presume that it will collapse in 2016, that’s why I like Donald Trump as a potential President because he’s so wealthy he can bail out the Federal Government by contracting them with foreign and domestic corporations and industries. I believe that Donald Trump is good for the United States Economy and an economic asset.
The Donald would be good for politics as well giving it a 200 year old shake up.
I agree that only someone like Donald Trump has any chance of turning this country around. However, D. Trump is hoping the economy tanks on Obama’s watch which would be in 2016 but for the country’s sake, I don’t want that to happen with him at the helm. That could be disasterous for all of us. Empires like ours can actually fall. Now does anyone at all know why anyone in the USA would like Hillary? Lies abound, no good accomplishments, anti gun, lethal to Americans and others abroad. No logic in that?
As I often told my Children (for the past 14 years or so), I have read 2 of Donald Trump’s books, and he is the ONLY Billionaire that I truly respect and admire. And while it is RIGHT and PROPER for one to seek and have abundance in their life, I view Billionaires (even multi-millionaires) as an excessively greedy/selfish bunch of people, who learned how to “game/play” the system better than most (considering that the billions/millions they continue to amass, ultimately came from the exploitation of the mass of struggling people all over the world). So while I might not believe or agree with some of what Donald Trump said or stands for, he comes across to me as a GENUINE (somewhat “honest”?) person.
Now, I also view Trump as a genuine leader who knows how to get things done.Who believes in Capitalism and who most people believe will stay true to Capitalism. And these are some of the reasons I wish to see Trump win the WH. And if he wins the WH, I wish for him to get ALL the help and support that he needs to do what he believes he can do (i.e. make America and Capitalism work for the mass of the people).
However, (ironically) the other reason I wish for a very capable leader like Trump to win the WH is that, I believe Trump will fail (and probably even miserably so) to make America and Capitalism work for the mass of people. So it is precisely because Trump is a good/capable leader, I want him to win the WH (and also get all the support he needs), so that it becomes clear for all to see that nothing and no one can make America and Capitalism work for the mass of the people. Because (contrary to what most people are made to think) the MAIN ROOT CAUSE of the major socioeconomic issues facing the USA and World is – NOT corrupt/incompetent governments, or greedy banks, or corrupt corporate bosses, or racism, or terrorism, or wars, etc. All these are just SYMPTOMS of a world-wide socioeconomic system – which is DECADENT and decaying, and at a “dead end”, which the World (in denial) is simply refusing to see as such.
Not all multi millionaires are ‘an excessively greedy/selfish bunch of people’. Many have brilliant minds, strong self discipline and good ideas. It is Trump’s capacity to carry the country with the change that is desperately needed that helps me believe he has what it takes.
The Fed has its head in the sand when it comes to understanding the deflationary forces at work. The are deathly afraid of debt deflation and are putting on a brave face in hopes that their credibility will not go down the tubes.
I’m not sure what Fed interest rates are saying but I suspect the absence of movement in commercial rates is saying that there is little loan demand at any rate due to reduced business activity. By any measurement or indicator, this is not a good thing and portends poorly for the economy next year.
The real base of the socioeconomic anomalies and issues we are observing is – the economic system itself (in the USA and worldwide) – which is decadent and at a “dead end”, and is not able to generate long-term recovery by economic means alone.
Hence, the reason, regardless to what governments and central banks do (or not do), the most that can happen is a TEMPORARY weak economic recover (for a year or 2), and then we are back to perpetual crisis/recession. However, it is more likely we will see no recovery (more or less) as the decadent world-wide economic system sinks towards total collapse and/or WW3.
25 bips isn’t enough to affect anything.
Yes, it is actually really stupid! Just a lot of political BS!
declining oil prices put the hurt on the big oil companies, which dragged down the market. that’s all that’s going on.
the cure for cheap oil is cheap oil, just like the cure for expensive oil is expensive oil. oil prices will bottom soon and things will reverse.
we have one more good up wave coming up before this ends in a recession a few years down the road. it ain’t over until the fed inverts the yield curve.
mike,
go take a look at this:
research.stlouisfed.org/fred2/graph/?g=Suj
whenever the little red line (ffr) crosses above the little blue line (10 yr rate), we have a yield curve inversion which causes a recession (vertical gray bars).
this is the most important thing you’ll ever learn about the markets and the fed.
All is not well in Saudi Arabia. The new King can’t remember what he said ten minutes ago and is reversing policies that have served them well for decades. Their “no war” policy is being tested in Yemen. ISIS is massing troops on their western border. Their Shiite population is concentrated in the oil producing areas. Despite their vast wealth, they wake up every morning $650 million poorer than yesterday. A thousand cousins, all with $100,000 monthly allowances are getting nervous. Don’t be surprised to see trouble in their desert Camelot. Jim
i think we’ll see all kinds of trouble in oil producing countries because of cheap oil. i’d look for what happened in libya and egypt to happen in venesualia, nigeria, iran, russia, etc., as the citizens of these country get tired of eating bark off of trees just to survive.
I also am swinging in favor of Trump. He is the only candidate who tells it exactly as it is. He called out Hillary today on her lie that ISIS is showing videos of Trump in an effort to stimulate recruiting. There are no such videos and neither is there any proof that ISIS wants US boots on the ground in Iraq. That is a self evidcent lie by the Dems. Why would they want to add US military power to what they already face from the Iraqi army and the Kurds? They would not last a month with their Caliphate if the US came in with ground forces.
A good freind of mine has raised the question: WHO is funding ISIS and what banks are involved with the transfere of funds??? If these questions can be answered we would have the whole stinking mess figured out, wouldn’t we??
There are so many questions about our so-called war on ISIS. The administration is doing nothing. The Kurds are the best fighting force against them, they beg for arms and get nothing.
And like you say….who is banking them? Who is arming them? Why did we only start bombing their oil production when Putin started? Why are we not fighting their internet usage with viruses, false info, denied access and all the other tools that any good hacker could provide? Obama needs to answer for his failure to fight these thugs on all fronts.
Follow the weapons. Who benefits from wars oh the big weapons manufacturers. Who is bankrolling the war and could it possibly be the people that benefit from it??
I know who….George Sorose!
That’s what we thought about Iraq and Afganistan
It is the usual story–greedy congress, Marxist president who despises the u.s.a. and has killed all manufacturing—-, corrupt, manipulative Wall Street. The usual bunch.. For the last 7 years–the obscenely low interest rates have allowed the govt to suck the economy dry as it penalized the savers of the country.. The savers invest in new enterprises and make our country strong but our centralized govt just takes and spends and there is nothing left for growth. Obama has murdered the U.S.A.
Yes, this is about right, isn’t it?
Libra: Suck the economy dry on Obama’s watch while the Fed paints a rosey picture to keep their liberal ilk in power for another term. Of course, in the rare chance that their vote buying through give-aways fails the Dems can repeat over and over that the economy is always lovely on their watch and blame the resulting problems on the Republicans; failing to realize the pile of rusty tin cans the Dems kicked down the road is what was the cause in the first place.
If you rob Peter to pay Paul you will have Paul’s support; however, this is a very short sighted approach as it destroys America’s future. They fail to realize what the Boston Tea Party was all about, and commit the same taxation crimes of the British Empire that led to the formation of an independent country in the past.
You folks have been watching too much Fox news.
What would you expect from a Republican president??? Rob the poor and give to the rich. Cut poor people off of the dole and give them an ultimatum work or die? More wars and rumors of wars?? Larger deficits. There is no Robin Hood in this crowd.
You have corporate America to thank for taking millions of manufacturing jobs offshore that has nothing to do with Obama. And, yes savers got the short end of the stick but, we don’t have 18% unemployment either. Unfortunately, Wall Street sucks money off Main St. like a giant vortex and a lot of that cheap money the fed has infused has been plowed into equity buybacks. Now the stock market is overvalued. None of that is Obama’s fault either. Some opf us actually see him as a centrist republican, not a way left wing democrat. But, then again Mitt Romney wasn’t conservative enough for some republicans. We live in funny times. :(
The Age of Turbulence—Allen Greenspan’s book written in the early 2000 era. He describes the coming problems dealing with the assimilation of 3 Billion people into the then existing Free World Enterprise economy of 1 Billion (U.S, Europe, Japan). Now we are knee deep in the swamp. Excess supply of Labor beyond belief but we must keep them employed or they, as the major demand in the world, will dry up. Print, print, print and try to get that money to produce new products and services. The developed countries must stand down and just hold their current standard of living (read “entitlements”) as we try to bring up the standard of living in the emerging countries otherwise $25/hr labor versus $5/day will never exist together. The other alternative is a major population reduction (read–“war or plague”). Which might happen regardless.
I’m betting the next 20 years will be more of the same. Interest rate increases ?
Baloney !!!!
Just the Fed, IMF, ECB, etc., trying to keep people convinced there is a real economy existing when it’s all about government control during this transition.
Yes, BAC you are absolutely correct here! I have been saying pretty much the same thing. The Developed World is being deliberately held back while the Emerging Countries try to catch up!! That is what all of this crap is about!
Yes you take good paying jobs out of North America and transfer them to Asia so that their incomes climb and they can now afford to buy expensive crap from North America. In reality all we have transferred is the ability to abuse credit. I live in Thailand and its wall to wall new cars. Bank financed cars. Yes a $10 a day economy coming into the 21 st century. I rode in a new Toyota van today with a young female school teacher divorced with 2 young boys. She is about 35 and was taking us out to visit the site of her new house build. She might make $700 a month. Can someone explain is there a magic fairy involved in all of this??? My g/f’s sister has a b/f in France who she has never met in the flesh. She has 2 children. He sends her about a $1000 a month and she in turn takes her bank book to the bank and bang gets a new car loan. So is this sustainable prosperity or fantasyland?
Agreed. China has caused a major imbalance for labor. As wages have stagnated here aggregate demand is down. The earnings in the retail sector puts a pulse to that. Even Walmart is struggling.
Now do people see why we need Trump in the White . House. Our government is out of control and as trump says the people in Washington are incompetent and is taking this country down down down into bankruptcy. The government is lying to us the real unemployment numbers and inflation numbers
One day we will go to our bank and it is closed and then the citizens will take to the streets. I believe gold and silver will skyrocketing the dollar will crash and her we go down the drain all because the fed keeps printing money and our debt is payable
(1) Bengazi
(2)Fast & Furious
(3)Solandra
(4)ObamaCare
(5) Doubling Nat’l Debt in 7 years
(6)Pattern US economy after Europe
(7) Iran Deal giving US enemies access to over $300 billion
(8) Visiting Isreal once in 7 years/upsetting other allies-Saudia Arabia, etc…
(9) How many talk shows has this idiot appeared?? Zero for most others/more than all others combined
** Worst President of all time/And idiots voted to put him there a 2nd time.**
A PRESIDENT WHO ROBS PETER TO PAY PAUL WILL ALWAYS GET THE SUPPORT OF PAUL……
“Worst President of all time
What do you expect from the Chicago Mob?
Yes a terrible president. George Bush handed him an economy in tatters unemployment at 8% he brought it down to 5% Can you repeat to me who was the worst president of all time. Did you credit him with Fast & Furious the movie?
Your brain power is a big reason that this country is in the sad state that it is in.
When you believe the bull –it numbers that the state hand feeds you.
We are around ( john williams shadowstats.) 23% unemployed overall, not the crap that the criminals feed you the sheep.
Barry Soetoro’s handlers have DOUBLED the unpayable debt in a mere 7 years !!
Please move your thinking level up a notch .
There IS NO VOTE!! only the illusion of a vote. Please think ! Its right there in front of you. A 90 plus disapproval rate of congress with a 90 plus reelection rate ???????
Please, please, please STOP talking about GOLD !!
There is NO GOLD MARKET !!
The world governments are well aware that CHAOS will erupt if people challenge the value of their respective government currencies as they print and print and print. THEREFORE, there is a global agreement to create “Gold Future Supply” contracts anytime the gold market starts upward dramatically. There is no real margin required by government issuance of Gold Future Supply Contracts so the market is rigged—for a purpose !!!!!!!!!!!!!!!!
Yes, the gold market certainly is manipulated! BIG TIME!!
gold is way too big a market to manipulate. even the hunt brothers couldn’t manipulate the little bitty silver market with all their billions, so no way anyone could ever manipulate gold. not gonna happen.
JSYK, there is much more silver than gold. So silver constitutes a much larger, including substantial industrial use, market. The difference is that silver gets consumed (think photographic film), whereas all the gold ever produced is still around.
only in terms of ounces.
The women might disagree with you Phil, My wife loves the stuff.
Sorry $1000 gold. I don’t agree that the gold market is too big to manipulate. It is actually very, very small!
silver is smaller.
BAC: what did you find in the above article by Mike or the above comments that mentions gold?
Yes they do not want to let the cat out of the bag and show the world their paper currency crap is worthless. Like interest rates and everything else they control the metals market. They let it climb just enough to tease us and then like back in August someone in the middle of the night dumps a ton of gold on the open market and destabilizes it. There will come a day when “The jig will be up”
In the 17th century Iberia (Spain and Portugal) it was illegal to transfer any gold or silver out of the country because it was thought that the possession of these precious metals made a country rich. On the other hand the British used their gold for trade. Look how that turned out. I learned that by reading Adam Smith’s “The Wealth of Nations.”
Hey Mike,
You and Martin Weiss have been calling for the bond market collapse since at least 2007(when I first became a member). Just as recently as last week you were raising the alarms about interest rate spreads and junk bonds exploding higher. Now here we are on Monday and interest is dropping on bonds (AGAIN).
Even a broken clock is right twice daily
You’re right about this, Bret! I have also noticed this. It is hysteria and marketing hype!
It also belies Larry’s claims that governments (in Europe, Japan, and here) will collapse because they won’t be able to borrow money. Well our rates for borrowing are the highest among us, Japan, and Germany, and they’re going lower, which means there’s no shortage of folks willing to entrust their money to these governments.
Does it go right from the printers to the government? Would seem that way. No shortage of folks willing to entrust their money to these governments. For the government its like shooting fish in a barrel. They are the only game in town.
Trump sounds like a fascist. He’s never held elective office, and doesn’t listen to anyone. He isn’t used to cooperating with others, he is used to being dictator of his companies. He acts childish. He makes faces, and acts like an immature 7th grader when someone says something he doesn’t agree with. He does not value women, does not believe Americans deserve a wage hike (who will buy things and pay their bills when their incomes are in the tank?). He thinks all out aggression is the only way to conduct international affairs. I would be horribly worried if he became president.
Whateverhappendtocommensence.com The Docter will help you check him out.
Say it truthfully. He does not believe in a government-forced pay hike. A pay hike that small businesses cannot afford and a pay hike that will lead to lay offs.
Sounds as if you are talking about obama.
The seniors on SS are easy pickings for a government that is overspent and looking for ways to cut costs. They have rejigged the COLA so much there is nothing left in it that climbs in price.
You are right, but his competitors are just as scary.
The Fed raises rates and the market pushes them down. What is the market telling us? It is telling us that the Fed DOES NOT control rates, as they try to claim. The Markets control rates! I have pointed this out repeatedly. The Fed controls neither rates nor the Markets.
If you are a regular reader of the weekly (public} report from ECRI you are unlikely to be very surprised by what is happening. They have been reporting that the US and world economies are in a long term downtrend with no clear end in sight. Although productivity may be increasing the YOY rate of growth has been declining for years. Inflation is falling steadily and there is little indication that it is going to increase anytime soon There is oversupply of goods worldwide so companies have no reason to hire workers to increase production and as a result workers have declining resources to purchase goods. With interest rates essentially zero there is no better time for governments to invest in the future by upgrading or adding infrastructure. But that is debt and debt is always bad? Right! Good luck to us.
The problem is that the Fed is living in a fantasy world of their own creation, where they think everything is improving and an interest rate hike is warranted. On the other side are investors living in the real world who see the world economy deteriorating. Since the Fed is almost always wrong, I’ll go with investors.
Central Banking = Central Planning! It’s that simple and what should one expect from this? NOTHING GOOD!!
right on
Where can you even start??Our economy has been in the crapper for about 8 years give or take, in the last 7 years our national debt doubled way to goboykenyan along with incredably stupid policy and waste of trillions of dollars thats alot considering obama was a successfull neighborhood organizer (thug,extortionist) and Trump all he did was become a very successfull buisness man so i can see why he is not qualified(sarcasm) everytime conservitives straighten out liberal soiled diapers all we seem to do is let them stain themselves yet again but not to fret the grown ups will be back in charge and it wont be too soon.
IF YOU THINK YOU CAN OR THINK YOU CAN’T… YOU ARE RIGHT
Easy money always has a bad outcome long term. Due to easy credit we’ve built overcapacity everywhere so corporations buy back their own stocks rather than build new production facilities, shopping centers etc. Families have lived beyond their means and are now tapped out. Deflation and default look to be inevitable to investors. Low interest bonds look like a safe alternative from the anticipated stock market contraction.
Twenty-five basis points at the shortest point on the yield curve is minimal. Everything else is emotional. Let the dust settle a few days and there will be more clarity than there is right now.
My concern is that at some point, Treasurys become less attractive as the safest place to stash liquidity. That’s not the case today but the issues/problems of debt and deficits and the urgency of tax reform scream for attention right now and it’s politically impossible for the next year due to electoral politics.
The politicians should pay attention to what Pope Francis has decided. His church governance reforms will have no credibility without fiscal reform and transparency which is why his whole program STARTED with the Vatican Bank. Our political leadership to take this message to heart.
I worked for one of the classiest independent banks in Texas that was undone by concentrations of credit and excesses of lending. I thought it impossible but the FDIC closed us down. We are about to lose our whole economy for lack of appreciation of the basics. This is very, very serious. I am persuaded that the “precipitating event” that brings change will be a collapse of some sort in the bond market. Don’t know where or when but it seems certain in due course.
I’m not as negative as I have been. Interest rates are still very low. The Stock Market is five per cent from an all time high. Unemployment is the lowest it has been in years, We have two per cent GDP growth. Wages are rising, albeit modestly. On the downside our debt is way up, but it has been out of control for thirty years. We have bitter enemies that want to kill us all, but this has been true since 1945. Tell me honestly if you can remember the last time you had a President and Congress you approved of. Despite all this our economy keeps moving forward and the Stock Market generally heads up because Capitalism works. Damn the torpedoes. The Other Jim
PS. Tumbling oil and commodity prices simulate the biggest tax cut we have had in a generation.
life goes on…
Oil numbers build out Wednesday I think at the bottom. With OPEC doing little of anything but exasperating supplies have to conclude Obama pulling trump card on Putin in shadow of Saudi. Further confimation of said trade identified and Kurdish affair substantiate oil supply demand ratio recovery and big oil regaining upward price curve amongst rising rate yield.
The Star Wars movie is just more of the same old women’s lip, “I am woman hear me roar”. It fits perfectly with the new Pentagon plan for women in all positions of the military.
Where was Yoda? Jim
Interest rates falling in the real world. Banks have a few gazillion dollars deposited at the Fed, it is no longer “free” money. Now they have to put it to work. The Fed token interest rate increase may free up some of those dollars and may act as a stimulus in its own way.
As long as Disney can fire American workers to ire foreign replacements here, Disney can kiss my behind if they think I will give them any of my hard earned money. And historical evidence suggests that Roman Calvary officers in Roman Britannia were women.
With banks now awash in money, do not expect the Fed to really boost real interest rates on your savings; negative interest is a bigger threat.
Here’s the thing….if the Fed, (or any cental bank) in a QE operation, buys Treasury Bonds from banks, where do the banks get these bonds? The banks must first buy these bonds before they can turn around and sell them to the Fed. With what money do the banks buy these? The Fed creates the money (reserve credits) to pay the banks for the bonds it buys from them. The banks must already owe this money to the Treasury to pay for the bonds they bought, right? So, the banks simply act as a middle men between the Treasury and the Fed. I get this. The Fed is buying the Treasury’s bonds indirectly to keep them off the market, and in doing so, takes on the Government’s debt. So, the Government, i.e., the Treasury actually gets the money for these bonds. How do the banks end up with anything more than some fees for actng as broker? And finally….I must point out that these Treasury Bonds are also created out of thin air just like the money to pay for them is created out of thin air. There is no ACTUAL asset or anything of actual value created or existant after all of this manuvering!!!
Large purchasers of Treasury bonds buy them directly from the Treasury at auctions. Guys like you and me buy them from banks or via brokers because we don’t buy enough to get them straight from the Treasury. But you are correct that the Fed just “creates” the dollars they use to buy government debt (which appears as debt on the Fed’s balance sheet). When the government pays off the bonds held by the Fed with funds from sales to others (like you and me), the Fed gets back its created money and removes the debt from its balance sheet. However, right now the Fed is reinvesting the money it gets back, rather than reducing its balance sheet. Get it?
Good read Mike, perhaps you could help the FED from blundering more and send them a gift subscription to Money and Markets, I have found it very informative and profitable,
Thanks
Mike: The Fed has raised interest rates into weakness, not strength. As I have mentioned in previous correspondence, this recovery is fake. At the beginning of QE, consumer debt was 13.7 trillion dollars. As of the first quarter of 2015, consumer debt has been reduced by 3% or 400 billion dollars. Business investment totals 570 billion dollars, less than it was in 2000. What this proves is that no central bank can know what 320 million people are going to do with their money! Just because the average american is saving an average of 300.00 per month in gas, does not mean that people will spend all of the money. There are still many families who are paying down debt, saving for their children’s college education or a vacation. What has not been mentioned is that the interest on the national debt is over 200 billion dollars a year. If interest rise too fast without addressing our national debt, the cost of servicing the debt will increase, which will eventually lead to bankruptcy. We are in uncharted waters. Merry Christmas and Happy New Year. Regards, Robert Calabro.
i say the market goes up another 10% next year.
So what would a real recovery look like, Robert? Is your only measure outstanding consumer debt? A certain level of business investment? What about jobs and inflation? With more inflation would come more debt, so maybe the Fed is concerned about that. Besides, all the conservatives have been screaming for a rate increase for so long that the Fed had to raise. This is all psychology.
Merry Christmas and Happy New Year, I am a 27 year old single father of two very young boys and have been a member for almost 6 months now. I have been through hell and back this past year partially due to the economy and the fact that it’s living in it’s own filth and doing nothing to change that, partly due to the popular culture of our society breaking apart my young family by taking over my weak-minded soon to be ex-wife’s decision making ability through drugs, propaganda, and various other lies. Yet and still I still hold hope that together we can fix this fragile thing we call our country, or if not that, at least my sons and I will survive the ensuing collapse and will be a part of the rebuilding process that will eventually follow. Mostly because of the lessons I’ve learned from all the loss of the past year. I own a small jewelry business and I for one can tell you that this year’s holiday sales have hit us hard. If it wasn’t for last minute shoppers I might have lost hope, but thank God I have a good head on my shoulders and a loyal customer base, because we live to fight another year. I have to say though, if it wasn’t for God, family, and one damn good friend, 2015 would have gotten the best of me… Good luck and God bless all of you who comment here because I have learned more from y’all about the economy, money in General, and what’s really going on than from the service it’s self.
Chris R,
Your boys are lucky they have you… I’ve been in your situation when I was young…. Your boys will thank you as they get older and realize how lucky they are that you stood with then and did not give up….. You and your business are going to be ok and the economy is going to get better as long as the American voters do not get hoodwinked again by the Billions coming from the 3% to the GOP who keep the majority poor and them richer than the rest of us…
Even the most dimwitted and uneducated will eventually figure it out… Our nation has been here before after the GOP Crash of 1929… From 1932 under Democrat FDR things got better, just as they are getting better under Obama since the last GOP of 2007…
We Americans are a resilient bunch and generally, we figure things out and the majority prospers despite the billions being spent by the 3% to keep us down…
Merry Christmas
Merry Christmas to you All … prepare for DEFLATION . . .
as you all know this Titanic is Not gonna make it …
choose the Lesser of all evils ….
God bless you and pray for America to Return to GOD
Feliz Navidad Amigos
It has been my long held belief (about 25 years) that Central Bank policy can, in limited ways, disrupt the natural ebb and flow of the market. But when the eventual recession hits, it is much worse in intensity that it would have been if left to its natural course.
Mike,
i thought for the Fed to make an interest rate hike stick they had to drain liquidity out of the market. Someone wrote that 0.25% would drain the market by about $1trillion. Is it possible the rate is just window dressing and that no liquidity has been removed?.
Also, I cannot understand why the Fed would hike rates at this time with other central banks easing, there is little sign of inflation, just the opposite. In theory, it should strengthen the dollar making US exports more expensive and making the debts of emerging markets more expensive and further depress commodity prices not to mention pushing sub prime car loans, student loans and high yield junk bonds over the cliff. It just makes no sense, are they trying to bring down the system?
1/oz silver coins.now and dont stop buying.
There seem to be so many reasons to think the markets and the economy are in trouble, and so many commentators are predicting sharp declines, that I can’t help but be a bit worried. On a contrarian basis, I have to take it all with a bit of salt. The markets nearly always go against the common opinion. If most “experts” say they are going down, they almost HAVE to shoot higher. Maybe a fake out drop first.
Take the oil back to 100$ and see if the economy can perform. The Fed has made this a face keeping exercise to create an environment which portrays the the economy to be heading in the right direction