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You couldn’t give emerging stocks and bonds away in the past several weeks. In the 24 hours since the Federal Reserve meeting yesterday, they have surged.
You couldn’t persuade anyone on Wall Street to buy gold and silver stocks a few days ago. In the 24 hours since the Fed meeting, they’ve rallied sharply.
You couldn’t find a dollar seller over the past several days, nor a buyer of many foreign currencies, especially the lowly Japanese yen. In the 24 hours since the Fed meeting, those foreign currencies have jumped and the dollar has gotten clubbed.
Are you seeing a pattern here? We saw a major “worst to first” rally in all kinds of assets almost as soon as Chairman Janet Yellen opened her mouth.
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| Consumer prices rose 0.4%, slightly less than the 0.5% expected by economists. |
Those moves only gathered steam this morning when the May Consumer Price Index rose 0.4%, less than the 0.5% economists expected. The “core” CPI, which excludes food and energy and which the Fed pays the most attention to, gained 0.1%. That was also below the 0.2% expected by the market.
The thinking behind these nascent moves goes like this:
First, Yellen is signaling she wants to be patient, regardless of what she should have done long ago (started raising short-term rates). That’s because she actually wants to raise inflation for all of us.
Second, she’s continuing the Fed’s recent “open mouth operation” campaign against the U.S. dollar. That’s a crucial thing to do, as I’ve noted, because the dollar surge in 2014 and early 2015 helped crater business for energy and manufacturing firms.
Third, she’s willing to keep underwriting the steepening of the yield curve. That’s when long-term yields rise faster than short-term ones, a sign of growing future inflation fears and skepticism about the long-term creditworthiness of sovereign debts.
These moves are in their infancy. They’re coming after a major, multi-week pummeling.
Most importantly, they’re vulnerable to fresh developments out of Europe. That’s because a “Grexit” could cause massive chaos in the currency, stock, and foreign bond markets.
European and Greek negotiators couldn’t come up with a solution to the country’s debt problems at a euro-zone finance minister conference in Luxembourg today. So euro-zone leaders are going to gather for yet another summit on Monday to try to forge a last-minute deal.
But, still, these moves bear watching. I’ve said that the most beaten-down, hated assets are the ones to consider dabbling in simply because they’re so darn cheap as to be irresistible. You don’t want to go hog wild. But after recommending you sell or stay away from them literally for years, I’m taking a shine to some of them personally – and you may want to as well.
So what do you think? Too early to shop in the bargain bin? Or is this the right time to position yourself for a further “worst to first” rally? Is the Fed going to be a catalyst for these markets, or is the Greek risk just too high for your taste? What additional stocks, bonds, ETFs, or currencies – if any — are you selling (or buying) in the wake of the Fed news this week?
Hit up the website and share your thoughts when you have a minute.
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The Fed’s big meeting day has come and gone, but that doesn’t mean the debate is settled over what Janet Yellen & Co. will do next. Several of you weighed in on that topic.
Reader D. said there’s too much concentration of power these days with the Fed: “Why do we let one person (Janet Yellen) control the markets? The ideas may be a consensus, but what if she goes off script and says ‘higher interest rates’ or ‘never an increase in interest rates’? The markets react to whatever she says.”
Reader Bob R. said the Fed simply can’t raise rates given what it would do to Uncle Sam’s balance sheet. His take: “The Fed policy is the same it has been for the last five years – no meaningful rate hike. To raise interest would be to bankrupt the federal government, which would be paying interest on $20 trillion in debt. So, no rate hike.”
Reader Lee took issue with Yellen’s comments on tame inflation, saying: “Yellen thinks inflation is quite subdued and the unemployment rate is improving. She apparently has not been shopping lately as clothing, food, and fuel prices have surged this year and the true unemployment rate is really close to 10%. The government is ‘cooking the books.'”
Finally, Reader Guido M. noted the Fed’s forecasts aren’t worth the paper they’re printed on – and that they’re off-target with policy. His view: “The Fed does not have a clue: They should have raised rates long ago and they didn’t.
“Now with negative first quarter GDP and very low inflation and wage growth, rates hikes are a nightmare and the fear of repeating the infamous mistake of the mid ’30s is high. I guess they will decide on a couple of small hikes, only to have room to cut rates on the occasion of the next financial trouble in the U.S. or abroad.”
Thanks for all of the comments, and please do keep them coming. Given the very high degree of central bank manipulation in recent years, getting Fed policy right is more important than ever before when it comes to building and protecting your wealth.
I plan to focus quite a bit on the ramifications of the latest moves in my upcoming Safe Money Report, which comes out in early July.
Anything else I left out on this topic? Then here is where you can leave your comments.
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Authorities have arrested a 21-year-old man, suspected of killing nine people at a historic black church in Charleston, S.C. The shocking crime brought an outpouring of grief and support to the community for what has been labeled as a hate crime. A white man attended a bible study group for an hour at the church, then allegedly opened fire on the crowd there, killing six women and three men.
That’s a whopping 30% year-over-year rise, and it easily makes the Chinese the biggest group of foreign buyers here. The primary reason they’re coming here: They’re worried about their domestic economy and real estate markets, and see foreign assets like real estate as a better place to park capital or build wealth.
I’ve laid out my case for what the Fed should do. What do you think its next move should be, and when should it come? Let me know at the website, or about any other topic I have or haven’t covered here.
Until next time,
Mike Larson
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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I am not at all cocerned about the Treasury paying “higher interest rates” because I don’t think that they ever actually pay any interest. I think they just keep borrowering more money for that purpose. So yes, the debt keeps compounding, but it has always done so!
If the Fed finally comes to their senses and let rates normalize, they wouldn’t have to worry about the national debt. Almost all the money in the world would flow here seeking the higher rates which would allow the politicos to spend even more money especially in an election year and inflation would rise well above the Fed’s target which would have them raise rates again and repeat the cycle.
Seems the market always goes up for a couple of days after the Fed utters their nonsense. I would not put much into it. Besides, they are always looking at data that is from last month, last quarter, last year, whatever. They look backward.
The disconnect we are seeing is actually the evidence of two different markets that ride on parallel tracks. The Fed serves the corporations and the Government. The Government does not want the interest rate increased because that would likely expose the fiction of the repayment of the National Debt and expose the country to its outstanding balances being called for payment by its creditors. Corporations, especially banks, like their zero interest as it adds to the spread in what is paid depositors and what is charged to borrowers.
The other track that is for the rest of us is the market rate as expressed by the 10 year T-Bill, which has been hovering around 2 3/8 for since March. The T-Bill is our ‘discount window’ and the market is showing that it wants more for the money it is making available and the risk it is assuming, especially with consumer credit where wealth generation has stagnated. The yield curve inversion should be a wake up call to everyone, if not a fire alarm. If my memory is correct, an inverted yield curve has been the harbinger of significant corrections in the equities markets that have impacted economic health.
We could be in for some stormy weather so I would remain at the wheel of your portfolio and on the watch so you will be able to steer clear of the rough seas.
I agree with Steven – incredible insight to government thinking/controlling. It’s a mistake to respond to a one day surge with more emotional and reckless buying. Lets wait a few days at least before believing everything is hunky-dory again per Ms. Yellen. I don’t buy or sell immediately after OPEC speaks either – same deal.
Meanwhile I will most likely sell all Luxury stocks if they continue rising the next few sessions. Point: not buying it.
This is from a letter out last week — For several months now we have heard that the Government wants to take over our 401k’s. Apparently they don’t think they can just confiscate them by Presidential Executive Order. If they could get us to think our 401k’s are not a good investment in the commercial market because stocks crashed but that Gvernment IRA savings accounts are a good investment because they are guaranteed by the Government and are safe, and we voluntarily transfer the remaining assets from our 401k’s into Government IRA savings accounts that they control and can spend, their goal would be accomplished.
A stock market crash is coming when interest rates start going back up to a normal range. The longer a raise in interest rates is put off the worse the crash will be when it comes so why raise rates too soon and not get a crash bad enough to make us want to put our 401k’s into Government Savings IRA’s?
THE FED: The Fed is “talking” a good fight -something smart Fed Chairs have done for a long time. That is because getting any kind of result by “talking about it” beats actually taking actions which have often have the potential for unpleasant consequences. So fighting the battle with words is eminently more intelligent way to go. And Yellen seems to be doing a good job of it – which IS her job.
As far as inflation goes – that danger has been on the horizon for some time and I don’t think anyone at the Fed fails to understand that the danger of inflation has been shadowing monetary policy due to actions taken in response to the financial crisis of 2008-09. A lot of people are in denial about the danger of inflation because they claim that “they don’t see any” looking at the numbers. In part this is because the official numbers don’t tell you everything you need to know. But anyone who pays bills for their household knows that in most cases prices are rising and their income (which most likely is not) is not covering expenses as well as it used to. Even in the energy sector where the prices of energy commodities have crashed you don’t see your electric bill bottoming out – and even gasoline, while cheaper, is not proportionally as much cheaper as the actual cost of crude oil that it’s based on has become. Those lower costs are not trickling down to the consumer.
In business language this is called “sticky pricing” – where increases in the cost of raw materials or supplies are passed on to the consumer immediately – but decreases in product costs tend not to be passed on quickly as the sellers prefer to sit on the current prices to soak in some profits for a while. The downward moves in their costs while they maintain higher prices are good for them – as long as they can get away with it – until they have to lower selling prices to match for other reasons (like competition)
The other major reason we have not seen the full impact of inflation is that it takes time – and sometimes quite a bit of time for the effect of an increases in the money supply to result in the diminution of the value of a dollar. It’s not a one to one, direct response. And the slow economy we’ve had since the financial crash has put consumers on the defensive, forestalled discretionary spending and has kept a lid on price increases for the time being. But that won’t last – sooner or later – the increases in the money supply will be felt – just as they always have been in every instance of money creation in Washington for many, many decades. That is the reason a Big Mac no longer costs 15 cents like it did in the 1950’s. And you can’t blame that much price increase on the Feds reaction to the financial crash in 2008-09.
But Mike is wrong about one thing; interest rates have nothing to do with the inflation equation. The cause of inflation is money creation – and the Fed has done a lot of that in the last 7-8 years. But that’s already slowing down as the bond buying program has now been stopped. The Fed has already turned off the part of monetary policy that causes inflation, a larger amount of total money in existence. But Yellen knows (as Bernanke did before her) that the financial markets are shaking in their boots at the notion of higher cost money, and she is (correctly) playing it as soft as possible to help baby along the less than robust recovery of the US economy. That is important in the Fed’s overall mission of stewardship. And you can be sure she’s keeping a close eye on developments in Europe (in particular Greek default) as well. So by “warning” of interest rate increases – but not doing them too quickly – she can take it easy on the market but keep that door open to move rates up when the time is right – which the Fed directors all know they must do at some point. But Yellen’s Fed has already turned the ship around when it comes to inflation. Most people don’t understand that however, so they keep on hanging on her every word about interest rates.
GREEK INVESTMENTS: Mike has suggested that Greece may have finally been beaten down enough to the point where investments in Greece may make some sense. But they don’t for the following reasons. Buying the “beaten down” only makes sense if what you are buying has become underpriced because of the price decline that’s taken place. It is based on the idea that regression to the mean will take place, lifting the investment in question back up to some reasonable, former level that has been swallowed by excess pessimism in the market. This is the foundation of value investing – and as I long term value investor I can tell you that this idea can work really well.
But there is a catch – and it’s a big one. The investment you are considering has to actually be worth more than it’s priced at in the market. If the market is right that value has been destroyed – regression to the mean does not happen. Think of regression to the mean as sort of the back flow, or correction against an overly large move of prices in the market. If the market pushes prices down TOO FAR, the mean is above the current price and regression to the mean is a correction of the overshoot in price decline. This is what happens (usually) when assets are underpriced. Value investors look for those opportunities.
But if the market is right in its pessimism then the low price you see may be just the tip of the iceberg and a lot more falling of the asset price is most likely in store. In that situation you may thing you’re buying cheap – but as the price collapse continue to unfold the losses you will have soaked up will change your outlook. And if the company you “bought cheap” goes out of business you will lose everything you put into it – and it’ll be all over except for writing it off on your tax return. This also happens. You should not forget that only quality investments, those that are underpriced, those that will turn themselves around with time that warrant your faith in regression to the mean, and the risk of you investment money. Buying underpriced is not about low price alone. It’s about buying at less than the asset is worth. An asset whose price has crashed is not ALWAYS worth more than the market says it is.
And this is not the situation in Greece. Greece is in real trouble – and what you see playing out with its creditors in the EU is just the tip of the iceberg of the pain Greece will be in – in just about any scenario you can imagine. The reason Tspiras and Co. won’t give in is because they are already unable to handle realistic demands to repay their debts now. It’s been a loser scenario in Greece – because they are too heavily indebted and can’t handle it as things are. Tspiras was voted in on the platform of stopping it – and I do not believe he will make himself into the national goat to save Greece’s credit standing in the EU. He will opt to leave the Eurozone (which I have been saying right along is what they’ll have to do if they can’t put their financial house in order) the pain train will only gather steam.
An independent Greek gov’t will print money needed to continue spending as it’s public want’ s them to do – and inflation will spiral out of control devastating their people and their economy. This is not going to be a “better than advertised” situation. Their domestic situation will right itself but the cost of everything they import will go through the roof unbalancing their entire way of life. And defaulting on EU debt does not mean the EU counties who have lent them money will just give up. You can be sure some form of pressure will be put on Greece to extract as much of that lost money from them as they can. Don’t be surprised to see special “bad debt recovery” tariffs put in place on Greece – including on both their imports and their exports – to help get that money back. Capital will fly out of Greece at a shocking rate, and international financing will vanish. That will leave Greece with only the ability to print money to pay for things, which will hasten the death spiral of inflation. Greece’s problem is not with the Euro; it is because they spend more money than they have, and they done so for decades. With credit vanishing they now have nowhere to turn – but the printing press.
SO with the shipwreck of Greece’s economy just starting to take shape – you do not want to put your money on the line there thinking the problem is about over. It is not over, and regression to the mean is nowhere on the horizon as far as the eye can see. And even if someone does make money in the Greek markets upcoming – let them do it – because they will have to make one hell of a return on their money to justify the incredible risk they will be taking. You are much better off elsewhere with you own hard earned money.
John
PHEW,john
With the deficit at 252.3 trillion we are bankrupt. That being said raising the interest rates could help but we also have to deflate the system. We need to go back to the net output and get rid of the GNP and the GDP as this have driven the runaway system, also the Government has to curb their spending. We must get back to a solid monetary policy such as gold or silver and scrap the Fed. If they take over with the virtual money machine the whole world currency is doomed. Yellen is a figure head and is being manipulated by the major families that control all the world’s currencies.
A long missive, but some excellent points, John. I would add that the money the Fed has printed has been tied up in the banks, but is slowly working its way into the economy, with resulting price inflation. However, it is doing so in the face of an economy that is hamstrung by the decline in American production, due to the politicians forcing production overseas with their harsh economic policies. That is why we are on our way to second, or even third world status among nations. It can only be remedied by never electing a politician to more than one term in any office. Deny them the time to consolidate power as professional and career politicians and do their harm, even if they only do what they do because they are the ones who “know what is best” for you and you and….
Janet Yellon is from Berkely. Full Government control is baked in.
Keynesian economics defined depression as a a chronic condition of sub-normal activity for a considerable period without any marked tendency towards recovery or towards complete collapse. Because I believe that this is where we are in America, and I see no structural changes coming from Washington to change this condition, I’ve decided that the best bet is to carry on as I have for the past seven years. I don’t see bonds or stocks, or the dollar changing very much either way.
You are correct, Henry, we are in a new Depression, and it is the result of Washington politics. Bonds are either junk, and dangerous, or can’t keep up with even slow inflation. The dollar is a creation of politics, and also dangerous as a result. As for the stock markets, they will likely keep up with inflation, and maybe more, but look for occasional short collapses to keep things honest, a la 2008-09.
There have been complaints about banks not lending since the financial crash of 2008-09. But I find that point of view very selective in that does not recognize two important factors about lending.
First the banks have been burned on a lot of bad loans so it’s very reasonable for them to be less aggressive about lending. In fact low standards for lending (which results in many loans being made) was an important contributing factor to the overheated economy prior to the financial crash. And as banks are (or should be) careful with their money – maintaining a higher standard of what they will enter into in the way of loans is a good idea – not a bad one.
Second – with the economy in a major slump potential borrowers are a lot more reluctant to borrow, because they too have to apply a different standard to project they want to fund with debt. With the economy in the tank for that period of time (and to some extent it is still today) I would not want to be talking out a lot of loans that don’t work out. So businesses and consumers alike have toned down their need for borrowing – and that is also a good, not a bad thing.
So while I agree with you, Chuck, that the money injected into the banking system isn’t’ flowing as quickly as you might like to see (if you are an economist – not a lender or a borrower) it’s also true that losses at the banks caused instability there – and money given to them was also provided to help shore up the reserves they need to exist as the kind of highly leveraged institutions that banks are. Of course a good amount of that money was taken out as bonus’ buy exec’s – making it a personal financial windfall – rather than a shoring up of bank assets. But ironically that money ends up circulating too – because it doesn’t matter where money is added into the economy – it has to circulate. So even that Fed money added to national liquidity – even though a lot of people were ticked off at the actions of bank exec’s.
The US as Third World Economy: I don’t agree with this idea. While clearly the US is facing a down cycle in our economy there is a huge gap between what we have going for us and what people living in emerging market (2nd world) economies – let along third world ones. Third world nations are a long way off from participating in the global economy. Even emerging market nations (China, India, Thailand and more…) have a far lower standard of living, far less consumer spending as a part of their economy, and much less overall financial income per capita (per person) than developed nations have.
So while I get the idea that “it’s going to hell in a handbag” part of your thought – I think it’s not helpful to be overly sorry for ourselves, and it certainly isn’t realistic to compare our economic lives in the US to those of peoples that are far, far less well off than we are. But I would not look to Washington and the gov’t to “fix the problem” of a weak economy. Free trade, not gov’t intervention, is the catalyst of economic growth and well being. The best think the gov’t can do is to stay out and let people (and people through businesses they own) pursue their self interest – and that will spill over into economic activity that benefits everyone. Even though politicians have been promising “… a chicken in every pot” (to quote Fidel Castro) to get your vote for generations there is little they can do to foster a stronger economy. That job is up to us – the people. And things are getting better as we move forward at this time. It doesn’t happen all at once.
John
In the above – I didn’t mean “free trade” – (sorry) I meant “capitalism, as free as possible from interference by the gov’t”. While free trade (internationally) is part of that I didn’t mean to state it as narrowly as I did. My apologies.
How can you possibly leave “food” out of the inflation rate! Have you watched food prices rise the last 6 months? Government “bunk” that you are going along with. Well, if Yellen can keep inflation going, she won’t be responsible for a correction in a market that has been driven, driven, driven as to earnings. The big “hype” I call it…
At present we are experiencing a worldwide oil surplus thanks to increased production from the US, Russia, and several OPEC producers. This buildup has resulted in lower prices. With excess supply and lower prices there should eventually be increased demand to take advantage off the situation. This oil will have to be moved at some point. The tanker stocks have been in an unrelenting decline for almost four years now, losing 70 to 80 per cent of their value. This very cyclical business may soon see a turn in the cycle because of the increased supply and lack of new ships entering service. Rates ought to rise along with earnings and dividends at least for a couple of years. The two best are probably Nordic American and Frontline. I’m buying! Jim
The most current economic indicators of economic activity indicate an actual decline in real GDP in the first quarter of 2015, which would normally preclude any consideration by the Federal Reserve of any interest rate hike. However, the unemployment rate is now close to the 5.5% level that the Federal Reserve had previously indicated might warrant a return to normal interest rates. There are a number of reasons why the real GDP data in the first quarter of 2015 might have been distorted. These include the weather, labor troubles in the west coast ports and faulty seasonal adjustments. However, it is clear the economic growth as measured by in real GDP has been much weaker than what would be consistent with the decline in the unemployment rate for the last few years.
Most would agree that the unemployment rate is the most important statistic that the Federal Reserve will consider when deciding whether or not to raise short-term interest rates. Recently, there has been some debate as to whether the unemployment rate is flawed indicator for the Federal Reserve.
The problem with the unemployment rate as a primary decision tool for the Federal Reserve is that there has been a tremendous decline in labor-force participation. That is, there has been a sharp decrease in the percentage of working age people in the labor force. If someone is not in the labor force they do not count as being unemployed in the most narrow and most reported measure of the unemployment rate.
The number of prime-working-age men, those between the ages of 25-54, fell to the lowest level since the figure was first reported by the government in 1948. The question is whether many of those who have left the labor force will return or not. Typically during a recession some people drop out of the labor force because they become discouraged and cease looking for work. If one is a discouraged worker who is not actively looking for work, they are not counted as unemployed. Also, people who are working part-time but would rather be working full-time are not considered as being unemployed in the most narrow and most reported measure of the unemployment rate. These factors constitute the participation gap and the underemployment gap.
Previously, as the economy improved people who were discouraged eventually rejoined the labor force and those who were working part-time but seeking full-time work eventually found full-time work. However, that is not happening this time, particularly with respect to the participation rate, which has shown no sign of improving even as payroll employment has improved.
Andrew T. Levin, a research fellow at the International Monetary Fund who spent 22 years at the Federal Reserve, the last two years as a special adviser to Ben Bernanke and Janet Yellen, who were chairman and vice chairwoman at the time, was quoted in the New York Times as saying “However, the participation gap and the underemployment gap remain substantial.” After adjusting for those factors, he says, labor market conditions are “roughly equivalent to a level of around 8 percent for the conventional unemployment rate.”
Were Mr. Levin’s views to prevail, the Federal Reserve could refrain from raising short-term interest rates even if the conventional unemployment rate were to fall significantly from current levels. However, those who say that the decline in labor force participation is structural rather than cyclical say that the Federal Reserve should not assume that improving labor market conditions will induce greater labor force participation. If labor force participation were to improve as the labor market improves, that would bring new supply into the workforce and help prevent wages from increasing at a rate that could force the Federal Reserve to raise short-term interest rates. If labor force participation does not improve as the economy improves, then the Federal Reserve could decide to raise short-term interest rates.
Critical to this analysis is the question of why labor force participation has declined so much. The decline in the economy caused many to become discouraged and cease looking for work. Why they have not rejoined the labor force as the economy has improved since 2009 is another issue.
There are a number of reasons why people have not rejoined the official labor force. However, either due to political correctness or a true lack of understanding, many have not focused on the “elephant in the room” reason for why many prime-working-age men have left the labor force. That reason being that they have taken up the fastest-growing occupation in the USA. That is making dubious and fraudulent disability claims.
In retrospect, not extending unemployment insurance after the 99-week benefit period provisions expired may have been a mistake. Many of those whose benefits were exhausted responded to the multitude of advertisements by lawyers urging them to apply for what essentially were dubious and fraudulent disability claims. The government now effectively must accept any claim of disability and the government also must pay the legal fees of those who file for disability benefits, hence the massive advertising by the lawyers.
I hope that Federal Reserve is aware that the avalanche of fraudulent disability claims is the cause of the divergence between economic growth as measured by in real GDP and that indicated by the decline in the unemployment rate. The decline in the unemployment rate is not a true indicator of the level of economic growth. That is why the inflation and upward wage pressure that would normally accompany a decline in the unemployment rate of the magnitude we have seen in the last few years, has not materialized.
It is somewhat of an “if it ain’t broke, don’t fix it” argument. The Federal Reserve should not raise interest rates as long as the current modest growth rates and tepid inflation situation exists. To raise rates just to bring back normality or to head off future inflation that may or may not actually occur is an experiment with the economy that is not worth taking. This is particularly the case with the unemployment statistics being so distorted by fraudulent and dubious disability claims reducing the labor force….”
http://seekingalpha.com/article/3227066
Unemployment is clearly one of the Fed’s mandates, but it’s not the only driver of monetary policy and Fed decision making. They have a number of other mandates as well. And I do not believe that a small uptick in the interest rate will squash the economy as so many in the financial world and media seem to think it will. And when the Fed says “raise interest” they are talking about tiny amounts – not about suddenly pushing interest rates back out to historical norms. “Normal” interest rates are in the general range of 5-6%, a number that I have seen interest at not only for hundreds of years – but as far back as the Roman empire.
And with current Fed rate (which is a wholesale number not available to the public) near zero and the Prime Rate at 3.25% (where it’s been since 2008 *) the Fed funds rate would have to be more like 2-3% for the Prime to be 5-6%. And at this time there are only talking fraction of a percent increases from it’s current near zero level, which would not even get us very close to 1% from the Fed. So “normal” interest rates are a long way off no matter how things play out in the economy. But a normal interest levels should be supported in a normal economy. We’ll get back there at some point in the future. But I do think they’ll be cautious about it.
* http://www.fedprimerate.com/
John
HUNE 17, 2015 “BLOODY WEDNESDAY” HAD COME AND GONE. And where is the gentleman who made such a prediction ? No shame and no remorse ?
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Well gentlemen who cares about why are why not the Fed will raise rates!! You just have to know are they or are they not and if so…. WHEN? Again Since January I have mentioned the Triple Eve of what people call Halloween will be the date 28th of October 2015 . The FED WILL start increasing rates. October is the Whirlwind Month of the Year 2015!! Will investors be dumping the bonds in September o cause the Fed to move rates higher??? . Keep your eyes on record stock market prices in the summer and watch out for October record drops in the stock market. The whole world is watching. Be on Top..Once this comes to pass on the date. I will reveal how I knew it will be the 28th of October.2015. If anybody is even interested who cares.. Lots of money CAN be made in futures and options.knowing this..
Barry, how do you know it will be October 28,2015?
In my point of view, there are lots of uncertainties in future and these are beyond of risks because these events are not measurable and unpredictable, so anyone can make healthy forecasts in these circumstances, but on the other hand, according to the analists, euro-dollar parity can move up in a significant speed to high levels(1.1450-1.1500) if there will be deal on Monday’s meeting, however, there is downside risk if there will be opponent ideas about Greece’s situation for staying in Europe. Therefore, there is one situation important for next week’s Monday and bidirectional risks should be in consideration, but concerning to me, the problem about Greece’s debt condition will be not solved in short period so the uncertainties about this case is going to continue.
The next president along with congress monitored by the American people should rapidly move to eliminate the Federal Reserve and replace it with a consortiom from each state to determine our money supply. The Fed is just a political proxy used by elected officials. It was never approved by the American people, Just like the Supreme Court, the Federal Reserve has does done nothing but hurt America. Also Congress should be held responsible for their actions by lowering their paychecks when the U.S. economy goes down. Constitutional amendment to outlaw sending taxpayer money to other countries without individual vote approval. We can no longer expect politicians to do what is best for America. Political parties should be outlawed and only constituant representation should be allowed. Lobbyists should be outlawed! It’s not their money nor their power. Any politician that tramples the Constitution of the United States should automatically be impeached and imprisoned. No exceptions.
Mike,
Reader Bob R. said the Fed simply can’t raise rates given what it would do to Uncle Sam’s balance sheet. His take: “The Fed policy is the same it has been for the last five years – no meaningful rate hike. To raise interest would be to bankrupt the federal government, which would be paying interest on $20 trillion in debt. So, no rate hike.â€
This is a question that I have never heard the Financial media face head on, by interviewing anyone with a real understanding of this connection. Is there actually a firm link between an interest rate increase by the Fed and the interest payments on our National Debt?
The answer to this question seems to me to be the most crucial factor in any interest rate adjustments by the Fed. If a Fed rate increase translates directly into a similar increase in National Debt interest, any return even close to normal interest rates would crowd everything else out of the Federal budget. The increased borrowing this would necessitate to keep things running per the status quo, would tack on even more interest, and resulting vicious cycle would quickly spiral out of control.
If this is a Taboo subject because it is true, then the Fed must keep on jawboning people into believing that they can do something that they really never could.
What percent of the Treasury Bond Auctions is the Fed already being forced to swallow? Last I heard they were taking away over 50% of the load.
The near to zero interest rate regimen Engineered by governments is the biggest Ponsi Sceme ever cooked up. Not one iota of economic stimulation has resulted from this action, rather the contrary applies. Economies have been depressed by zero interest rates, no Capitalist system can function with zero interest rates. Look to Japan who introduced this crazy interest rates regimen over two decades ago ,their economy never recovered since then. If interest rates should ever return to normality again you will see consumers regain confidence to spend again and economies will again function normally again.
Yes,but they do not want to let it happen,or anything against their interest,which is worldwide.
On the new face of the $10 bill, I say will be ROSA PARKS!
Dear Mike: As I have previously mentioned, the problems of our economy are structural in nature. They must be resolved by the executive and legislative branches of our government. They are as follows:
1. Fiat money
2. excessive taxation and regulation
3. Excessive litigation’
4. Excessive debt which will be a drag on economic growth.
5. Sub par educational system
6. Lack of infrastructure maintenance
Before rates rise, these problems should be addressed. Anew flat income tax is over do. Taxes and spending should be reduced at all levels.. There needs to be a significant wealth transfer from the governments who took it back to the people who worked hard all their life to earn it! .We need leaders with the courage to do the above. When we see real growth take place, based on honest fundamentals, then interest rates should go to 1.5%. We can then begin to go back to what we perceive to be normal. In my opinion, I believe that a normal interest rate environment, would be 3.75% to 4% on the 10 year treasury. Regards and Happy fathers day, Robert Calabro.
The feds have always been the center of our financial problems printing a debt based currency is not a smart move manipulation and control our markets and making our dollar world currency just based only on oil what if they had based it off of agriculture. The markets can be steered in any direction they want control inflation and deflation thus the dollar reacts to there stressing
The feds have always been the center of our financial problems printing a debt based currency is not a smart move manipulation and control our markets and making our dollar world currency just based only on oil what if they had based it off of agriculture. The markets can be steered in any direction they want control inflation and deflation thus the dollar reacts to there stressing and o boot also just a personal note wars are created to make money and they fought over either recourse, religion or land
I cannot understand why a nation,an advance nation,-wants to be ruled,managed into problems by another nation/people,for the latter’s profit (and power).Are they ignorant or apathetic?Both.
Mike,
You call that a gold and silver spike? That’s called noise!
Your view that the Feds control the economy and inflation is a big risk isn’t very well supported by data. Commodities have falling for 3-4 years now to a 30% drop on average in the CRB index. Economic growth is negative and unemployment rates might be dropping but that’s because of temporary employment. That’s a global phenomena !
Rates might be rising but it’s not because of inflation. It’s because risk of default is increasing !
If the Fed raises the interest rates then inflation will set in even worse than what is taking place. When the price of gas went through the roof even though our dollar is based on oil.
This was an agreement made with Henry Kissinger during Richard Nixon era when he took us off the gold standard. If rates goes up as our National Debt is over 18 trillion dollars and thanks to Obama and still rising at a rapid rate, we would not meet our financial obligations, and our monetary system is now going to suffer because Obama has screwed the Saudi Arabia.
When I joined your knowledge, you mentioned that I would receive the names of stocks of stocks that go up when stocks go down. I have not received that information and would like to get that.