MARKET ROUNDUP | |
Dow | -82.98 to 17,766.48 |
S&P 500 | -13.55 to 2,079.28 |
Nasdaq | -46.83 to 5,021.63 |
10-YR Yield | -0.021 to 2.381% |
Gold | +$5.60 to $1,173.50 |
Crude Oil | -$0.90 to $58.21 |
(Mike Larson is away today. Mike Burnick, editor of Martin’s Ultimate Portfolio and Ultimate Stock Options, is filling in.)
Federal Reserve officials seem intent on raising interest rates at some point this year. They have been talking the talk for months now, but the question is, will they walk the walk?
Just last week, New York Fed President Bill Dudley stated that as long as data on jobs and inflation cooperates, the Fed is on track to “begin normalizing monetary policy later this year” … That Fedspeak tells us higher rates are coming; it’s only a matter of when and how high.
But Dudley also gave himself and his colleagues on the Federal Open Market Committee (FOMC) some cover admitting that rate increases are contingent on “the absence of some dark cloud gathering over the growth outlook.”
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The Fed has signaled it wants to end the near-zero interest-rate climate that has prevailed since 2008. |
Perhaps the Fed is better at predicting the weather than the health of the U.S. economy, because ever since QE ended late last year, the Fed has been signaling that it wants to end the near-zero interest rate climate that has prevailed since 2008.
So far this year, the economic skies have been mostly cloudy, with a chance of recession at times. In fact, the Fed has repeatedly been forced to dial back its own economic forecasts because the actual data just didn’t lend much support for higher interest rates.
Friday’s report was bullish for employment, no question. The surprisingly strong 280,000 new jobs created last month is indeed a positive for the economy. But recall that it was only back in March when we saw a disastrous report; with only half as many new jobs as forecast.
And the U.S. economy shrank 0.7% during the first quarter of this year, the second contraction in the past 12 months, which was another unexpected negative shock in the data.
Still, the consensus believes the FOMC is on track for “liftoff” of interest rates sometime this year, most likely in September. The futures market forecasts a 53% chance the Fed will make its first move by then, up from a 48% chance prior to Friday’s jobs report.
“The FOMC remains ‘data dependent’ and will err on the side of caution.” |
I won’t argue with consensus, but a 53% chance still isn’t much better odds than you’ll get flipping a coin.
Make no mistake the FOMC remains “data dependent” and they will err on the side of caution while waiting for the economic skies to clear.
And between now and the projected liftoff data in September, we’ll get to see second quarter GDP and a few more jobs reports, several inflation readings, and much more.
This week alone I’ll be watching key readings on:
The NFIB Small Business Optimism, due out tomorrow,
Thursday morning’s all-important retail sales report, and
Friday’s Producer-Price Index.
Then the Fed itself takes center stage for a two-day FOMC meeting next week. Stay tuned!
And while we wait for the Fed’s next fearless forecast … I’d like to know your take. Is the U.S. economy strong enough to stand on its own two feet with higher rates, or will the stock market buckle? Let me know YOUR forecast via our Money and Markets website and Mike Larson will be back later this week to peruse your responses.
Other Developments of the Day |
Another police-related incident recorded on video is shaking up the cable-TV news agenda. A video shows a chaotic confrontation between teens and police at a community pool in Texas. Here’s a link to a seven-minute video of the incident recorded by a bystander. Included in the footage is the scene of a police officer forcefully throwing what is reported to be a 14-year-old girl in a bathing suit to the ground and sitting on top of her to subdue her. In another scene, it appears that a police officer pulls his weapon on a youth during a melee before quickly putting it back in his holster. The police chief Greg Conley said three officers responded after residents and a private security officer called police complaining that teenagers did not have permission to use the pool and had refused to leave. Several people complained that the teenagers had started fighting.
At Money and Markets publication time, two dangerous murderers were still on the loose, somewhere in North America. The pair escaped by cutting through steel pipes and walls at a prison in upstate New York near the Canadian border. Authorities say the daring escape might have been helped by insiders, and at least one prison worker is being questioned. The two prisoners were serving time for murder. “These are killers. They are murderers,” Governor Cuomo said. “There’s never been a question about the crimes they committed. They are now on the loose, and our first order of business is apprehending them.”
It’s back: With renewed stabilization of the housing market, Yahoo Finance reports that a possible trend seems to be re-emerging: the demand to invest in subprime loans. “We are beginning to see the opening up of credit and I think that’s a trend that we’re going to begin to see,” Brad Friedlander, head portfolio manager for Angel Oak Multi-Strategy Income Fund, was quoted as saying. Subprime loans generally are those made to borrowers with lowered credit ratings with higher risk of default. As we all should recall, it was the collapse of the subprime loan market — that helped ignite and intensify the late, great global financial crisis. But Friedlander said it’s not the same this time and that the practice will allow investors to get higher returns in a low-rate environment. Whatever the case, we can only hope that bankers and regulators learned their lessons from the last time around and we don’t end up in the same mess. What are the chances of that? Feel free to comment.
More on the world of crime: Prison officials in South Africa have confirmed that Oscar Pistorius will be released from prison Aug. 21 and go under house arrest. That date would be 10 months since the double-amputee athlete was sentenced by a judge after having been convicted of culpable homicide for killing his girlfriend, Reeva Steenkamp. Officials said the recommendation was based on the Olympic athlete’s good behavior in the jail.
The Fed … police videos … Subprime loans… Escaped murderers … Feel free to comment on these or any other topics at the website. Mike Larson will return tomorrow and will read through your responses.
Best wishes,
Mike Burnick
{ 28 comments }
The Fed is only data dependent and the data is faulty. They do not possess any common sense, however. It is their low interest rate policy which is stifling the economy by taking money out of the middle class who will actually spend it and create demand and putting it in the hands of banks and corporations who are only looking to their bottom lines and are either fortifying their capital ratios, buying back stock or investing overseas.
The greed factor among the wealthy is growing by leaps and bounds because of the Fed and when that comes home to roost its going to get real ugly.
Two comments:
1. Ludwig von Mises laid it all out in “Human Action.” All these indices and attempts to apply the laws of physics to economics are futile and misleading at the best. When human beings are interacting, ANYTHING is possible and RARELy predictable. Don’t relay on statistics. They can be juggled any way the author wants.
2. Apparently cops have lost their way. We them put here to “Serve and Protect,” not to “Surveille and Pounce-Upon.” British “Bobbies” did so well for many decades. Why should the individual policeman be armed? If he can’t handle the situation, he can always call in several SWAT teams and armored cars. The cop in that vido should be banned forever from public service. And he was a non-commissioned officer, a corporal who should have been setting a good example. Shame.
American cops have killed 385 civilians to date this year. Reportedly British cops……zero. Something is wrong. American cops need to stop shooting to KILL.
Fred,Your trouble is nearly every American has pistols,machine guns,rocket launchers and God knows what else,and druggies,the poor cops just want to go home at night.The whole American attitude to weapons is completely bizzare even to the world.The right to carry weapons was to fight us Brits,I think the war is over.
Politicians prefer unarmed peasants!
Two comments:
1. Ludwig von Mises laid it all out in “Human Action.” All these indices and attempts to apply the laws of physics to economics are futile and misleading at the best. When human beings are interacting, ANYTHING is possible and RARELy predictable. Don’t rely on statistics. They can be juggled any way the author wants.
2. Apparently cops have lost their way. We them put here to “Serve and Protect,” not to “Surveille and Pounce-Upon.” British “Bobbies” did so well for many decades. Why should the individual policeman be armed? If he can’t handle the situation, he can always call in several SWAT teams and armored cars. The cop in that video should be banned forever from public service. And he was a non-commissioned officer, a corporal who should have been setting a good example. Shame.
I think you keep making a mistake. You equate the health of the economy with the health of the stock market and they are not only not the same thing, for a great many Americans they have not much at all to do with each other, by their experience. Picky I know. But I think you know better.
Glenn, you are absolutely correct. Remember, the stock markets rose – and fell – during the Great Depression of the 1930’s. Even while people were standing in lines at employment offices and soup kitchens, some investors made fortunes – while others lost everything. Dr. Weiss can tell you about that.
The Fed is data dependent, that’s a joke. The stock market is Fed dependent and the creation of millions of dollars in stimulus with nothing to back it up is driving down exports, keeping main street investors who are trying to grow yet protect their retirement IRAs forced into the market. Most of them don’t have “trailing stops” and other automatic devices on their accounts and the burst of the balloon is like a volcano with the lava dome building, building and building. When it bursts, it will take the economic future of regular folks in little towns right down with it. It’s a travesty designed to increase for the wealthy and decrease for everyone else. Sad.
Not Possible to raise rates——- I predict 2018.
The Fed just removed themselves from the weekly 10 yr treasury bidding the end of February (bid to cover went from 2.82 to 1.38 the first week of March). They let the foreign investors bail out of their currency while the Uro, Yen and Yuan printed up vast new quantities of currency.
Worldwide we are 1/2 way through, at best, of assimilating the 3 Billion people who entered the free market in the year 2000. (from 1990-2000 Eastern Europe, the USSR countires, China et al, were busy building infrastructure from the IMF loans of 3 trillion dollars to rebuild their infrastructure) World Economic equilibrium is still out 30 years.
The government figures make it look as if employment is improving – and maybe it is – but according to other figures, at least a third of the working age population is unemployed. That doesn’t include those who are underemployed, or working several part time jobs to make ends meet somehow, but who count as employed according to “official” figures.
You have to look at the Dept of Labor U-6 unemployment data to get the real story….and that is 23% unemployment. Google ‘Shadow Stats’.
The stock market and the economy are two different things. If rates increase the economy will continue in its current chronic depression because loan activity won’t change for the better. The current stock market is not tied directly to the economy and is the only option for hot money. Market will remain a bull market.
Thomas Jefferson said in 1802: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered.”
The Federal Reserve is doing just what President Jefferson, warned us they would.
Hi Mike, The FED will NOT raise rates this year. Raising rates is based on the growth of the economy(jobs) and inflation. It would take a major political move to embrace such austerity measures. The FED would Love to have a current interest rate of 3-4% to play with but they “painted themselves into a corner.”
Regarding last weeks discussion about the loaded oil tankers. From what I can find out at least 34 of them are holding Iranian oil, waiting literally for the minute sanctions are lifted. 50 million barrels isn’t going to crater oil prices but it might be a short term opportunity to make a few bucks going short if you think Obama’s deal will go thru. Jim
IMHO the FED will raise rates in September unless there’s a major geopolitical event that causes them to wait.
Regarding the US stock market, we’re likely to see a repeat of last year when the FED ended QE. The S&P should correct, perhaps more than the ten percent we saw last year, followed by a end-of-year rally after it becomes apparent the FED will raise once only in 2015. Again, like last year, the downturn should be a buying opportunity, but it may require a bit more patience.
The Fed should raise rates .25% just to get it over with. The only problem then becomes, “oh, when will they raise rates again and then, Oh how much will it be.” Stupid investors. The fed really needs to come out and say” it appears we will raise rates in Sept. and then again in Dec or Jan by another quarter. This way the market and people can’t bitch, plus it takes away all certainity and everybody knows what is going on. Actually the Fed needs to be done away with and then done in house by the govt. Can you tell me why the govt should rely on private enterprise to raise its rates. DUMB and STUPID. Lets start a blog.
The Fed will have no choice in raising rates, if the longer term free market rates rise, the Fed. will follow suit. Rates on those as well as foreign bonds are moving up, so they are talking that story. I really don’t think the Feds actually control rates in any large way. Few have wanted to borrow money,so it has been on sale. This rise will indicate a fear of being repaid principal. That is why rates on Greek bonds, for example are high.
I’m disappointed by the question you posit today: Is the U.S. economy strong enough to stand on its own two feet with higher rates, or will the stock market buckle? This “either-or” statement reveals your view of the economy (i.e. economy=stock market). What about the millions of workers and consumers who don’t trade stocks? Are they excluded from your economy?
But Friedlander said it’s not the same this time and that the practice will allow investors to get higher returns in a low-rate. Where have I heard this worn out phrase before.
I just read an article by Stephan Moore that is an eye opener. Hillary claims the rich have cornered the market on wealth and have to be taken down. Beside the fact that she is one of the rich her platform premise is asinine. Comparing the Forbes 500 of 1982 to the list from last year only twenty per cent of those on the first list managed to stay on it. Most of today’s top companies didn’t even exist in 1982. In reality the rich get poorer and the poor get richer in America. No redistribution is necessary, it happens quite naturally. New geniuses and new companies are constantly appearing and taking out the old leaders. The Carnegies, Harrimans, and Rockefellars are pretty much irrelevant today. In a few years the Gates, Jobs, and Buffets will be just as irrelevant. The easiest thing to do is be rich and spend it, give it away, or lose it. We don’t need any help from the government.
We are very concerned about the future of our country and for the well being of our children. Good times are gone, now it will be up to our generation to help the next generation survive.
Survival and gardening skills will be paramount. God bless and good luck to all!
If they make any move in interest rates at all, it will be so small as to be laughable. My view is pretty much aligned with Jim Rickards and Peter Schiff.
There are so many people who should have gone to jail for allowing the subprime fiasco.
Barney Frank is one of them…!!
The long term answers are the most important, not the short term noise in job figures or GDP measures. Any short term view is simply noise. Economies have been slowing across the world for a few years now A little glitch up here recently and of course the Fed may raise rates but the long term trend is down. It’s only risk that is up. Less stability due to incredibly high debt levels and the absurdity of stimulating to any down movement in stocks. The cause of interest rate rise now will simply be risk which will eventually overwhelm economic slowness.
Plus one other very important issue is that the entire world is becoming more fragmented and polarized. I can think of nothing more obvious than this. Even more mysterious is how one huge group of people are willing to die to move backward in time toward religiously run economies, IS.
The current political elite’s long term decisions globally are now looking incredibly foolish and superficial and certainly have contributed greatly to the instability we are now faced with. Society now obviously sees this as exhibited by voters removing established parties in virtually every state. Unfortunately the stage has been set by fools.
Sub-Prime mortgages coming back? Of course they are and what will the reasoning be? Well for starters it is not fair that hard working low credit folks should be locked out of the housing market. This time it will be different as stated income will be verified by a phone call to someone. And of course the Fed will back end the mortgages through more funny money. What could be wrong with that? No one will disagree with this assessment.
look larry, the there is an undercurrent of a recession with an impression of a stable economy. after spending 5 trln if you call 2% growth as escape velocity for a hike rate later in the yr, you must already be on christmas eggnog and assure you if the fed gets to acting clint eastwood @ high noon , it will have egg on its face soon after ie usa inc in recession . let me justify, the high employment numbers upwards of 280000 is mostly temp, low paying , no way its lifting the economy, these are all hand to mouth ones. the usa is so service and spend economy that unless the big ticket skill ie software guys but not asians but americans get these jobs , theres no way a structural recesssion can be avoided ie no fire power in purchasing houses, or spending on shopping ie discretionary spending. you guts just dont have it. plus your demographics of usa fast becoming a dinosaur is stacked against you. if aunt janet gets itchy and makes the fatal mistake of pulling the trigger anytime before america gets STRUCTURALLY BETTER IE UNEMPLOYMENT % FALLING NOT BECAUSE OF THE WANTED JOBS GUYS LEAVING THE WORK FORCE, SHES’ COURTING RISK. FORGET RAISING TILL 1ST HALF 16 AND EVEN THEN REVIEW, BUT UNFORTUNATELY THEY WONT GIVE ME THE FED JOB LETS SEE