The FOMC meeting is the most important economic event next week. The implications are much broader than the impact on the US dollar, which has surprisingly not reacted to the recent string of strong economic data.
This month’s FOMC meeting had previously been widely seen as a likely timeframe for the first rate hike. The unexpected weakness in GDP and the well-below trend job growth in March help shift sentiment to September. This month’s Wall Street Journal survey showed 72% of economists expect that.
What follows from this is that neither the FOMC or Yellen at her press conference will indicate otherwise. To do this, the Fed will have to recognize that what will eventually appear as stagnation in Q1 appears to be proving temporary as it had anticipated. This will likely mean a reduction of the “central tendency” of Fed forecasts, by which a few highs and lows are dismissed, and an average taken of the remainder. In March, it was 2.3%-2.7% (2.5% midpoint, which after the recently updated forecasts is precisely what the IMF forecasts).
Tactically, it would be best for the Federal Reserve is they avoided being in a position to cut its growth forecasts again in September. It would not be helpful in the context of both the IMF and World Bank recent assessments that the Fed should wait until next year to raise rates. On the other hand, a central tendency of below 2% might be taken as a signal that the doves are prevailing.
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The Federal Reserve wants to avoid sparking another taper tantrum. That will be easier said than done.
In May 2013, when the Fed’s then-Chairman Ben Bernanke said that the central bankcould begin winding down quantitative easing “in the next few meetings,” he sparked a selloff in Treasurys that sent the yield on the 10-year note from 1.94% to 2.9% in three months.
By then the Fed was having second thoughts, in part because it worried the rise in long-term rates was damping the economy. It didn’t begin scaling back bond purchases until the start of last year. If it mishandles communicating its plans for raising rates, it risks a repeat.
The Wall Street Journal’s monthly survey of economists, released Thursday, shows that nearly three-quarters of forecasters expect the Fed to begin raising its target range on overnight rates at its September meeting. The remainder are split between earlier and later dates. The median federal-funds forecast for year-end is 0.625%, which implies a target range of 0.5% to 0.75%—implying two quarter-point increases from the current range.
Those forecasts reflect a view that the economy will rebound from the weak first quarter, allowing the Fed to finally lift rates. It also seems squarely in line with what Fed officials themselves expect.
But investors see things differently. >> Read More
The Fed had seemingly ignored Congressional demands for details with regard the 2012 FOMC Statement leak. Now we know why they missed the deadline:
- *YELLEN SAYS SHE MET WITH MEDLEY GLOBAL ANALYST IN JUNE 2012
- *YELLEN SAYS SHE DIDN’T GIVE MEDLEY CONFIDENTIAL INFORMATION
So she met with the analyst that leaked the statement… but didn’t say anything?
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It’s nice to know we’re being read, and Thursday’s editorial on “The Slow-Growth Fed” sure got a rise out of Ben Bernanke. The former Federal Reserve Chairman turned blogger turned Pimco adviser wrote to defend the central bank and by implication his policies as innocent of responsibility for subpar economic growth.
This is fun, so let’s parse the Revered One’s arguments. First, Mr. Bernanke accuses us of “forecasting a breakout in inflation” at least since 2006. The central banker is getting into the polemical swing, but he’s wild with that one. We’re not always right. But we’ve been careful not to join some of our friends in predicting inflation from the Fed’s post-crisis policies. We’ve written that we are in uncharted monetary territory with risks and outcomes we lack the foresight to predict.
Our view has been that the Fed’s first round of quantitative easing was necessary to stem the financial panic—and that it worked. We were skeptical of the later bouts of QE, and in our view these have been notably less successful in helping the economy return to robust health. Asset prices are up and the wealthy are better off, but the working stiff is still waiting for the economic payoff.
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Yes ,List from our Library
Note that the literature listed below can easily be found in book stores or via the internet.
The following books and articles target some of the core psychological obstacles that traders face every day and techniques to maximize their trading performance. This is an extremely important part of the reading list, in my opinion.
- “The Mental Edge: Maximize Your Sports Potential with the Mind-Body Connection” – Kenneth Baum“How Successful People Practice” – James Clear (www.jamesclear.com)
- I’m a big believer in visualization techniques and the contribution it can make to trading success. I first used visualization during my years playing hockey.
- “Zen and the Art of Management” – Financial Times, September 16, 2013
- “Good To Great” – Jim Collins
- The book is centered on how companies can go from a position of mediocre to greatness. Many of the concepts are readily applicable to the trading business and to building yourself into an elite trader.
All the books of Dr. Ari Kiev.:
- “Trading to Win: The Psychology of Mastering the Markets”
- “Trading in the Zone: Maximizing Performance with Focus and Discipline”
- “The Psychology of Risk: Mastering Market Uncertainty”
- “The Mental Strategies of Top Traders: the Psychological Determinants of Trading Success”
- “Hedge Fund Masters: How top Hedge Funds Set Goals, Overcome Barriers and Achieve Peak Performance”
- “Mastering Trading Stress: Strategies for Maximizing Performance”
- Prior to his passing, I had been organizing a conference with Dr. Kiev. He revolutionized the hedge fund industry in terms of trader performance
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According to the NYT, “while Mr. Bernanke will remain a full-time fellow at the Brookings Institution, the new role represents his first somewhat regular job in the private sector since stepping down as Fed chairman in January 2014. His role at Citadel was negotiated by Robert Barnett, the Washington superlawyer who also negotiated a deal for his book, “The Courage to Act,” which Mr. Bernanke recently submitted to his editor and will be published in October.”
From the NYT:
Mr. Bernanke will become a senior adviser to the Citadel Investment Group, the $25 billion hedge fund founded by the billionaire Kenneth C. Griffin. He will offer his analysis of global economic and financial issues to Citadel’s investment committees. He will also meet with Citadel’s investors around the globe.
It is the latest and most prominent move by a Washington insider through the revolving door into the financial industry. Investors are increasingly looking for guidance on how to navigate an uncertain economic environment in the aftermath of the financial crisis and are willing to pay top dollar to former officials like Mr. Bernanke.
Mr. Bernanke joins a long parade of colleagues and peers to Wall Street and investment firms. After stepping down, Mr. Bernanke’s predecessor, Alan Greenspan, was recruited as a consultant for Deutsche Bank, the bond investment firm Pacific Investment Management Company and the hedge fund Paulson & Company.
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The US Federal Reserve risks causing a 1937-style stock market slump when it finally moves to raise interest rates, one of the world’s most powerful hedge fund managers has warned.
Ray Dalio, founder of the $165bn hedge fund group Bridgewater Associates, said in a note to clients and followers that he was avoiding large bets on the financial markets for fear that the Fed’s expected change of policy could have unintended consequences.
The note emerged as Christine Lagarde, head of the International Monetary Fund, warned on Tuesday that US rate increases could trigger instability in emerging markets, leading to a re-run of the Fed-induced “taper tantrum” of 2013.
The comments frame a high-stakes Fed meeting at which the central bank’s policy makers are expected to open the door to the first US rate rises in nearly a decade. >> Read More
06 January 2015 - 10:35 am
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
The surreal nature of this world as we enter 2015 feels like being trapped in a Fellini movie. The .1% party like it’s 1999, central bankers not only don’t take away the punch bowl – they spike it with 200% grain alcohol, the purveyors of propaganda in the mainstream media encourage the party to reach Caligula orgy levels, the captured political class and their government apparatchiks propagate manipulated and massaged economic data to convince the masses their standard of living isn’t really deteriorating, and the entire façade is supposedly validated by all-time highs in the stock market. It’s nothing but mass delusion perpetuated by the issuance of prodigious amounts of debt by central bankers around the globe. And nowhere has the obliteration of a currency through money printing been more flagrant than in the land of the setting sun – Japan. The leaders of this former economic juggernaut have chosen to commit hari-kari on behalf of the Japanese people, while enriching the elite, insiders, bankers, and their global banking co-conspirators. >> Read More
18 December 2014 - 10:30 am
Moments ago, after Yellen earlier explained that the Fed may hike rates at any moment, and certainly not only during press-briefing days, she also explicitly, and very unexpectedly, said that the Fed will likely not hike for a “couple” of meetings. And when she was subsequently asked to explain what “a couple” means, she further explained that it means “two.” As a reminder, this comes from a Fed chairwoman who had a trial by fire when, fresh after replacing Bernanke, she locked herself in the “6 month” calendar interval. In other words, she knows not to give the market a timing bogey. And still she did so. Which, quite explicitly, means that anything starting with the 3rd meeting, currently scheduled for April 28-29, 2015, and onward is very fair game and the market will be foolish to expect the Fed not to follow through with this warning, a Fed which is already dangerously close to losing all credibility it has.
And another way of stating it comes from Peter Tchir of Brean Capital. His take:
Looks like the April/May meeting could be the date. 3 reasons:
1) A couple means 2 – just stated
2) then could host a conference call on a non press conference meeting
3) she said, i keep telling the market what we are going to do, i wash my hands of the market if they won’t listen
She also does not get about oil as transitory. She is remaining very consistent. Core is what matters.
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