Will The Fed Forgo Raising Interest Rates?

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Quite a few bears think that they should or that they will. I believe that they should, but I don’t think that they will forgo the eventual rate hike.

“In my view, the Fed will not increase interest rates this year,” he told CNBC’s “Squawk Box,” pointing to dollar strength and recent disappointing economic data. “The economy simply [is] not taking off, so I don’t see there will be an interest rate increase.” – Mark Faber

“The U.S. economy is sicker than ever,” said Schiff. “And the Fed is going to launch QE4 for the same reason they launched QE3, 2 and 1. They’re going to try to stimulate the economy. Now that they stopped QE, the air is coming out of this bubble.”

And according to Schiff, if the Fed does raise interest rates later this year, the outcome will be catastrophic. “I think without QE4, we will be back in recession,” he said. “It’s going to be horrible. There’s going to be a worse financial crisis than 2008.”

I agree with the views above. The underlying US Economy is sick and on the verge of recession. With that in mind, the bears above are forgetting two things. First, the FED needs to re-load on their recession fighting tools before the next one hits (we are almost there). And second, the FED is a reactionary force. Meaning, it has always been behind the ball in terms of reacting to various economic developments. I don’t think that will change now.

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March 13, 2015March 13, 2015

Overpriced Sectors That Are About To Collapse

A rather simple, but accurate look at today’s market environment. Unfortunately, the guy backtracks by suggesting we won’t see any sort of a decline in the equity prices over the next 12-18 months because the FED will not raise interest rates. Due to the strong dollar. In other words, continue to BUY (according to him).

I disagree. I won’t go into details, but my mathematical and timing work suggests that the FED will raise rates in June/July. Further, the dollar is topping out here and should reverse soon. This supports the FED case. And as soon as investors get this wake up call, expect rapid multiple contraction, just as described in the video below.

Overpriced Sectors That Are About To Collapse Google

June 16, 2014June 16, 2014

IMF Cuts Growth Forecast. Rates To Remain Low

While most market pundits expect the US Economy to accelerate growth due to “anticipated” increase in CAPEX, hiring or whatever other nonsense they believe in, even the IMF is not buying it. IMF Cuts U.S. Growth Forecast, Sees Greater Scope for Zero Rates

The International Monetary Fund cut its growth forecast for the U.S. economy this year and said theFederal Reserve may have scope to keep interest rates at zero for longer than investors expect

This has been my view for quite some time now. As our stock market mathematical and timing work clearly shows, the US Economy will be in a server recession by this time next year. That means that any and all tightening proposed by the FED will go out of the window. Instead, the FED will be looking re-inflate the economy/market through all means necessary. That means putting all interest rate increases on hold and possibly re-accelerating QE.

In short, expect interest rates to stay low for at least a few more years. This is further confirmed by our technical 10-Year Note view and it’s likely retest of the 1.5-1.6% range(double bottom in yields).

IMF Cuts Growth Forecast. Rates To Remain Low Google

June 2, 2014October 28, 2014

Idiots At The FED, “Let’s Jack Up The Rates…NOW”

At least for the Kansas City Federal Reserve Bank President Esther George, the future is crystal clear. According to her, the US Economy will continue to accelerate, interest rates will go significantly higher and the FED will eventually work through it’s $4 Trillion Junk balance sheet without a sweat. The time to raise the rates is NOW. Fed’s George wants rate hikes soon, and not too gradual

With her vision being so clear, it must be a personal sacrifice working for the FED and NOT making billions on Wall Street. Yet, the reality is quite different.

Interest rates continue to decline while flattening the yield curve (suggesting a recession), the stock market is back to the bubble/speculation levels unseen since the 2000/2007 tops and the FED continues to tighten. As I have mentioned before, the worst thing they can do now is cut the QE, let alone raise interest rates. Proving once again, the FED is nothing more than a reactionary force.

All of this is confirmed by my mathematical and timing work. It shows a severe bear market/recession within the US between 2014-2017. When this bear market starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning exactly when this bear market will start and its subsequent internal composition, please Click Here.

May 29, 2014July 2, 2014

Are Bond Vigilantes Buying Bonds?

As yields continue to decline and as the yield curve continues to compress, BusinessWeek asks “Where Are The Bond Vigilantes“

In fact, Bloomberg News reports, there is “deepening concern among bond investors that tepid wage growth and a lack of inflation will persist for years to come.” The story quotes Margaret Kerins, the Chicago-based head of fixed-income strategy at Bank of Montreal: “Potential growth is a huge determinant of that long-term rate and most people are buying into the idea of lower potential growth.”

I think this is the most significant story no one is talking about. While most people believe yields are heading lower due to the lack of inflation, slower growth or simply because the bond market has gone crazy, I do not share in their optimism.

Here is why the yields are going down and the yield curve is compressing.

The bond market is starting to see a severe recession and a bear market within the US Economy. Our mathematical and timing work confirms the same. Showing a significant recession and a bear market between 2014-2017.
Typically, 30-year bear markets in yield do not end in a V shape form. When such long moves complete they often set a secondary bottom (at least). This fits well within our overall economic forecast as we anticipate yields to set a secondary bottom over the next 2-3 years. In 2016 to be exact.
There are a number of open gaps leading all the way down to 1.5-1.6% on a 10-Year Note. Again, it is highly probable yields will go there over the next 2-3 years.

When we put all of this together, it becomes evident that the US Economy and the US Stock Market are in real trouble going forward.

May 20, 2014May 20, 2014

Citi’s Chief Equity Strategist: Forget About The Bond Market, Stock Market Will Rally.

At least at the Citigroup, the bull market never ends. That is unless and until they have to beg the American taxpayer for billions in bailout money.

“We think [the reason for falling yields is] pretty technical. Look at jobs, auto sales, planned capital expenditures — none of that is indicative of something ominous in the economic data.”

So what explains it? Levkovich believes the justification for the bond rally has been driven by technical factors like people covering short positions, which he’s heard that banks and a number of institutions have had to do.

The bottom line in his view is that “people have been reading a little too much into it.”

Reading a little bit too much into it? Huh. I am not sure how many times investors have to learn the hard way not to discount what the bond market is telling them. What is the bond market saying?

As the most recent action indicates, it is screaming out that the recession is just around the corner. You can learn more about it in my previous post The Shocking Truth Behind The Bond Market Conundrum Explained

This is further confirmed by our mathematical and timing work. It shows a severe bear market between 2014-2017 that will retrace most of the gains accrued over the last few years. One thing is for sure, ignoring today’s yield curve compression (at this stage of the bull market) will be very detrimental to your overall wealth.

May 6, 2014November 12, 2014

The Shocking Truth Behind The Bond Market Conundrum Explained

We have been overwhelmingly bullish on bonds since the beginning of the year. The bet that has paid off big time thus far. While most market participants expect the rates to rise, we disagree with their view. Here is why…

Our mathematical and timing work predicts a severe bear market between 2014-2017 As it unfolds, it will push the US Economy into a severe recession.To avoid further collapse the FED will have no other choice but to introduce further stimulus into the economy. Driving the rates lower.
Based on our in depth study of financial markets, secular bull/bear markets rarely end in a V shape fashion. Typically, there are longer term double or triple bottoms/tops. Bond yields have been going down for 30 years. I continue to believe that it is wrong to assume that they will simply bottom in 2012-2013 to start their bull market. At least a double bottom is highly probable.

That double bottom should coincide with the recession discussed in point #1. In fact, I wouldn’t be surprised to see the 10-Year Note at around 1.5%. Making it one of the best investment opportunities in today’s market.

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Talking Numbers: Think the bond rally is over? Think again.

Few things are weirder right now than the bond market.

The Federal Reserve continues to taper its bond-buying program as the official unemployment rate ticks down. That should mean higher interest rates.

But lots of other things are happening. For example, though the unemployment rate is at 6.3 percent, the labor participation rate is the worst it has been in over three decades. Tensions on the Ukraine-Russia border and data showing China’s manufacturing contracting have sent investors fleeing to the safety of U.S. bonds. That should mean lower interest rates.

This tug-of-war in the bond market has kept rates in a relatively tight range for much of the year. In fact, the yield on the benchmark U.S. 10-Year Treasury Note has stayed between 2.6 and 2.8 percent since February. It wasn’t long ago when a 20 basis-point move was just another humdrum week in the market.

While the 10-Year’s yield dipped below 2.6 percent briefly in the past couple of days, Chantico Global founder Gina Sanchez said, investors shouldn’t expect rates to stay this low indefinitely.

“I don’t think that we can really support going well below 2.6 percent,” said Sanchez, “only because bonds at these levels are really expensive.”

The only way for interest rates to go lower would be for economic expectations to sour, according to Sanchez, a CNBC contributor.

“That’s really not what’s happening,” Sanchez said. “Although it’s not a dramatic recovery, it is still a recovery. We are still seeing a fall in unemployment rates. There are still issues out there but we are actually seeing the consumer come back to life. So, I think that it doesn’t make any sense to have rates down below here. I think that this is an anomaly and it’s a selling opportunity.”

However, Richard Ross, global technical strategist at Auerbach Grayson, says interest rates will be moving lower.

Ross notes the 10-Year has been trading as a “range within a range.” While it has stayed roughly between 2.6 and 2.8 for the past three months, the larger range has been between 2.5 and 3.0 percent over the course of nearly a year. Ross’ short-term chart of the 10-Year Treasury shows resistance at a yield around 2.72 percent, its 200-day moving average.

But on a longer-term chart, Ross sees rates as having made a “bearish double top” and headed down to test its 200-week moving average. “That comes in at around 2.40” percent, said Ross. “I am bearish on equities … and I think that plays right into bullish play on bonds, meaning prices go higher, rates move lower. Look for a test of that 2.40 [percent] to coincide with a bigger pullback in the equity market.”

March 27, 2014March 27, 2014

Why Interest Rates Will Remain Low

According to David Kotok, co-founder, chairman and chief investment officer of Cumberland Advisors, “long-term rates are likely to stay near current levels for quite a while”.

I tend to agree, but I will go even further. Not only will interest rates stay low, but I would expect the 10-Year Note to retrace back to at least 2% over the next 2-3 years. Why?

Again, the forecast above is based on our incredibly accurate mathematical and timing work. This work predicts a severe bear market in US equities between 2014-2017 and a subsequent deep recession. As it is now, inflation is nonexistent as we continue to deal with debt liquidating deflationary forces.

When the bear market hits (we are almost there), the FED will have no choice but to abandon their “tightening” plan. Instead, a year from now they will be flooding the market with further liquidity/stimulus to try and avoid any further collapse. As you can understand, in such a interest rate environment, short-term rates will remain at zero while long-term tail of the yield curve will flatten once again.

If you would like to find out exactly when the bear market of 2014-2017 will start (to the day) and it’s internal composition, please Click Here.

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The Daily Ticker Reports: Short-term interest rates likely to stay near zero for 2 more years: David Kotok

A week after Janet Yellen unnerved financial markets in her first press conference as Fed chair, markets have settled down. The Dow (DJI), which fell 114 points after she suggested the Fed could raise interest rates “something on the order of six months” after ending its asset purchases, has made up for close to half its losses that day. And the 10-Year Treasury yield (^TNX) has dropped slightly, to 2.7% from 2.78%, raising Treasury prices, which move inversely to yields.

David Kotok, co-founder, chairman and chief investment officer of Cumberland Advisors, tells The Daily Ticker that long-term rates are likely to stay near current levels for quite a while unless the economy tanks — in which case they could drop to near 2% — or inflation takes off, sending rates sharply higher. And he expects short-term rates — which are set more directly by the Fed — will remain near zero.

“The Fed is still easy. The interest rate is still near zero and it’s going to be there for two more years,” says Kotok who describes himself as an “unabashed fan of Janet Yellen.”

Indeed, in its latest policy statement Fed said that it continued to anticipate near zero short-term rates “for a considerable time after” after it ends asset purchases so long as inflation is under 2% and long-term inflation expectations are contained. At the current rate of Fed tapering, those purchases would end in December.

The Fed had previously tied raising short-term rates to an unemployment rate at 6.5% or below but dropped the jobless rate reference in its latest communique.

Future Fed policy will be not only data-dependent but also a reflection of the makeup of its policy-making Federal Open Market Committee, says Kotok, noting that the 12-person committee is currently short three members and more changes will follow after those vacancies are filled.

“The nature of the Federal Open Market Committee is likely to develop [as] more dovish, a little less hawkish … because of the changes in personalities in the next year,” says Kotok.

President Obama has nominated former vice chair of Citigroup Stanley Fischer as Fed vice chairman and Lael Brainard, former Undersecretary of the Treasury for International Affairs, to the Fed board. Current Fed Governor Jerome Powells, who served in George H.W. Bush’s White House, has been re-nominated (his current erm is expiring). Also, Cleveland Fed Bank President Sandra Pianalto is expected to leave at the end of May.

The Senate banking committee has held hearings on the nominations but the full Senate hasn’t voted yet on the nominations.

Watch the video above for more on David Kotok’s view of future Fed policy and tell us your expectations for Fed policy.

December 30, 2013

The Biggest Market Story of 2013

Everyone is running their mouth. Bernanke is talking about indefinite QE, Yellen is saying that she will accommodate the markets any way that she can and Larry Summers is talking about 0% interest rates to avoid economic depression. All of that is garbage.

The only thing that truly matter is the 10-Year Note chart above. As you can see the chart is extremely bullish. I have said numerous times here, it is fatal to believe that the FED’s can control interest rates. They can influence them over the short term, but interest rates will behave as they should over the long run. The chart above clearly indicates that interest rates have reversed their course and are climbing up. Given massive amount of leverage and speculation in the system, even a misery 0.5% increase from this point on will have huge negative consequences. Should interest rates zoom up within a short period of time (which they might) there will be hell to pay.

This is the most important trend to watch going forward. So far the trend is incredibly bullish (for interest rates). This plays very well into my forecast of the bear market starting in 2014. This fundamental development confirms it.

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The Biggest Market Story of 2013