The Fed's Memorial Day barbecue

Fireworks or fizzle?  Markets eagerly anticipate finding out what sort of Memorial Day barbecue Janet Yellen plans to serve today less than an hour before markets close ahead of the long weekend.  While fixed income has rallied over the last couple of days courtesy of month-end extensions and some solid auctions, it certainly looks as if at least a portion of yesterday's rally was in anticipation of Janet grilling a few nice fat hawks on her verbal skewer this afternoon.

It's easy to look at a chart of the last few months and say "a hawkish Fed is in the price."  Any time  fixed income price chart ends at the bottom right hand corner, that's usually not a bad assumption.

In this case, however, a little nuance is required.     First, there's the matter of the recent shift in communication.  Not only have Rosengren and others been banging the drum that 2-3 rate hikes this year are still possible or even likely, but the minutes of the April Fed meeting appeared to validate that message as well (albeit with the usual caveats.)

This is a distinct change in tone from what we'd heard previously.  If one or two regional presidents disagree with recent FOMC communications, that's to be expected; hey, sometimes it feels like Jim Bullard can disagree with the most recent statement in three different ways over the course of an afternoon.  However, when the message from the regionals is corroborated by the minutes, surely that represents a change in stance, however nuanced.

Now, it's certainly true that neither Dudley nor Fischer took the opportunity to enhance the message of the minutes in their recent speeches beyond the most boilerplate of affirmations.   That being said, they in no way at all contradicted that message or suggested that it had been misinterpreted.

As such, it seems difficult to countenance that Yellen would come out overtly dovish despite her history of doing so.  At worst, it seems possible that she may dodge attempts to nail her down on providing more explicit guidance for the June meeting- after all, she's at Harvard to receive a medal, not speaking to the New York Economic Club.

Just judging by the titles, Jerome Powell's speech 45 minutes earlier may be just as illuminating if not more so; "Recent Economic Developments, the Productive Potential of the Economy, and Monetary Policy" certainly sounds like it might have the odd juicy tidbit in it.   While it's true that Powell is not often thought of as part of the core cabal, he is a governor so his comments are worth listening to.

Getting back to the original question at hand, looking at the current eurodollar curve, it's hard to say that it's priced for a hawkish Fed.  The chart below shows the first 4 packs over some recent key dates:

5/27/15:  a year ago
12/16/15: Dec FOMC
1/27/16: Jan FOMC
3/16/16: Mar FOMC
4/27/16: Apr FOMC
5/18/16: April minutes published
5/26/16: yesterday, obviously


As you can see, the curve is much flatter and generally a lot lower than it was last year or even in January.  Greens and blues are pricing in a lower yield than they were at the close of business on the day of the super-dovish March FOMC.  Whites and reds aren't exactly pricing yields much higher, either.  Given the change in oil, Spooz, and most importantly, Fed rhetoric, does this make sense?

Possibly, if you wish to strongly argue that prices on March 16 had not yet found equilibrium.  Yet it would still appear that the balance of risk strongly favours a steepening, which really just means a sell-off.  If you believe that the Fed won't go unless the market has "properly" priced it, then this is one of Yellen's last chances to afford herself the flexibility (or even luxury) of going either way at the meeting.  Even if she chooses not to take it, it seems hard to credit that she would effectively slam the door shut by submarining what's been a reasonably consistent message from Fed speakers over the last few weeks.

There may not be fireworks, but Macro Man still can't help but wonder if she'll throw a few squabs on the barbie...



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Thud and Blunder
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May 27, 2016 at 9:57 AM ×

Here's the description of today's program:

"On Radcliffe Day, we celebrate our commitment—in the past, present, and future—to excellence and inquiry.
This year, on Friday, May 27, 2016, the Institute will honor Janet L. Yellen, chair of the Board of Governors of the Federal Reserve System, with the Radcliffe Medal, presented annually to an individual who has had a transformative impact on society.
The Radcliffe Day lunch in Radcliffe Yard will feature personal reflections from Ben S. Bernanke ’75, a distinguished fellow in residence in the economic studies program at the Brookings Institution and the former chair of the Federal Reserve, after which Gregory Mankiw, the Robert M. Beren Professor of Economics at Harvard University, will engage Yellen in conversation about her groundbreaking achievements."

Doesn't sound like the type of event where we'll be treated to any tape bombs.

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Anonymous
admin
May 27, 2016 at 11:34 AM ×

The Fed's lost in translation!!!
Courtesy of Bloomberg:
"Gundlach said Federal Reserve Chair Janet Yellen, who’s scheduled to appear Friday in an interview with Harvard University Professor of Economics Greg Mankiw, will “be dovish,” and temper expectations for a rapid series of interest-rate increases."

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Macro Man
admin
May 27, 2016 at 11:37 AM ×

"expectations for a rapid series of interest rate increases"? Like the 57 bps priced over the next 18 months? He needs to put down the porn mags and start watching his screens a bit more closely.

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Unknown
admin
May 27, 2016 at 12:34 PM ×

Still, that's 10 times the speed of the last decade!

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Unknown
admin
May 27, 2016 at 12:34 PM ×

Still, that's 10 times the speed of the last decade!

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Anonymous
admin
May 27, 2016 at 1:15 PM ×

Was looking for signs of exuberance - thought everyone was too pessimistic.

Then I saw this.

http://www.wsj.com/articles/the-new-oil-traders-moms-and-millennials-1464277188

Moms playing with USO ? Is this like day traders during the 90s ?

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Booger
admin
May 27, 2016 at 1:50 PM ×

Anon 1:15, nah, if oil was $500, maybe.

The 90's, that tech bubble really was crazy.

Barbra Streisand's Latest Role: Stock Picker "IF I SEE RED, I SELL QUICKLY"

(FORTUNE Magazine)
By Jeanne Lee

June 21, 1999


(FORTUNE Magazine) – So Barbra Streisand was talking with her good friend Donna Karan on the phone last fall, and she told Karan she'd made $130,000 on eBay stock in just one month. Karan was duly impressed. As Streisand tells it, "She said, 'Oh, can you do that for me? I'll give you a million dollars to invest for me.' And I said, 'You're crazy, why would you do that?' She said, 'Well, it sounds like you're making so much money, so do it for me.' So I said, 'I'll do it if you're willing to lose it. Are you willing to lose a million dollars? That's the only way I'm willing to do this.'"

At the outset it looked as if the famed designer would indeed take a big loss. "The first day I bought eBay and Amazon, and they dropped like 20 points each, at least," Streisand recalled recently in an exclusive interview with FORTUNE. "I couldn't even call her, because I was heartsick. I was having heart palpitations.... So I waited till the stock went back up, when I could call her again, and then I said, 'I don't think I can do this'...yet I was fascinated to try." The result was stunning: After five months of intense trading, Streisand managed to nearly double her friend's stake, to $1.8 million.

Never mind gold records. Who cares about Academy Awards? Investing--especially in volatile tech stocks--has recently become a consuming hobby for the star of Yentl, Funny Girl, and The Way We Were. She studies business publications like Barron's and watches CNBC religiously. She has installed a real-time stock-quote service at home. And she wakes up at 6:30 every morning to catch the opening of the East Coast stock markets. ("It's terrible! I have a natural-born alarm clock that goes off every morning at, like, 6:30. I want to sleep, but I just wake up.")

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Anonymous
admin
May 27, 2016 at 1:51 PM ×

powell does not seem to be on schedule...
also..mar16? i asssume u were talking abt mar17

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Anonymous
admin
May 27, 2016 at 2:02 PM ×

Thanks Booger - was young then so dont really remember how it went.

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Leftback
admin
May 27, 2016 at 4:25 PM ×

Risk has died. Rest in Peace, dear Risk, never to roam the Earth again.
Alas, poor Risk. It joins volatility and price discovery in the graveyard, tended by Dame Janet.

[Engage irony detector here]

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Justabeancounter
admin
May 27, 2016 at 5:00 PM ×

Wow Booger - that's the most amazing thing I've read for a while.

I thought it was hyperbole but it seems everyone WAS a day trader in 99!

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Nico G
admin
May 27, 2016 at 8:06 PM ×

so

did Eric Dolphy show up?

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Anonymous
admin
May 27, 2016 at 9:45 PM ×

Nico ... good one! :)

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checkmate
admin
May 28, 2016 at 8:02 AM ×

"International Monetary Fund — often dubbed the "central bank's central bank" — are beginning to question parts of the neoliberal consensus that has dominated economic thinking for the past three decades."
Bless them and all their little scientific neurons. Moreover they also think that perhaps Austerity policies may be causing more harm than good. Well, I never ,would you think that ?
What they think of has "Inequality" is a function of the triumph of Monetary policy over Fiscal policy in the last half a century or thereabouts. I don't see a problem with Neoliberalism itself. The question really is how have the benefits of such policy been distributed and that brings in the relationship between Monetary and Fiscasl policy. The former almost guarantees a skew to the holders of capital. How can it ever do anythingelse UNLESS you use it in tandem with Fiscal policy to shape that distribution. That of course get's all the little would be capitalists up in arms defending their innate right to satisfy their 'penis size' ego issues. I doubt they understand the limitations for growth of capital when you reach a point where inequality marginalizes that part of the population which makes up the difference between low global growth and average global growth. Bang for buck on Monetary policy just won't bring ever increasing returns on capital because someone has to consume more for that to happen ...get it?

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Skr
admin
May 29, 2016 at 10:35 AM ×

Champions league final 1-1 after extra- time. Real Madrid win on penalties.

Need pointers on this one lads. Happens to often to be a coincidence.

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rs55
admin
May 30, 2016 at 2:02 AM ×

Every 25bp "rate increase" is merely atransfer of $6 Billion from the USTreasury to the Banks. Full stop. Does everybody agree with this basic FACT?

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rs55
admin
May 30, 2016 at 2:04 AM ×

h thats $6 Billion per year forever. So thats woth what? $100 Bn? Maybe more?

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rs55
admin
May 30, 2016 at 2:07 AM ×

Can a Fed chief leave in good standing if he/she has not transferred several $100 Bn to the banks from the public purse? Probably not. Janet already had the first$100 Bn in da bag. Its all gravy from here on out.

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rs55
admin
May 30, 2016 at 2:09 AM ×

Da bestest part is there aint nuttin nobaady can do abouit.

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rs55
admin
May 30, 2016 at 2:12 AM ×

In da woild of big money and power da unit of account is $100 Bn

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Anonymous
admin
May 30, 2016 at 11:26 AM ×

Is this the story of Brer Janet and the zirp baby, Uncle Remus?

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Bruce in Tennessee
admin
May 30, 2016 at 1:05 PM ×

Every 25bp "rate increase" is merely atransfer of $6 Billion from the USTreasury to the Banks. Full stop. Does everybody agree with this basic FACT?

...I am not sure I do. Interesting year, thus far. ZIRP hasn't been modified, and it looks like things are getting more unraveled. The pension mess is intensifying, and it appears pension funds are not able to keep a level playing field with ZIRP. In the end looks like 401k-land ahead for public employees. How are the banks making money now? High-end mortgages and equities? Will that work for long? I see that most institutions have now fired 33% of the fixed income staffs they had in 2007. Fixed income has been lost as a pillar of the financial community, and with it risk has increased dramatically.

...If more people, especially young people, want a more protected, socialist economy, they may just have to get used to less opportunity. It isn't coming, it is here already.

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Bruce in Tennessee
admin
May 30, 2016 at 1:25 PM ×

A few years ago, there was a commercial on TV about this trading genius who was cleaning out his desk, still a young lad, and one of his co-workers asked him what he was doing. He stated he was retiring, with a smile. Asked how he was able to do it, he generously explained that he'd learned how to channel stocks. I think the name of the company was channelingstocks.com. Anyway, his "secret" was he'd been taught by this wonderful company to find the upper and lower bounds of individual stock prices, and he'd been buying stocks at the lower bound and selling them at their upper price. Simple and wonderfully income-producing! You too, could learn to do this!

Now these bounds (whipsaws) can occur in a few days or a few weeks, as everyone concentrates on the Fed and how to make inflation appear in a deflationary evironment. I don't mean to say you can't trade fixed income and make money yourself, you still can. But as a support for economic activity in general, that looks like rear view mirror stuff...

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Nico G
admin
May 30, 2016 at 2:45 PM ×

i thought we would never have the insane chance to see a market go up after a rate hike (announcement) again, like they did in December - everyone was cheerful and thought they were prepared for a cut, then a bloodbath followed

this, coupled with the traditional end of month squeeze for the better (March, April, now May) might offer the best short entry of the year for those who have been mr Miyagi-patient and remain on the sideline. Imminent reward come June if your timeframe is short.

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