...and now for something completely different

It's finally Fedapalooza today, with the headline act kicking off at 10 am NY time.  Markets have been frozen in anticipation of this speech since about five minutes after the last payroll figure.  Much (virtual) ink has been spilled over the last week writing about today's speech, including by your author.  Would anyone really be surprised if it turned out to be a damp squib?

Anyhow, with market attention focused on Yellen's musings today, Macro Man thought that he would take a look at something completely different, zagging while the market zigs.   A couple of commenters have asked about AUD/NZD recently, and given that Macro Man has had a periodic interest in the pair, he thought it might be useful to have another look.

The first thing to observe is that recent price action has been dreadful; the Interactive Brokers FX feed had the pair posting 11 straight days with a close that was lower than the open before the streak was finally broken yesterday:


While this has not taken the pair to local or all-time lows, historically the area below 1.05 has been something of a no-fly zone for AUD/NZD.   This is not to say that the cross cannot trade down here if fundamentals warrant, but it does suggest that fundamentals have rarely if ever warranted such abject Aussie weakness relative to its antipodean neighbour.  Let's look at a few of those fundamentals in more depth.

When Macro Man was bullish AUD/NZD up to 1.12 earlier this year, the crux of the argument was a favourable development of interest rate spreads that the currency market was under-pricing.  In the interim both the RBA and RBNZ have trimmed rates amidst disappointingly low inflation out-turns.  So how does the rate spread look now?  Well, as it turns out the spread between two year swap rates has moved further in favour of the AUD since the start of the year, even as AUD/NZD has moved lower.


While it is easy to run into trouble with overlay charts by fiddling with the scale, it does seem clear that the trajectory of rate differentials is broadly inconsistent with AUD/NZD falling back by anywhere near the degree it has.  This is a strong argument in favour of buying the current dip.

Of course, there are other factors at work that impact the pricing of the antipodean currencies, with commodities being a prime example.  While Westpac publishes an excellent daily proxy for the RBA commodity price index, the best equivalent for the kiwi is the Fonterra milk auction results, which come out twice a month.  Macro Man developed a little indicator that compares the relative fortunes of the Australian commodity price index with the Fonterra auction result.  Although this indicator has recently moved in favour of the NZD thanks to a 12.7% rise in the price of the last Fonterra auction on August 16th, on a relative basis it's not particularly close to prior troughs of the last several years.  While the relationship between the indicator and AUD/NZD is fairly tenuous (particularly in terms of magnitude), we can at least perhaps say that the relative terms of trade shift in favour of New Zealand looks to be quite fully priced.


What about actual trade?  New Zealand ran a trade surplus for the first six months of the year even as Australia's deficit remained fairly sizeable.  Heck, New Zealand even posted a current account surplus in Q1, something that would have been unthinkable a few years ago!  Macro Man converted the monthly trade balances of Australia and New Zealand into USD for comparison purposes and plotted the difference.  Much like the terms of trade, the recent evolution has been favourable for the NZD but is not at the extremes of a year or so ago.  Moreover, the relationship with the cross is even more tenuous than the other indicators, so it is difficult to construct a strong argument in either direction.


What happens when you put it all together?  In the spirit of what allocators are looking for these days, Macro Man ran a couple of shamelessly data-mined regressions to come up with an "equilibrium" level for AUD/NZD based on the above inputs.    The first regression uses inputs from 2010 to the present day and generates a pretty good fit; the R^2 is 0.85.  Very curiously indeed, the model puts the "correct" level for AUD/NZD at 1.16!


OK, well maybe there is some special secret sauce that has impacted the market more recently, causing it to focus on things like trade and commodity prices instead of rate differentials.  What if we use a smaller in-sample period of January 2015 to the present day?  Well, the relationship clearly deteriorates, as you probably could have guessed by looking at the chart above.  Using the past 20 months worth of data, we derive an R^2 of 0.39, with lower t-statistics for each of the variables.  Generally speaking the model has caught the trend shifts of the past few years but predicted a lower volatility that that which eventuated.  This model currently puts AUD/NZD fair value at 1.08.



There appears to be an additional factor driving AUD/NZD pricing in recent quarters.   Macro Man would humbly submit that a large part of this "dark energy" may well be speculative positioning, as punters seek alternatives to the hamster wheel of G3 CB Bingo.

From Macro Man's perch, the recent sharp decline in AUD/NZD has been a function of speculative length heading for the exits and getting stopped out.   This in turn has exacerbated AUD weakness relative to its neighbour to the degree that there is now an identifiable, appreciable, and tradable valuation gap to traditional fundamental drivers.   This in turn would argue quite strongly in favour of establishing a long position at current levels.

Of course, given the nature of the beast one must be prepared to incur drawdowns, or at least a period of time in which nothing much happens.  However, the apparent potential asymmetry of the trade is sufficiently high that being early with a modest position is probably easy to swallow.  On the basis of this analysis, Macro Man has done just that.  It makes a nice change up from trying to read signals on Federal Reserve policy from the messy entrails of slaughtered bears.

As for Yellen's speech today...well, all Macro Man can hope is that she puts on a better show than the Hammers did last night, or we're all doomed....



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checkmate
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August 26, 2016 at 9:00 AM ×

A pair in a 5 yr downtrend following the fundamental weakness of commodities and China inspired growth of which it's spent the last 2 1/2 yrs trying to decide if this range 1.25 to basically par is an appropriate consolidation base. You could take at least a couple of views of this pair for the future.
The high probability play is for it to bounce from par to 1.125. The lesser probability plays are that ; the world finally reflates in which case you're breaking up out of that range. The world isn't reflating therefore all that counts is whether NZ balance sheet surplus allows them to be a better preserver of currency value than Aus who may yet have to weaken their currency further.
I see no particular reason why 1.04/5 is a desireable entry point as opposed to waiting for any further weakness to make a par plus entry possible. Guess it's a question of what RR you're ready to take on. Personally , I want a bit more than 1.04/5 to 1.125 offers, but I am by admission a greedy beggar.

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checkmate
admin
August 26, 2016 at 9:01 AM ×

" if this range 1.25 ", should read "1.125"
Question, is there an edit function for posts for typos?

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Anon
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August 26, 2016 at 12:01 PM ×

Any idea how all these Trumps, LePens, erdogans and so on will handle the central Banking system in the long run, as soon as populism powered by the 99.99% finally dominates the western hemisphere? Btw on Sep. 18 it wouldnt suprise me to see the german populist party "AFD" becoming the strongest political force even in the liberal German Capital Berlin - they are voting the local Parlament, it might be a last warning shot for the government. AFD is only 4-5% behind in the polls and polls mostly underestimated populist partys in the last years .

Would it be a thinkable strategy for the establishment to bring some sort of helicoptermoney to the ordinary ppl soon to stop their anger for a while before all is lost to populism?

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Nico G
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August 26, 2016 at 12:10 PM ×

im doing a screen capture on your last sentence anon 12:01 i want to show it to my children in 20 years

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Booger
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August 26, 2016 at 12:46 PM ×

aud.nzd : there is a good support around this level so it may hold. But given the recent NZ strong data and wheelers recent statement that I interpret as basically saying, given the recent data we have to let the exchange rate go to whatever it wants to. I am not convinced the recent dairy prices and the idea that the rbnz is out of the picture for the next 2-3 months is in the price yet.

In terms of fading nzd strength and avoiding dollar exposure, I think nzd.cad is far more attractive. There is a clear multiyear/decade ceiling about 100 pips from current levels.

On Fed, I like an article I read by Kurt Drew from 14 Aug:
The Fed's policy will be slightly easier than the ideal policy, as measured by changes in the policy rate suggested in the FOMC releases.

Ideal policy: Ideal policy increases the policy rate by 50 basis points in September, without forward guidance.

Ideally, the FOMC announces an end to forward guidance and the "dot plot," releasing its statement: "Policy rates will henceforth be chosen with the intent to leave them unchanged, absent a material change in economic conditions."

The Fed in addition should shift to the old policy rate, the federal funds rate, and announce an end to subsidy rates on excess reserves, which are replaced by Treasury bills on bank balance sheets over the next three months through open market operations, as the payment of interest on excess reserves is phased out. The crisis is over. The Fed needs to return to time-tested simple procedures.

Actual policy forecast: Actual policy, measured by the de facto policy rate, interest paid on excess reserves, will remain unchanged until the December meeting.

Last six months: As I pointed out in May, all the Governors of the Federal Reserve Board and the President of the New York Fed are Obama appointees. I provided evidence that during an election year, when the term limit produces a new candidate from the incumbent party, the success of this candidate is greatly affected by the strength of the stock market in the six months before the election.


I forecast an unchanged policy rate that would likely produce a strong stock market and a Democratic candidate's election. In December we will know the outcome.

Next six months: After Clinton's expected election in November, actual policy will return to the status quo ante. The Fed will increase the policy rate by 25 basis points in December, and return to the forward guidance of a series of 25 basis point quarterly increases in the year to come. During the six months following the December meeting, the FOMC will, in fact, increase the policy rates by 50 basis points.

The interest rate on excess reserves will continue to be the de facto policy rate indefinitely.

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Anon
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August 26, 2016 at 12:48 PM ×

My father never dared to talk to me about his moral behavieur in war times - i was arguing a lot 20 yrs ago

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washedup
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August 26, 2016 at 12:49 PM ×

Historically the most effective way to control populism was to start a war - it has elements of helicopter money with the added political advantage of channeling the masses anger in a different direction - perhaps societies are wiser and inherently more peaceful now, but I have my doubts.
In any case, I think that path to helicopter money is rockier than hopeful punters assume - it would take some serious pain to bring about the political unity needed for something big enough to matter.

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Booger
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August 26, 2016 at 1:10 PM ×

I would like to say here "helicopter money my ass", and while you're at it "maestro my ass".

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Nico G
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August 26, 2016 at 1:32 PM ×

yeah

the term itself pisses me off - like we are all kids or something. Financial blogosphere going fully retarded.

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Leftback
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August 26, 2016 at 1:52 PM ×

We should cease using the phrase "Helicopter Money" in the US context. The FOMC would like to pass the baton to Congress. Fiscal policy should indeed replace monetary policy as the driving force for the US economy in the next administration. The abject failure of the Obama administration/GOP congress to do anything, together with the failure of European austerity policies is clear for all to see.

We don't expect anything binary to happen today. We anticipate a masterpiece of obfuscation from Dame Janet, the like of which The Maestro Greenspan himself would be proud to have uttered. Yellen likes to pretend that the FOMC are "data-dependent" and she will repeat that here once again. There will be hints that a change in policy remains a possibility in upcoming meetings (i.e. even September is live). Not much more than that, and then we will go back to playing NFP bingo for next week's jobs number. Markets will shrug, vol sellers will sell vol. Nothing to see here, move along. Punters will shuffle their positions slightly but there isn't very far to go in terms of vol, and the dollar won't fall far. A big yawn. The real action awaits the jobs number next week and the subsequent Fedspeak, then perhaps a Hilsenrath leak?

That's the most likely scenario. Less likely, she goes completely ├╝ber-dovish for no reason other than she is La Paloma Blanca, takes all 2016 hikes off the table, with the result that the dollar craters and takes USDJPY on a trip to 95, which results in an equity sell-off while metals and crude take off vertically. I suppose this would be one way to achieve her inflation target, but the effects would of course be "transitory", to use one of Dame Janet's favorite words. Unlikely.

Even less likely, she goes Full On Tony Hawk and flags TWO hikes in 2016, resulting in a meltdown in commodities and EMs, precious metals and small caps, not to mention 12yoHFM's P&L. While we would enjoy this, it is not going to happen.

Stepping back a little, isn't it remarkable that "investors" worldwide who control $T worth of investments are hanging on the every word of some old trout with a Brooklyn accent who didn't think the 2006 housing bubble would be a problem?

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Eddie
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August 26, 2016 at 2:10 PM ×

Stepping back a little, isn't it remarkable that "investors" worldwide who control $T worth of investments are hanging on the every word of some old trout with a Brooklyn accent who didn't think the 2006 housing bubble would be a problem?

+1

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wcw
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August 26, 2016 at 2:49 PM ×

The market nostrum runs, 'don't fight the Fed.'

Snark aside, James Bullard put out an interesting piece yesterday, The St. Louis Fed's New Approach to Near-Term Projections. 'Instead of assuming that the economy will converge to a single, long-run steady state, we now think in terms of “regimes” that the economy might visit.' It concludes we are in a low-productivity, low-rate, no-recession regime. This conclusion sounds correct imo. The 'regime-dependent' policy rate is 0.6 percent.

If even Bullard wants only 0.6%, it seems silly to trade on near-term normalization.

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Leftback
admin
August 26, 2016 at 3:10 PM ×

zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

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August 26, 2016 at 3:31 PM ×

The VIX just had a near-death experience. This new "structure" of FED/market relations is very entertaining.

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johno
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August 26, 2016 at 3:50 PM ×

Good opportunity to sell gold.

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CV
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August 26, 2016 at 3:51 PM ×

Stocks and bonds up ... mission accomplished; sort of. Looking forward to next week's Zervos missive. "Told ya ..." or something.

I noticed the chart that accompanied the speech showed that the Fed forecasts the FF will be between 0% and 4.5% at the end of 2018 with a massive 70% confidence interval. That is forward guidance, right? ;) In any case, vol selling pension fund PM are having an extra lap dance tonight ... may their happiness be high and last long.

Weekend chaps! And a bank holiday one to boot ...

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EuropeanBull
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August 26, 2016 at 3:51 PM ×

Quote from Yellen's speech:

"The FOMC considered removing accommodation by first reducing our asset holdings (including through asset sales) and raising the federal funds rate only after our balance sheet had contracted substantially. But we decided against this approach because our ability to predict the effects of changes in the balance sheet on the economy is less than that associated with changes in the federal funds rate. Excessive inflationary pressures could arise if assets were sold too slowly. Conversely, financial markets and the economy could potentially be destabilized if assets were sold too aggressively. Indeed, the so-called taper tantrum of 2013 illustrates the difficulty of predicting financial market reactions to announcements about the balance sheet. Given the uncertainty and potential costs associated with large-scale asset sales, the FOMC instead decided to begin
have helped lower unemployment and boost inflation
; removing monetary policy accommodation primarily by adjusting short-term interest rates rather than by actively managing its asset holdings."

Honestly, I was hoping for more, but...
fear of market reactions > fear of excessive Inflation

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Anonymous
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August 26, 2016 at 4:28 PM ×

I just don't understand. How did they ever think they were going to unwind their $4T balance sheet?

How about a new system for Fed employee compensation based on public votes? Or an American Idol style elimination competition for the Fed governor that makes the least sense?

I'm fed up.

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Anonymous
admin
August 26, 2016 at 4:37 PM ×

The $4T is now permanently part of the waste economy. It's gone. It can't ever be unloaded. Interest rate is the only meaningless toy now with which they can play with a few quarter points here and there.

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Leftback
admin
August 26, 2016 at 4:43 PM ×

Bernanke told us a long time ago that the balance sheet would be unwound over many years by letting MBS and UST securities mature. He said this more than once. So that leaves the discount rate as the primary tool of monetary policy in the interim.

There is a problem here in that the Fed Chair (and an increasing number of other FOMC members) is clearly telling the market that there will be tighter monetary policy, that this will be achieved only by rate hikes, and that although they will be "data-dependent", these could occur soon. The market is ignoring the Fed. We have therefore reached that point we have so often discussed, where the Fed has apparently lost credibility. This is the result of not having followed through on hikes in the past. The longer this charade continues, the uglier will be the resulting carnage.

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Leftback
admin
August 26, 2016 at 4:59 PM ×

This seems to summarize the current situation with respect to FOMC communications:

https://grrrgraphics.files.wordpress.com/2015/09/janet_yellen_wolf.jpg

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Nico G
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August 26, 2016 at 5:00 PM ×

Buffet has been mentioned in Yellen's speech. That's about all i retain besides a great spike fade

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Anonymous
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August 26, 2016 at 5:06 PM ×

Well, this is fast. I have not reloaded my short yet...

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Nico G
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August 26, 2016 at 5:09 PM ×

anon this spike was a blessing what were you waiting for, 2200?

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johno
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August 26, 2016 at 5:23 PM ×

Thank you for the post on AUDNZD, MM. I also see a sizable mis-pricing, but stayed sidelined, waiting for Wheeler's latest remarks to washout longs. My sense is that NZD has more exposed to carry-seeking flows, and therefore the direction of perceived US monetary policy matters for this cross. My takeaway (and the market's, judging by DXY and ED's) from Yellen is somewhat hawkish, so now just may be the time for AUDNZD. I've put some on and watching for some confirmation from the price.

Gold. Judging by the COT, positioning is stretched and has lost momentum/is turning over a bit. Went short on the pop. Curious whether people think Kuroda will cut rates again. If the Fed is hiking this year, and Kuroda isn't pushing rates more negative, gold probably has significant downside, IMO.

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checkmate
admin
August 26, 2016 at 5:33 PM ×

European Bull,
Of interest in your extract I note she makes mention of "financial markets" twice and indeed she mentions them before she mentions the economy. Nice to know even at what is probably an unconscious level where the Feds priorities are.

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Anonymous
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August 26, 2016 at 5:38 PM ×

I managed to sell are sorts of stuff on the spike (including JYU6 at 1.00000), but unfortunately, in too small size to be meaningful. That said, it's still a plus day, and a decent finish to the week, and that is always preferable to the alternative. Would be nice if the schizophrenia so pervasive in the market recently would stay away until the NFP release next Friday, but I am certainly not depending on that.

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Leftback
admin
August 26, 2016 at 6:21 PM ×

Somewhere in Columbia, S.C., there is an experienced pension fund risk officer, "Chip", who is having a quiet afternoon meeting with some 21yoPM and his bros, Chad, Thad and Brad.
"So, guys, you know what this meeting is about, right?"
"Uh, no, dude.... Baecations? Bros before Ho's?" Laughter.
"Well, no. It's nothing that major, but with realized vol at lifetime lows for eponymous blogger, Macro Man, I just wanted to remind you of our rules on position size limits. Especially when it comes to optionality and leverage".
[Silence].
"Good, so you will remember that only 3% of your capital is to be at risk in selling vol, unleveraged?"
"Uh, yeah, sure. Of course, dude."
"Good, well, have a great weekend, guys."
[Bros exit to the corridor, silence for a while]
"Chad, are you gonna tell him?"
"What, Brad, that you f*ckin' went Rogue?"
"Yeah, you retard, you had to go Full Kerviel on this trade"
"Hey, we were livin' large this summer, man. The beach house, the chicks..."
"So.... how deep are we in this...?"
"Well, at 50 x leverage, our VaR is like 150% of the fund's capital, Thad...."
"Holy sh*t".
"Hey Dude, chill. Like, it's OPM. IBG, YBG."
"True dat".
"Chip is gonna shit his pants, man...."


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johno
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August 26, 2016 at 6:53 PM ×

Anon @ 5:38, probably not a bad trade, selling yen. Some things going for it: 1) market has to assume Kuroda is going to do something in Sep, 2) positioning (again, going by COT) is long and has stalled, 3) Japanese real money had USDJPY=100-ish at low-end of year's forecast and may be hedging less, 4) officials have kept up intervention rhetoric which maybe provides a soft cap on yen too, 5) yen is expensive on my models.

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Anonymous
admin
August 26, 2016 at 7:20 PM ×

@nico,

Usually there is a more-than-one-day window after the speech, so I figured that I have until Monday afternoon to enter my shorts which were partially covered yesterday.

Again, I do not think this is the big one. It is still too early IMO. So I hope there is still opportunity to load shorts.

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hipper
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August 26, 2016 at 8:40 PM × This comment has been removed by the author.
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Anonymous
admin
August 26, 2016 at 8:40 PM ×

No, not the big one uet, we still have the Ecb and BoJ to throw a few wrenches. In too.

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Leftback
admin
August 26, 2016 at 8:40 PM ×

@Anon at 7:20. There is very little fear out there. It is August 26, after all, but the fear of rate hike/s may still be there next week. Dip buyers and vol sellers have already returned, perhaps b/c they are machines, and don't experience fear and anxiety.

This will take time - time for volume to return to the markets, and time for the boundless complacency of US punters to ebb away and gradually give way to concern, anxiety and ultimately fear, at least on the scale we last saw in January; perhaps even margin calls, forced liquidation and sheer terror, who knows? Sentiment and momentum share a complex dance...

FX markets have clearly got the message, though. The DX is putting in a very interesting candle today, as Bucky made up about two weeks of losses over five hours of trading. Not much sign of a bounce in silver, AUDUSD, CADUSD.

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hipper
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August 26, 2016 at 8:42 PM ×

" Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives. Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."

"Looking ahead, we will likely need to retain many of the monetary policy tools that were developed to promote recovery from the crisis. In addition, policymakers inside and outside the Fed may wish at some point to consider additional options to secure a strong and resilient economy."

"In addition, policymakers could have less ability to cut short-term interest rates in the future than the simulations assume. By some calculations, the real neutral rate is currently close to zero, and it could remain at this low level if we were to continue to see slow productivity growth and high global saving.23 If so, then the average level of the nominal federal funds rate down the road might turn out to be only 2 percent, implying that asset purchases and forward guidance might have to be pushed to extremes to compensate."

"Finally, the simulation analysis certainly overstates the FOMC's current ability to respond to a recession, given that there is little scope to cut the federal funds rate at the moment. But that does not mean that the Federal Reserve would be unable to provide appreciable accommodation should the ongoing expansion falter in the near term. In addition to taking the federal funds rate back down to nearly zero, the FOMC could resume asset purchases and announce its intention to keep the federal funds rate at this level until conditions had improved markedly--although with long-term interest rates already quite low, the net stimulus that would result might be somewhat reduced."

"Despite these caveats, I expect that forward guidance and asset purchases will remain important components of the Fed's policy toolkit."

"On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets. Beyond that, some observers have suggested raising the FOMC's 2 percent inflation objective or implementing policy through alternative monetary policy frameworks, such as price-level or nominal GDP targeting."

"Gradual hikes" in the near term, acknowledging lower average FFR and potentially same tools in the future ECB/BOJ. The way I see it is asset purchases and killing the price discovery mechanism will never go away. Sure near term there was a mention of potential hikes in the future. It looks near term hawkish but long term extremely dovish.

This year, I think the election theory is quite plausible i.e. no hikes until afterwards regardless of who wins. Then if everything crashes it won't matter as much. I don't know if we get some black swan in the form of a banking crisis or sovereign debt crisis but geopolitically speaking things are looking quite worry some. The Hillary block wants to attack Syria directly, EU is overheating internally and both are slapping huge tariffs on Chinese products which could potentially lead to a larger trade war, none of which seems to at least not lead to anything good for trade or sales/earnings. But then again, haven't basically all geopolitical events in history been faded?

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Celeriac1972
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August 26, 2016 at 10:31 PM ×

XLU took a good kicking today, but only as far as the Aug 17 close. Through the June 2nd/3rd gap though; it'll be interesting to see if that sticks.

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Bruce in Tennessee
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August 27, 2016 at 12:42 PM ×

http://www.alhambrapartners.com/2016/08/26/not-much-to-headline-gdp-revisions-major-revisions-of-corporate-profits/

"Profits here have fallen now in five straight quarters, a revised succession from the Q1 benchmarks – with the Q4 (so far) trough now showing a contraction of 11.2% year-over-year instead of just -2.8% figured prior. The recalculated series estimates that this sustained contraction in profits began in Q2 2015, turning both Q2 and Q3 last year negative."

...I suppose if you are 12 years old this doesn't matter in your stream of consciousness either...could this be the "what if we have a downturn and we're still at ZIRP?" moment? Nah, because we've progressively thought ourselves into NIRP... :)

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funloanfirm
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August 27, 2016 at 5:14 PM ×


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Anonymous
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August 27, 2016 at 8:58 PM ×

how apropos of abdallah given the Zirp nirp discussions

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Candlestein
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August 28, 2016 at 3:50 PM ×

Post JHole, it looks to me like "forward guidance" means keeping the "will they/wont they" conversation going for the benefit of commenators and speculators, in effect not unlike like the inscrutable Fed and verbal obfuscations of yore. And who among us would deny that conditions seem to make the case for a rate hike a bit more likely? So long as the other big central banks are buying up assets, etc., and LIBOR has risen due to a change in regulations, surely there is room for a 25bp tweak. And perhaps equities need an excuse for a bit of a correction just about now, speaking of data dependency.

Leaving aside for a moment the "tradeable content," Yellen seemed to say that the FOMC was not going to be doing much in the way of open market operations from now on. Instead, they will raise or lower the interest rate on reserves held at the Fed to raise or lower the domestic interbank offered rate, otherwise known as Fed Funds.

And, umm, they have ruled out reduction of the balance sheet as a tool because the response of financial markets is unpredictable. Interesting how the metaphor "temper tantrum" has entered the lexicon of Fedspeak.

Oh, and the days of 5-7% Fed Funds are gone. The range is 0-3% or 0-4%, or 1.5-2% for a midpoint. Flat curve, low inflation forever?

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AW
admin
August 29, 2016 at 7:42 AM ×

I just wanna know more about Chad, Brad and Thad...
Can they please get a regular column!

At least a collection of short stories.

I need something to do.

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Unknown
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September 10, 2016 at 5:57 AM ×

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