Fed post-mortem

Well, in the end the Fed did largely what Macro Man expected.  The hint of a December move was, if anything, more overt than anticipated, and the three dissents were pretty telling about the mind of the regional presidents.  Countering that, of course, was the inevitable and inexorable decline in the dot plot, which Macro Man covered yesterday.

The press conference was fairly interesting in a fingernails across the chalkboard kind of way.   (Younger readers may be puzzled by this analogy; please rest assured that performing this act produced a sound that was truly excruciating.)  It came as little surprise that Yellen was asked why they didn't hike, given that she talked up the economy in her remarks, and the rambling nature of her reply- "uh, policy isn't as accommodative as we used to think" - was less than convincing.

So unconvincing, in fact, that she faced multiple queries on whether the decision was politically motivated.  While Macro Man has little doubt that the Fed does not actually discuss political considerations at FOMC meetings, that one prominent member of the Board has given money to the Clinton campaign, and by a stunning coincidence has been mooted as a potential Treasury Secretary, significantly undermines the claim of political neutrality.

(As an aside, can you imagine the furor that would result if it had emerged that, for example, Mark Carney had donated money to the Tories in 2015 or the Remain campaign this year?)

In the end, the market did what it always seems to do on Fed days- both stocks and bonds rallied.  The bond market rally in particular is worth considering.  Insofar as concerns over any BOJ curve steepening measures had helped drive the US long end lower over the past couple of weeks, that pressure should come to an end.   Kuroda and co. will not be selling long end bonds; indeed, they implemented measures to be able to buy them if a sell-off gets out of hand.  Somehow, Macro Man doesn't reckon they'll be needed any time soon.

Moreover, by reiterating several times in response to questions that the neutral policy rate continues to decline, Yellen gave domestic monetary reasons for shorts to cut and run.  One need not be overly cynical to wonder how long it will take for the market to start pricing out some of the 60% probability priced into the short end for a December hike.    After all, the ancients knew that because the sun rose in the east every day (barring the rare eclipse), it was virtually certain to rise tomorrow.  For the last decade-plus, the Fed has not hiked on any day (except for a single rare eclipse), so it's virtually certain....

Jesting aside, with December firmly in play fixed income markets will now be quite sensitive to marginal bad news, particularly on the labor front, obviously.   One might say that there is a positively asymmetric payoff profile to being long the front end, which could ultimately filter up the curve.   Long bond futures are at a rather sensitive point; once that gap gets entered, it is very likely that we at least retest the bottom of the corridor of uncetainty.

As for stocks, it was a liquidity and yield grab all the way.   GDX posted a nice 7% day, and utilities rose 2%.  Both look like breaking out of their recent doldrums, and if Macro Man is right about the bond market then the battered "bond replacement" yield stocks might make a nice rental for a few days at least.

And the dollar? Well, we're approaching put up or shut up time for USD/JPY, which hasn't liked it below 100 all year.  From a valuation perspective Macro Man is fairly agnostic at current levels, though it feels like the market wants to have another go at the downside.   Were that to occur in the context of a short end rally with no real catalyst, it would be an interesting fade.   For the time being, however, Macro Man is content to sit on the sidelines and let the market get too far over its skis.

Summer ends today, and with the onset of fall we begin the long march to December....by way of the Scylla and Charybdis of November's presidential election.  While the autumn is starting sunny and warm for the liquidity chasers, it's worth recalling that it will be cold and windy ere too long, and that at some point risky assets may get their own dose of autumn chill.   That 2200 level is going to look like an awfully nice risk parameter to get short against if we have another day or two like yesterday....
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Anonymous
admin
September 22, 2016 at 8:46 AM ×

http://www.telegraph.co.uk/business/2016/09/21/un-fears-third-leg-of-the-global-financial-crisis-with-epic-debt/

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Anonymous
admin
September 22, 2016 at 9:06 AM ×

I see the BTFD strategy worked again for 12yo :)

How did all the shorts do who took the other side? Once again they've all gone mysteriously quiet... no posts about them being stopped out, or taking losses. Strange how you only hear from them if the market moves in their favor. Guys, when you stop paper trading and do this for real, you'll find it's a very different game from the pretense shown on internet boards. Until then you might wanna follow MM's advice more closely, and maybe learn a few things.

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Anonymous
admin
September 22, 2016 at 11:04 AM ×

Woa, 12yo's anonymous little brother just joined the firm!

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checkmate
admin
September 22, 2016 at 11:10 AM ×

Anon 9.06
There are more mentions of 'perma bears' on this blog than there are 'perma bears'. The bears that there are and on occasion I am one (more bonds than equities) I think it's safe to say I have not spotted one who would be a 'papertrader'. They (including I know when to stop and reverse ,or simply cut a losing position. Personally , I make no claims tho being right all the time ,or even right better than random chance might suggest. For your interest you might be surprised to know that it doesn't matter a damn. There are other much more important issues that determine how much money I make. Now if you want to talk 'paper trading' I don't think you will find any shortage of sites/blogs out there where that is the core activity.

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Anonymous
admin
September 22, 2016 at 11:23 AM ×

checkmate dont feed the troll (although 12yo himself is a good laugh)

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Nico G
admin
September 22, 2016 at 1:20 PM ×

this is all fiction, like discussing penis size since everyone is anonymous or with a vague nickname until and unless people would post their trades real time and their net worth and again, it could be all bullshit right?

the only reason i see for financial blog/forum to exist is that online trading is a very lonely activity so you come here for a bit of banter. Call it online therapy.

Anyone who is trading according to what they read here on MM website, or any other, is a complete fool because again, the track record of posters and the blogger himself is just unknown. Trolls provide great entertainment and sometimes a great contrarian indicator which is why they should be paid.

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Mi Pa
admin
September 22, 2016 at 1:33 PM ×

http://ibankcoin.com/flyblog/2016/09/22/wait-what-italy-is-turning-bad-debt-into-assets/

;)) nice

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CV
admin
September 22, 2016 at 1:41 PM ×

Leave your ego at the door, and it will be fine.

Meanwhile, the noose is indeed tightening for the call by some of us that the market would swoon after the summer. But but ... Spoos have moved sideways, and seasonality is becoming increasingly difficult. Interesting to see the market rallying on the "hawkish hold" Fed story. Maybe, Alice was right all along. If the Fed raises AND tells us that the world is o.k. it will be just that.

Ho hum I guess ... more interestingly, the "reverse twist" curve steepener story we economists have been humping all month is annoyingly running out of steam too. How very frustrating. You can't keep a bad bond bull down it seems!

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johno
admin
September 22, 2016 at 2:07 PM ×

Since abee asked yesterday, I'll mention I just went into -USDMXN. Small. Very, very tight stop (could be stopped by time I post this!). With Fed dovish, a Banxico meeting ahead with lots of talk of a hike or other action, maybe we could have some correction of the recent move. Still, it's hard for me to be constructive on MXN for anything more than a quick trade here.

Also went back into +AUDNZD last night. There was the RBNZ, yes, but Lowe's comments seemed constructive (loved the bit about him not being "an inflation nutter"). Metals trading well and I'm still bullish China, for now. Also playing for some more extension to this -EURNOK move, though the pair doesn't look expensive on my model. A big shift from the NB, at least judging by my first read.

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Anonymous
admin
September 22, 2016 at 3:58 PM ×

Political motivation?
NY Fed is a whorehouse of political hacks, For instance, the Deputy Chair of the Board of Directors, Sara Horowitz, an Obama crony from Chicago.

Horowitz was granted $517 million in low-interest federal loans to create Health Republic and two other CO-OPs, more than one-fifth of the total $2.4 billion in federal loans available to build all 23 CO-OPs.

Two of the CO-OPS are now bankrupt and doctors and hospitals are owed 100s of millions of dollars and Horowitz remains on the board.

Everything is political and along with that comes corruption. I have more examples, but what the hell is the use of pointing them out.

You can read it all Horowitz here:
http://www.crainsnewyork.com/article/20160417/HEALTH_CARE/160419890

I would like to write about Kevin Warsh former Fed "governor" who was married to a granddaughter and heiress of Estée Lauder billions. Bernanke milked him for his political connections. But he is gone now, free loading somewhere on someone else's dime


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checkmate
admin
September 22, 2016 at 4:45 PM ×

You want whorehouses and corruption then pertinent today is;
"Hungary’s forint jumped to its strongest in more than a year as a surprise return of the country’s debt to investment-grade status at S&P Global Ratings last week fueled demand"
This is a country that 20 years ago was one of the most corrupt I ever had the misfortune to work in which is saying something given I went there from Nigeria. Beautiful country ,but corrupt, oh yes. Revisiting with expats this year the changes were amazing. EU money everywhere. Talking to an old friend whose been there forever and very well placed he tells me the corruption has risen to new heights. 2 million comes in from the EU about half get's to the project the rest is backhanders to the locals who make sure the signatures get on the contracts. Same locals whose wives are now driving mercs into their shiny new driveways up in the Castle districts etc. Want a profitable career just get into politics at any level in the EU.
So don't talk to me about US corruption. They're just pikers alongside the EU politicos who will fight to the death to make sure they don't get knocked out of the trough.

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Anonymous
admin
September 22, 2016 at 5:14 PM ×

Two headlines on European cash close:

- Deutsche Bank woes said to spark concern among German Lawmakers

- Europe regulators said to see Monte Paschi needing govt aid.

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Fired Macro PM
admin
September 22, 2016 at 7:36 PM ×

Immensely bullish price action for USD during US hours. Might put in a very nice reversal pattern. Which means the easy money in EM I was hoping to make until December is probably out the window.

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Anonymous
admin
September 22, 2016 at 8:35 PM ×

EU banks may need rescue funds equaling twice #ECB capital. http://bloom.bg/2cqmzNv


ECB's Draghi says Europe has too many banks. http://on.ft.com/2cYOD6o

Problem solved. See how simple it is?

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Mr. T
admin
September 22, 2016 at 10:10 PM ×

NDX median EV / T12M_FCF I show at 22.6 now, 16x CFO. As an earnings metric that implies around 4.4% expected returns - what does that mean - risk premiums are like 2.7%? Low rates or not, those are some pretty steep numbers.

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Sigma
admin
September 22, 2016 at 11:08 PM ×

Talking about the size of penis = very idyllic with small balls

Long vol = losing money every day

Mumbling about the fair things to do for economics PhDs and CBs authorities = losing money on every trade

Bearish blog sentiment = bullish signal for algo trading filters

Trying to do discretionary trading and overwriting of quant trading signals on sigma's side = the purchase of sigma's next-generation private chopper must be delayed

Short vol = short autocorrelation = sigma's algos are locally short bonds and stocks and long UUP

Risk-parity = great thing because sigma does know how to do it right

Discretionary trader in vol = source of funds for sigma's luxury goods spending

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September 24, 2016 at 6:41 PM ×

The most striking item from the press conference Q&A:

Yellen asked about the "reach for yield"

No mention of high asset prices or bubbles of any sort (I think the word bubble is banned until after the election) - but Yellen said it's ok because financial stability is sound, and asset values are within "normal" ranges.

more review:
http://crackerjackfinance.com/2016/09/yellen-fed-monetary-policy-running-it-hot/

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