Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Is the Winner of the U.S. Presidential Election - 31st Oct 20
Gold and Silver Prepare For Another Price Advance - 31st Oct 20
Gold Is Likely to Win This Election - 31st Oct 20
Why Trump Can Still Win 2020 Election - Establishment Mainstream Media Wrong Again? - 31st Oct 20
Why Budgies Need their Own Feeders - Parakeets Feeding UK - 31st Oct 20
Can Trump Still Win? US Presidential Election Forecast Matrix 2020 - 30th Oct 20
Why a Biden Win will Keep Metals Prices Rocking - 30th Oct 20
Is Silver the Next Bitcoin? - 30th Oct 20
A New World Monetary Order Is Coming - 30th Oct 20
Do These Explanations Make Sense for This Intraday Stock Market Turn - 30th Oct 20
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

What Dissension in the Fed's Ranks Means

Interest-Rates / US Interest Rates Feb 11, 2011 - 09:14 AM GMT

By: Mike_Larson

Interest-Rates

Best Financial Markets Analysis ArticleA remarkable thing happened this week. Truly remarkable. But just in case it got lost amid the Egyptian chaos … coverage of the subzero temperatures up north … or the after-analysis of the Super Bowl, I’m going to shout it from the rooftops for you:

A couple of Federal Reserve officials actually stood up and said “Enough is enough!”


Hard to believe, I know. But both Richmond Federal Reserve Bank President Jeffrey Lacker and Dallas Fed President Richard Fisher essentially said this week that the days of “QE Forever!” are over.

Markets are moving in response, so it’s imperative that you understand what they said — and what it means for your investing strategy.

Is Tighter Money Coming? Lacker and Fisher Are Leaning That Way!

Lacker spoke at the University of Delaware on Tuesday. He talked quite a bit about the economy and inflation — the usual stuff you get in any Fed speech. But he also delivered the following, notable assessment of QE2:

“The Committee recognized that the provision of further monetary stimulus at this point in the business cycle is not without risks, and therefore committed to regularly review the pace and overall size of the asset-purchase program in light of incoming information and adjust the program as needed.

“The distinct improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously. That re-evaluation will be challenging, because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend.”

Fedspeak can be hard to decipher if you haven’t been doing it for a long time like I have. So let me translate Lacker’s comments into English.

He essentially said: “QE2 was a Hail Mary pass to boost the economy — one that looks pretty stupid and unnecessary now, given the fact the latest data shows a recovery underway. So it’s time to pull the plug!”

Fed Reserve Bank of Dallas President Fisher said Tuesday he would oppose extending a program to buy longer-term U.S. Treasury debt.
Fed Reserve Bank of Dallas President Fisher said Tuesday he would oppose extending a program to buy longer-term U.S. Treasury debt.

Then there’s Fisher, one of my favorite policymakers at the Fed. He’s colorful with his comments, generally on target with his analysis, and actually willing to lean against the consensus if necessary. He gave a speech on Tuesday before the Stemmons Corridor Business Association in Dallas, and had the following to say …

“Barring some unexpected shock to the economy or financial system, I think we are pushing the envelope with the current round of Treasury purchases. I would be very wary of expanding our balance sheet further; indeed, given current economic and financial conditions, it is hard for me to envision a scenario where I would not use my voting position this year to formally dissent should the FOMC recommend another tranche of monetary accommodation.

“And I expect I will be at the forefront of the effort to trim back our Treasury holdings and tighten policy at the earliest sign that inflationary pressures are moving beyond the commodity markets and into the general price stream.”

Unlike Lockhart’s comments, these need no translation. Fisher is clearly not content to just sit idly by while the latest flood of Fed funny money drives prices inexorably higher.

Fed “Doves” Still Have the Upper Hand … but the Market Is Sniffing Out a Change!

I wish I could say that Lacker’s and Fisher’s views were dominant at the Fed. But unfortunately, that doesn’t appear to be the case.

The very same day they gave their speeches, Atlanta Fed President Dennis Lockhart spoke in Alabama. After going on and on about how prices are rising for things like food and energy, and how mainstream America can feel and see inflation every day, he reiterated the Fed’s mantra that such things don’t matter because their pet “core” inflation measures aren’t rising. His actual words?

“For the moment, inflation, properly defined, is tame, in my view. And the rise of individual prices does not signal incipient inflation.”

Then there’s Ben Bernanke himself. In front of the House Budget Committee on Wednesday, he said that “overall inflation is still quite low and longer-term inflation expectations have remained stable.” He also defended the latest bout of QE.

Fed Chairman Bernanke told Congress on Wednesday, that the central bank has no intention of cutting short a $600 billion bond-buying program.
Fed Chairman Bernanke told Congress on Wednesday, that the central bank has no intention of cutting short a $600 billion bond-buying program.

But you know what? The market isn’t listening to the interest rate “doves” like Lockhart and Bernanke. It’s siding with the “hawks” —  Lacker and Fisher.

Remember that Eurodollar futures chart I showed you a couple weeks ago? The one that showed how these investments, which track expectations about future short-term interest rates, are tanking … signaling that investors are betting real money on higher rates down the road?

Well, they keep on falling like a rock. Doesn’t matter what month or what year contract you’re talking about. Virtually every single one is losing value. That’s just further confirmation that the Fed is going to be forced to shift to a tighter stance, whether Bernanke wants to do it or not!

So What Can You Do about All of This?

Well, I’d continue to stay away from longer-term bonds, as I’ve been counseling for some time. Rising rates are bad news for holders of fixed-income securities. You want to buy bonds near the END of a rate hiking cycle, not the beginning!

We may also soon see a reversal of a recent trend. For many months, long-term rates have been rising faster than short-term rates. That means the difference between the two kinds of rates has widened significantly — or in industry jargon, the “yield curve has steepened.”

If the Fed does start raising short-term rates, all rates will likely go up … but short-term rates could start rising more quickly. That would flatten the yield curve, and make an ETN like the iPath US Treasury Flattener Exchange Traded Note (FLAT) an interesting play.

This ETN seeks to replicate the inverse performance of the Barclays Capital U.S. Treasury 2Y/10Y Yield Curve Index. The index is designed to increase when the yield curve steepens and decrease when it flattens. So as short-term rates get closer to long-term rates, FLAT should rise in value.  

It would also take the wind out of the sails of the core banking sector, because a flatter yield curve would put pressure on profit margins there.

Bottom line: Changes are afoot in the interest rate market. They could have serious implications for your wealth. So keep paying attention to this column each Friday for more guidance and analysis.

Until next time,

Mike

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules