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
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

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

Fed Desperate U.S. Interest Rate Measures 

Interest-Rates / US Interest Rates Nov 01, 2008 - 11:42 AM GMT

By: Tim_Wood

Interest-Rates Best Financial Markets Analysis ArticleThe Fed's action to either raise or lower rates has become a major focal point for the markets in recent years. It seems that the vast majority of the public believes that the Fed is actually controlling interest rates and as a result that they are controlling the credit and equity markets. For a week before the Fed meeting it seems that the entire global markets focus on “what the Fed is going to do.” Will they cut a quarter, will they cut a half or will they not cut at all? Then, after the meeting the talking heads and analysts sit around and try to analyze the meaning of their “Fed Speak.” This is a joke. I am about to show you the proof that the Fed follows the short-term credit market and that in reality they do not lead. The data simply does not support this widely held belief. I realize that this may come as a shock to you, but reality is what it is. The data speaks for itself.


In the charts below I have plotted the Discount Rate in the upper window and the 3-month T-bill rate is printed in the lower window along with my Trend Indicator. I realize that you cannot tell it from this chart, given the time period and the size of the charts, but the fact is that the 3-month T-bill rate moves first and the Fed simply follows . Given that this is a well documented fact, with a 60 year history, I am simply amazed and amused by the fact that so many people put so much emphasis on what the Fed does in regard to interest rates.

Fact is, the Fed and their media propaganda machine together have conditioned the vast majority of the public that they somehow control rates and as a result control the equity markets. If you go to www.cyclesman.info/Fedfollows.htm I have posted more detailed charts. All you have to do is start at the beginning and move forward in time and you will clearly see that the Fed follows the short-term credit market.



 

 


Now that this fact has been established I want to talk about another myth. I think you will also agree that the perception is that the Fed saved the market back in 2001 and 2002 with their aggressive rate cuts. Well, we just established the fact that the Fed follows 3-month T-bill rates. Fact is, the 3-month T-bill rate fell from 6.22% in November 2000 to 5.70% in December 2000. In doing so my Fed model confirmed that we had moved into a rate cutting cycle. It was then, at the January 2001 Federal reserve meeting that the Fed made the first cut of the Discount Rate taking it from 7.50% to 7.25%. Both the stock market and the 3-month T-bill rate continued to fall and the Fed continued to more aggressively cut rates to keep up with the falling T-bill rate. Now, look at the chart below.


In the upper window of this chart I have again plotted the Discount Rate. In the lower window I have plotted the S&P 500. As you can see, the rate cuts did nothing to stop the decline. From the time the rate cuts began in January 2001 the S&P 500 fell from 1,283 all the way down to its final low at 768. This was a 40% slide in the S&P in spite of the rate cuts. Fact is, some of these rate cuts did absolutely nothing to hold the market up and in many cases they made multiple cuts and still the market fell. This was particularly true from early 2001 into the fall of 2001. There was a bounce after the 911 bottom, but even the rate cuts following 911 did not prevent the continued decline into the 4-year cycle low in 2002. I don't have the data during the 1920's and 30's, but I do know that the Fed also cut rates and it did nothing to save the market then either.

Now look at the current period. The Discount rate has fallen from 6.25% in August 2007 to 1.25%. All the while the S&P 500 has declined by some 46%. Again, the rate cuts are not working and I reported in 2007 when this rate cutting cycle began that it wouldn't work. The fact of the matter is, we have entered into a bear market in equities and cutting rates has not mattered in the past and it has not and will not save the markets this time either.

Now, on another note I want to point out just how desperate the rate cut we saw on October 29, 2008 was. In looking back at my database I found that since 1943 the Fed has NEVER cut rates when the spread between the Discount rate and my blended end of week 3-month T-bill rate was less than 1.08%. With that being a weekly rate I obviously have no way to know what that blended rate was on Wednesday, but I can tell you that as of last Friday it was at 1.25% and with the Discount rate at 1.75% this put the spread at a mere .50%.

As of Tuesday's close I showed the 3-month T-bill rate at .77% which puts the spread at .98%. So, I can tell you that it is a matter of record that in the past 65 years they have NEVER cut with this spread less than 1.08%. Therefore, I can also tell you that Wednesday's rate cut was an unprecedented event. I feel that the only reason the Fed made this cut was because the market was expecting that cut and they were scared of the consequences if they disappointed the market. That being said, if the market has already fallen well over 40% with the cut from 6.25% to 1.75%, do you really think that additional cuts at this point will matter?

Sure, there will be bounces along the way, but we have entered a secular bear market that was led by the largest credit bubble in history. This is not something that can be fixed by cutting rates and throwing more credit at the system. The facts clearly show that the Fed follows the short-term credit markets and that the October 29, 2008 cut was a desperate and unprecedented event. The continued bailouts, stimulus packages and rate cuts are all just desperate attempts by the braniacs that got us into this mess in the first place. Don't buy the propaganda when and if a bounce begins. This bear market is not over. You have been warned!

I have begun doing free Friday market commentary that is available at www.cyclesman.info/Articles.htm so please begin joining me there. Should you be interested in more in depth analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator, which has done a fabulous job, on stock market, the dollar, bonds, gold, silver, oil, gasoline, and more, those details are available in the monthly research letter and short-term updates. We have called every turn in commodities, the dollar and the stock market. I have covering the details as to what's next with the stock market, the dollar and commodities with the latest in the October research letter and the short-term updates. Don't be fooled by the hype. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week. Also see www.cyclesman.info/testimonials.htm

By Tim Wood
Cyclesman.com

© 2008 Cycles News & Views; All Rights Reserved
Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit www.cyclesman.com for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Tim Wood Archive

© 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