Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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