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Most economists surveyed by The Wall Street Journal expected Federal Reserve officials to begin winding down their $4.5 trillion portfolio of bonds and other assets this year.

Nearly 70% of business and academic economists polled in recent days expected the Fed will begin allowing the portfolio, also called the balance sheet, to shrink by allowing securities to mature without reinvesting the proceeds at some point in 2017. Of the economists who expected a shift in the Fed’s balance sheet strategy this year, the majority predicted the process would begin in December.

In last month’s survey, just 22.2% of economists expected the Fed to begin…

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There's a Big Reason Volatility Might Be Coming Back

Stan Druckenmiller recently elucidated: “Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”

Even with the bond market’s muted response to the Federal Reserve’s plan to begin winding down its almost $4.3 trillion portfolio of mortgage and Treasury securities, there are plenty of reasons why the calm probably won’t last.

Out of style for almost a…

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What Are The 7 Signs Of A Bear Market?

Wall Street pros say bull markets don’t die of old age. But after eight years of rising stock prices, being on the lookout for signs of a market peak makes good financial sense.

No bull lasts forever. Good times eventually are followed by bad ones, as investor euphoria gives way to fear and despair. The performance history of the Standard & Poor’s 500 stock index drives home the point: The 12 bull markets since the 1930s have all been followed by bear markets, or downturns of 20% or more, according to S&P Dow Jones Indices. The average bear market decline is a sizable 40%. Then there’s the mega-bears like the 2007-2009 rout during the financial crisis that knocked the S&P 500 down 57% and the nearly 50% slide after the internet stock bubble burst in 2000.

The current bull run, the…

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S&P500 Highest Forward P/E Since 2004 But Oh, That Rule 20

I found this interesting (the rise) however I have my own reservations because of the possible change in rates and inflation in 2017.  When inflation rises, interest rates also normally rise to maintain real rates within an appropriate range. PE ratios need to decline to reflect the increase in the earnings discount rate. Another way to look at it is that equities then face more competition for money from fixed income instruments. The cost of equities must therefore decline to keep or attract investors.  Then there is the Rule of 20 to consider.  Rule of 20 equals P/E + long term interest rates (average of 10 and 30 yr bond rates).  If at or below 20 minus…

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Is The Fed About To Experience A Repeat Of 2016?

In the most recent Summary of Economic Projections, Fed officials penciled in three 25bp rate hikes for 2017. The reality, however, could be very different. We all remember how “four” became “one” in 2016. The median dots are neither a promise nor an official forecast. As 2016 progressed, forecasts associated with a lower path of SEP “dots” evolved as the consensus view of policymakers. Will the same happen this year? I don’t think so; it is hard to see the Fed on pause for another twelve months.

As a starting point, I think it best to assume the US economy is near full-employment. But the US economy was near full-employment at this time last year as well. I think the key difference between then and now is that then the after-effect of the oil price slide and dollar surge placed a drag on the US economy sufficient to ease hiring pressure. At the same time, labor force participation perked up, setting the stage for a flat unemployment rate for most of…

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Bank EPS Lifted Ahead Of The Fed Rate Hike

The S&P 500 Financials sector has been a focus sector for the markets in recent weeks. This past week, the Federal Reserve Board increased the target range for the federal funds rate. Earnings for banks and other companies in the Financials sector are particularly sensitive to higher interest rates. In addition, this sector has recorded the largest increase in value (+22.2%) of all 11 sectors in the S&P 500 since the start of the fourth quarter (September 30). Given these developments, have analysts been increasing their 2017 EPS estimates for banks and other companies in the S&P 500 Financials sector over the past few months?

The answer is yes. In terms of EPS estimate revisions, 38 of the 63 companies (60%) in the…

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Remembering The Impetus Of Irrational Exuberance

In December of 1996, Greenspan was clearly beginning to worry about the economic fallout of a bursting asset bubble. Back then he had a front row seat and, in fact, a strong hand in creating the dotcom bubble, whether he admits it or not. He was so worried about the consequences of “irrational exuberance” that he declared these concerns “must be an integral part of the development of monetary policy.” And this was before he had even witnessed any of the actual economic consequences we have now lived with for two decades. Clearly, his worries were well founded but he wasn’t quite worried enough.

The financial well-being of entire generations has been permanently damaged. Think of the Baby Boomers whose retirement dreams turned to nightmares through two stock market crashes in less than a decade.…

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Predicting The Feds Interest Rate Forecast

This is one of the stranger things we've seen recently.

The research team at the San Francisco Fed earlier this week published a letter analyzing one startup's analysis of Fed communications.

Economist Fernanda Nechio and researcher Rebecca Regan looked at data from Prattle, a textual analysis specialist, as part of an examination of the Fed's communication strategy following the financial crisis.

The short of it is that Prattle was accurately able to predict what the Fed's infamous "dot plot" would look like upon its next release.

Since 2012, the Fed has released a Summary of Economic Projections (SEP) — which contains economic…

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Fed Speak Shakes Market

Tranquility that has enveloped global markets for more than two months was upended as central banks start to question the benefits of further monetary easing, sending government debt, stocks and emerging-market assets to the biggest declines since June. The dollar jumped.

The S&P 500 Index, global equities and emerging-market assets tumbled at least 2 percent in the biggest rout since Britain voted to secede from the European Union. The yield on the 10-year Treasury note jumped to the highest since June and the greenback almost erased a weekly slide as a Federal Reserve official warned waiting too long to raise rates threatened to overheat the economy. German 10-year yields rose above zero for the first time since July after the European Central Bank downplayed the need for more stimulus.

Fed Bank of Boston President Eric Rosengren’s…

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Don't Be Fooled The Bond Rally Continues

We’ve been bulls on 30-year Treasury bonds since 1981 when we stated, “We’re entering the bond rally of a lifetime.” It’s still under way, in our opinion. Their yields back then were 15.2%, but our forecast called for huge declines in inflation and, with it, a gigantic fall in bond yields to our then-target of 3%.

The Cause of Inflation

We’ve argued that the root of inflation is excess demand, and historically it’s caused by huge government spending on top of a fully-employed economy.  That happens…

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Monetary Policy And Rates. You Must Understand Money Flow

Over the years, it's become essential (to me) to understand monetary policy and money flows across the globe. With all of the recent 'pining' over whether the Fed will begin to raise rates this year, I felt this piece from Financial Times gave a great representation of who is worried over what, and why.  I truly recommend you give if it a read.  There's also more discussed on this article.  Enjoy.

Why is the Fed considering raising interest rates now?

America has seen its longest private sector hiring spurt on record, and unemployment has halved since its peak. The Fed thinks the hot jobs market could spur a…

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(Edited 2:00pm)  I especially enjoy the part when the commentator withdrew his request for an interview after Schiff refused to blame everything on China.  Yes, MSM wants us to believe it's all China's fault.  Don't drink the koolaid.  Use your head.

Hat tip Ed

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Doubts Begin Chipping Away At The Stock Market

In the stock market, until recently, just about any news was good news.

Company earnings stumbled? Investors shrugged them off, sending shares higher. Economic growth was disappointing? So what.

But now that is changing.

Consider the recent trading in Apple, the world’s most valuable public company and a certifiable stock market darling. Apple announced…

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Admin

While main stream media does their level best to keep us hugging our equities, they seem to ignore the fact that quantitative easing ran the market up from 2009 and while the economy has come a long way since the bottom, maybe, just maybe, it's strong enough to sustain us, but not equities at elevated levels.

Federal Reserve officials have signaled they think the economy is robust enough to withstand a round of interest-rate rises starting this year. But the bond market still seems skeptical.

While yields on short-term Treasury notes have started moving higher in anticipation of an interest-rate increase as early as September, yields on longer-term debt have remained stubbornly low. That is a sign that many investors are still doubtful about the health of the economy, and the ability of the Fed to keep raising rates without jeopardizing growth.

On Tuesday, yields on short-term U.S. Treasury notes rose…

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BofAML When Will The Fed Raise Rates?

From BofAML's latest Global Fund Manager Survey: more than 50% of investors now expect Fed to lift off in Q3 or later.  Courtesy of MatthewB

Obviously June seems off the table.  Markets however, tend to bake in any moves long beforehand therefore remain long and accumulate banks and if you haven't already, lighten up on the utilities.  There's still money to be had; just in the right areas.

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Now Do You Believe? Sell In May Began Early

The majority of sector ETFs closed their week below their 50d with energy having filled the gap.....and found sellers waiting there.

SPX itself found sellers at $2100 (clearly we weren't the only ones selling) which is 17x earnings.  More and more are accepting reality that earnings have dropped the most in six years and the Fed (with no QE) will most likely begin to slowly raise interest rates in September.  Don't believe me, just ask Barclays.

  • US dollar found buyers at the 10week sma, prior support.  Yes, they're taking profits.  Will it continue?  It's nonetheless weighing on U.S. earnings.…

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Looking Back At The Market

The ECB left its key lending rates at record low levels, and the four-week moving average for initial claims is at an eight-year low.  That sounds like a pretty good setup for a stock market that worries about earnings prospects tied to a stronger dollar, loves the thought of central bank policy rates holding near the zero bound, and is anxious to see evidence the U.S. economy is gaining momentum.

Despite the setup, it has been a swing and a miss so far for the stock market, which has once again been greeted with steady, and broad-based, selling pressure.

ECB President Mario Draghi is getting a lot of blame for the disappointing price action based on reports that his presentation regarding the ECB's asset-backed securities purchase program was lacking and the…

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Warren To Yellen - Do Your Job

Today during the Fed's testimony to the House Financial Services Committee, Liz Warren waited her turn patiently until the end of the day.  I just love Liz for saying it the way it is.  No holds barred.

After comparing Lehman at the time of it's collapse, LEH had $639 Billion in assets.  Today JPM has $2.5 Trillion (more than 4x LEH) in assets.  LEH had 209 subsidiaries.  Today JPM has.........are you ready for this...............3,391 subsidiaries!  Too big to fail?  Wowwww.

Then once done pointing out JPM's notably 15 times more subsidiaries than Lehman, Liz went on to question JPM's resolution plans to remain viable in case of a risk event.  Clearly determined to make one thing crystal clear to the Fed's Janice Yellen, she went on to say..............well, you watch the two minute clip.…

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Fed To Regulate Insurers?

Moves today in AIG and MET to name a few may be based on speculation whether the Fed will move to regulate some insurers as "systemically important" which was previously discussed in this article on asset managers.  Under Dodd-Frank, the Financial Stability Oversight Council, a newly created super-regulator, can designate “systemically important financial institutions,” or SIFIs, and subject them to rules previously reserved for banks.  Steve Miller, AIG non-executive Chairman shares his view on CNBC.  Full disclosure StockBuz has previously recommended AIG…

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Living on $20 Then And Now

Ouch that hurts .  Luckily the Fed doesn't include food in their inflation data.  (yes, sarcasm) Seriously though in a day and age where companies can "afford" enormous CEO salary hikes, share repurchases and buybacks, it behooves me they continue to stomp their feet stating they cannot afford a minimum wage hike. 

Almost half of the states in the U.S. are already paying more than the federal minimum wage and those states are surviving just fine.  San Jose and Washington have seen expansion in small business and increased revenue with $10 minimum wages.  The propaganda has become ridiculous folks.  Just my…

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