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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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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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Byron Wiens Top 10 Surprises For 2016

Byron R. Wien, Vice Chairman of Multi-Asset Investing at Blackstone, today issued his list of Ten Surprises for 2016. This is the 31st year Byron has given his views on a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.

Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined Blackstone in September 2009 as a senior advisor to both the firm and its clients in analyzing economic,…

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Admin

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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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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Admin

More On Why Raising Rates Matters

It's not just about big business being able to borrow and refinance debt at low (ZIRP) rates.  It also impacts home buying affordability, consumer spending, higher chargecard APRs for the little guy who can barely afford it and yes, yield for the big dogs.  From an investment standpoint, large investors will pay attention.  As an example the 10 year yield is now at 2.15.  Yesterday, it crossed the dividend yield of the S&P 500. This means it is now more profitable to buy bonds than to invest in the stock market.  An interesting perspective.  Check it out at…

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Admin
As it stands, JPM believes the Fed will not being to taper until their December meeting UNLESS labor improvements continue as they have the last six months; at which point then they look to the September meeting as the most obvious time (after Jackson Hole).

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Admin

When Will The Fed Raise Rates?

The following from CalculatedRisk with my notes added as an afterthought:

Short answer: it is very unlikely that the Fed will increase the Fed funds rate this year. There are a series of steps the Fed will most likely take before raising rates1: • First the Fed needs to complete the $600 billion “QE2” large-scale asset purchase program. This is currently scheduled to be completed at the end of June, however, to “promote a smooth transition in markets”, it is possible the Fed will decide to "gradually slow the pace" of the purchases like they did with QE1 (quoted text from QE1 related FOMC statements). If the program is extended and purchases tapered off (but the size remains at $600 billion), this will probably be announced at the conclusion of the two day FOMC meeting in late April and the program will probably then be completed in August. • Next the Fed will end the…

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