Tags: fed | rate hike | economy | traders

Traders: More Fed Sugar Please

Image: Traders: More Fed Sugar Please
(Dollar Photo Club)

By    |   Friday, 16 Oct 2015 07:41 AM

The Dow rallied Thursday by 200 points, and some commentators attributed this move to the market digesting the fact that, as this writer has been saying, the FOMC won't raise rates, even by a token amount, when it meets Oct. 28 due to bad jobs and inflation data.

I also don't expect the central bank to act in December (not hospitable for year-end window dressing, according to former Dallas Fed President Richard Fisher).

Fed action could occur sometime next year in theory, but in reality it is unlikely that the Fed will act at all in 2016.

"Futures Now" is a live stream that is broadcast at 1 pm for about 15 minutes every Tuesday and Thursday on the CNBC website, and the clips are posted later on the site. Hosted by Jackie DeAngelis, it features futures traders and commentators.

Thursday the show documented that once again, “bad news is good news.”

Traders have reverted to FOMO (fear of missing out), a term that was not used in this clip but one that applies to the phenomenon of a persistent rally in stocks, even as the Fed struggles to achieve its 2% inflation target and a state of “snagflation.”

It is fair to say that monetary conservatives have been warning about this for years.

Inflation hawks argue that the Fed needed to raise rates to stave off a grinding stagnation that can persist for a decade or more, while doves are willing to take that chance rather than risk a relapse into recession, especially in an election year.

This writer has suggested that the Fed’s statutory dual mandate has expanded through mission creep to encompass 10 or more de facto objectives.

The late Robert Weintraub, a student of Milton Friedman who conceived the Humphrey-Hawkins Act that instituted semi-annual congressional testimony by Fed chairmen, held that Fed chairs, regardless of party, would support the candidate of the incumbent, regardless of party.

This does not always occur, but it was dramatically illustrated in 2012, when Bernanke practically enlisted in the Obama campaign, but he was cast aside anyway in favor of Yellen.

Another de facto mandate is to support the stock market, one the Fed has pursued with great vigor through a succession of QEs.

Some cynics, such as Peter Schiff and this writer, have predicted that not only will the Fed not raise rates or unwind its $4.5 trillion portfolio, it will eventually undertake another round of asset purchases to rescue clients who have overindulged.

Jim Iuorio, of TJM Institutional Services, cited “two glimpses of data,” retail sales and NFE, which were “between bad and awful.”

He described the earnings season so far as “eh.” This could mean, “The Fed’s not going to tighten, and there’s free money forever.” He recoiled at the thought that, “We’re supposed to buy the stocks because the data’s bad.” Anthony Grisanti, of GRZ Energy, agreed that investors have little choice with bonds under 2%: “It’s the same kind of setup we’ve seen for the last six years – when in doubt, throw it in stocks.”

Louise Yamada, of Yamada Technical Advisors, who has predicted a “bumpy” fourth quarter, showed a chart of the S&P having fallen to 1870 in August, which she thinks “initiated a downtrend,” so that rallies will encounter resistance at 2000 to 2050 or 2060, as “a sense of complacency” is restored and the bear returns, so “I’m skeptical of this rally” for coming weeks.

Iuorio and Grisanti agreed that they are ready for another dose of the “sugar” the Fed is serving.

“I don’t think there’s a lot of place for investors to go, so as long as the sugar is still flowing, I’m going to take some, and I’m going to buy this market,” Grisanti concluded.

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Robert-Feinberg
The late Robert Weintraub, a student of Milton Friedman who conceived the Humphrey-Hawkins Act that instituted semi-annual congressional testimony by Fed chairmen, held that Fed chairs, regardless of party, would support the candidate of the incumbent, regardless of party.
fed, rate hike, economy, traders
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2015-41-16
Friday, 16 Oct 2015 07:41 AM
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