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ADM's Ostwald Sees Fed Concerned About Market Disruption

By    |   Thursday, 06 August 2015 08:45 AM

ADM's Ostwald Sees Fed Concerned About Market Disruption
(AP file photo)
To one who has never bought into either the likelihood or the significance of the prospect of FOMC action in September to raise interest rates, it is remarkable how much discussion there is about it.

The one caveat is that another taper tantrum could occur among investors who think such action has been put off at least until next year.

Marc Ostwald, of ADM Investor Services, invokes the Hotel California analogy to describe what he calls the “syndrome” afflicting those, including this writer, who all along have referred to QE as QE-n and doubted that the Fed can ever shake its addiction, especially with an election year looming and the Fed sensitive to its mandate to keep the economy on a relatively even keel for the benefit of the party in power.

Ostwald told CNBC he thinks the excess liquidity in markets is prompting the Fed and that it “needs to test the plumbing of the system … and what they’re really concerned about is there may actually be a lot of disruption in asset markets, above all, fixed-income markets.”

This writer wonders whether economists have a maxim analogous to the saying that a lawyer shouldn’t ask a question to which she doesn’t know the answer. Does the Fed dare provoke such a test of global financial markets when the answer could be another round of intervention, or will it feel compelled to do all in its power to postpone this until 2017?

Henry Colvin, of Longview Economics, thinks the Bank of England will not be raising rates because it thinks inflation is below target, inflation is at “multiyear lows,” and households are still deleveraging.

In response to a question as to whether the BOE might push a rate hike off beyond the end of the year, Colvin raised the possibility it may be the end of next year. At the same time, he finds evidence of housing bubbles already forming in various parts of the world that the authorities may be powerless to control.

Wong Sui Jau, global market strategist at Fundsupermart.com, thinks a Fed rate hike will be a “nonevent,” because the bond market has already priced it in and he is confident the trajectory of the rise will be smooth.

Perhaps his polar opposite in terms of complacency is Peter Schiff, CEO of Euro Pacific Capital, who reiterates that the last thing the Fed wants to do is raise rates.

Schiff was responding to Wayne Kaufman, chief market analyst at Pacific Financial Services, who contends the Fed is not only “dying to raise rates,” but will also give ample notice before it does.

Finally, Simon Male, of Auerbach Grayson, asks whether the support that the Chinese authorities are providing to their markets is having the opposite of the intended effect by causing overvaluation and leading retail investors to conclude that the market depends on government support. A cynic might ask who can blame the Chinese when they see how well government invention and intervention have worked in the U.S.

Even more cynical would be the notion that the Fed will ultimately intervene to prop up the Beijing market if that market becomes so correlated with the U.S. market that such a move becomes attractive, to head off a crisis in an election year.

This may sound fantastic, but what the Treasury and the Fed have already done has admittedly gone beyond previous bounds, so whenever the next crisis occurs, the Fed will have to do something even more outrageous, such as buy stocks for its already bloated portfolio.

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Robert-Feinberg
To one who has never bought into either the likelihood or the significance of the prospect of FOMC action in September to raise interest rates, it is remarkable how much discussion there is about it.
market, invest, economy, cnbc
591
2015-45-06
Thursday, 06 August 2015 08:45 AM
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