Let’s try to untangle the web of Fed-speak going on here. “Reality” for our purposes is defined as my opinion, obviously.
Yellen Defends Seven Years of Low Interest Rates in Letter to Nader
Warning that “an overly aggressive increase in rates would at most benefit savers only temporarily,” she argued in the letter released Monday in Washington that the Fed’s seven-year era of zero rates had sheltered American savers from dramatic declines in the value of their homes and retirement accounts.
Contributed by Stephan Davied
The world seems to be in the throngs of something very strange. Are we in a recession or are we in a depression or are we in a 10 year period of just super low growth? The world has never coined a term to describe years and years of low growth, probably because it does not happen much.
Generally countries, businesses, schools and even humans go through cycles. The human normally sleeps at night and is awake during the day. This cycle is critical to our survival as we need the proper amount of down time to support our up time. Businesses go through cycles. Retailers are super busy during the holiday season and other times they are less busy. This is a retailers yearly cycle. Bigger than that are economic cycles. During times of robust business activity business struggle to keep up with demand so in turn they invest For example in times of robust growth a concrete company who can’t meet the demand of its customers might build another concrete plant.
What They Said
“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”
What They Did
What did the Fed do yesterday? Why, they rolled over once again and held ZIRP. They also got mighty specific with some wording that freaked out precious metals players and put in a reversal, not only in the metals, but importantly, in their ratio. See yesterday’s post on the Silver-Gold ratio’s status… What Thing Looks Like the Other. A reversal in silver vs. gold would put the sector on a correction and also issue a warning to other global markets.
Almost as entertaining as the market’s reaction to the event itself is Thursday’s reaction to what a bunch of clowns pretending to be in control of the economy had to say about the economy and by extension their policy supposedly governing same.
Market participants, black boxes and substance abusers alike might want to keep a couple of things in mind; 1) inflammatory news events are fleeting in their effects (and look at how quickly the gold sector, one standing to gain from a weak economic backdrop and its implications for policy, head faked up and reversed down) and 2) after the FOMC Minutes release in September the market cheered and zoomed higher after the Fed punted. It then immediately reversed into a downside leg that became the bottom re-test.
Just to add to confusion regarding what future direction the FOMC may take regarding whether or not to raise interest rates in 2015, we see this tweet last night…
I would just remind readers that Janet Yellen’s comments last night are HER comments and are NOT the official Fed Policy Statement that was released at their last meeting on September 17th. In their Release, they stated that…
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” (more…)
Since I have absolutely nothing new to say about the markets, I just thought I’d close out the day to briefly comment on the remarkable event at the end of Yellen’s speech, which many Slopers watched live and commented upon in this post. The speech itself wasn’t particularly exciting (to put it kindly), and Yellen actually has an oddly soothing voice which was lulling most of us into a gentle sleep. Very near the end of the speech, it was clear something was wrong. I thought she was missing the last page of her speech, or she had become very, very lost, and watching this real time, it was pretty surreal…….
It seems people are really, really hung up on the fact that our Chief Oatmeal Cookie Baker is making a speech this afternoon. What’s she going to say? That she’s awaiting more data? That they’ll lift rates when it’s appropriate? Listen, people, they are never going to raise rates, and if the market gods smile upon me, her effect on the market will be little different than it was one week ago today, when she did her usual blather which sent the Dow into a 1,000 point tailspin. Look, I’m sure she’s a nice old lady. It’s just too bad she gets all this attention.
As for myself, I lightened up today (down from 170% committed to 125%, and down from 117 positions to just 88 shorts). I intend to crank it up ungodly aggressively next week. It was a good day overall, my portfolio pushing up 0.93% versus the overall market being down 0.29%.