Search
All
Economics
Politics

Don’t Miss a Post. Subscribe now.

Hawkish Fed? No, This Was a Dovish Fed Meeting

•

•

21 comments on Hawkish Fed? No, This Was a Dovish Fed Meeting

•

Dot Plot courtesy of the Fed, Annotations by Mish

Hawkish Fed?!

The following Tweets and discussion involve Joseph Wang (@FedGuy12) and Harvey Bassman (@ConvexityMaven) inventor of MOVE a bond volatility measure.

  • Wang was a senior Fed trader, trading the Fed’s QE program
  • Bassman was on the opposite end. He invented the MOVE index, a volatility measure for bonds similar to the VIX index for stocks. 

Where’s QT?

Beware of a Very Aggressive Steepening of the Yield Curve by the Fed

Looking past tomorrow, what should everyone expect from the Fed?

Yesterday, I commented on expectations of two great (and I mean that sincerely) analysts in Beware of a Very Aggressive Steepening of the Yield Curve by the Fed

Q: Harvey Bassman: “Should the Fed want to engineer a steeper curve?” Bassman asked Joseph Wang.

A: Wang

  • I am getting a sense there will be a very aggressive steepening of the curve engineered by the Fed by very aggressive quantitative tightening” 
  • “The way that you touch housing is not by hiking the Fed Funds Rate. People do not borrow mortgages at the overnight rate. 
  •  My guess is that if you do aggressive enough QT that it will bleed into the 10-year as well.” 

Punt

Bassman replied “The Fed buying mortgages has pushed up home prices against millennials.”

What we have is a Punt by the Fed. 

I am quite certain the Fed does not want to upset the stock market or housing.

You can see it in the reaction today, albeit from very oversold conditions. 

Bullish, Bearish, Something Else?

I believe that was the correct call.

Bitcoin?

Stocks Where To?

The Fed undoubtedly got the reaction it wanted by punting on QT.

Short term, hooray. 

Powell did a massive amount of cheerleading too. How many times did he say the word “strong” in the Q&A following the meeting? 

Anyone have a count?

Thanks to Wang and Bassman

Thanks to Joseph Wang, Harvey Bassman, and moderator Jack Farley for yesterday’s excellent discussion.

Regardless of today’s outcome, Wang and Bassman defined what “hawkish” really looks like. 

In addition, Bassman had excellent comments on viewing high-growth stocks like 70-year bonds. 

See Beware of a Very Aggressive Steepening of the Yield Curve by the Fed for an excellent video and actual quotes.

Most People Have No Idea How Much Stocks are Likely to Crash

I stick with my call Most People Have No Idea How Much Stocks are Likely to Crash QT or not.

This post originated at MishTalk.Com.

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Mike Shedlock

Recommended Articles

Comments to this post are now closed.

21 Comments
Newest
Oldest Most Voted
Tony Bennett
Tony Bennett
4 years ago
“Need to add next to nothing on QT other than looking at it.

“Next month” discussion.”

…
Yesterday I thought hawkish  when I read statement. I assumed it would commence “next” meeting.  I just re-read:
 “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
“coming”?  That could be ANY meeting.
Dovish … with a (tiny) splash of hawk.
0
0
KidHorn
KidHorn
4 years ago
What does the FED mean with no QT? Does it mean no outright sales, but will not roll over maturing debt? Does it mean their balance sheet will remain flat? Does it mean they’ll do some yield curve adjustment by buying/selling securities with different maturity dates but the balance sheet remains flat?
I think the FED will have to do a few more hikes no matter what. Even if it does little to fight inflation. They have to at least match what Europe is doing.
0
0
StukiMoi
StukiMoi
4 years ago
I can pretty much guarantee they won’t crash to where they were before The Fed….. Which is, effectively, their last somewhat unmanipulated prices.
If Americans should suddenly decide to no longer be so pathologically stupid, as well as beholden to others even stupider; such that they get rid of the cancer-in-their-midst that is The Fed, and bring back the proper $20/oz dollar; then I will very likely be proven wrong. But I have mostly long since given up having that much faith in fellow Americans.
0
0
JeffD
JeffD
4 years ago
Here is a graph you will enjoy, CPI yoy% – prime rate:
Please, use it in an article.  When prime rate is below CPI, it is a multiplier on inflation, especially in an environment where physical assets are in short supply, where loans can be used to “corner the market”, pushing inflation and profits ever higher for a relatively small investment. For instance, all homes on the market in the U.S. right now could be bought for much less than $400 billion, except the very high end.  Since the FHFA just raised conforming loan limits by 20%, speculators could easily sell these homes back to “poor people” who can get subsidized Fannie, Freddie, etc. loans at or above the conforming loan limit. The Fed has never allowed this before, and the current Fed members “don’t get it”.
0
0
JeffD
JeffD
4 years ago
Reply to  JeffD
And maybe it’s not clear to everyone, but this graph shows that by taking out a loan to buy a home, any home, right now you make a collaterallized 4% return on your investment of CPI – prime, plus whatever “extra” return you get due to the inflation you cause by taking one additional home off the market. In the short term, this is guaranteed to be profitable, highly profitable. It takes a surprisingly small number of buyers to make this work in a low physical asset supply environment. It will crash, which is why you buy, wait half a year, then sell.
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  JeffD
I think people did this in 2006. It took a crash and 7 or 8 years to recover to 2006 levels.
0
0
JeffD
JeffD
4 years ago
Reply to  Casual_Observer2020
And they will do it again because, according to my graph, it is 9% more profitable now, thanks to the CPI spread due to the gross incompetence of the Fed. Am I yelling fire in a crowded theatre with this analysis? Yes. But the FOMC members are the arsonists.
0
0
To Da Moon
To Da Moon
4 years ago
Mish, I’m curious why you’re not in favor of the inverse daily movement ETF’s if you’re convinced the market is headed down significantly in the near term?  Sure, inverse ETF’s don’t track to the index perfectly due to the compounding error, but over a couple of months or so, I would think they would be pretty close.
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  To Da Moon
Because it’s been unpredictable. There should have been 2 recessions if you read this blog over the last decade. There wasn’t even 1 according you equities markets because the Fed stepped in aggressively. 
0
0
KidHorn
KidHorn
4 years ago
Reply to  To Da Moon
Properly guessing timing is as important as guessing direction.
I made a lot of money shorting financial institutions during the housing crash in 2007, but some of my shorts were killed because some idiotic rumor would leak that so and so was going to buy some company I was shorting. It was almost always a lie, but it did a lot of damage. I quickly realized the SEC is completely useless.
0
0
MPO45
MPO45
4 years ago
“The Fed penciled in 7 rate hikes this year and 4 more next year. Who believes this?”
Why is it so incredibly unbelievable that interest rates could climb by a total of 1.75% (0.25 x 7) over the next year or two?  I just don’t get it, I understand there is a huge debt problem but if inflation suddenly jumps to 12% or 15% or 20% what do  you expect will happen to society?  Food riots?  Wage riots?  Inflation needs to be put under control somehow and raising rates is one of the key tools.
Many people in my office are getting job offers with salary bumps anywhere from $50k to $100k.  I happen to be one of those people caught in a bidding war and am looking at close to $150k pay bump.   Higher interest rates aren’t impossible from my perspective.
If it wasn’t impossible in the late 70’s to be at 18% then its not impossible now.  
0
0
Tengen
Tengen
4 years ago
Reply to  MPO45
We’re a long way from the Volcker era, have to agree with Mish here. It’s not just the cost of servicing such extreme debt, it’s how negatively markets react to even small rate increases. There’s a reason the Fed hasn’t been able to go above 2.5% since the 2008 crisis and why there is such enormous pressure to cut at the first sign of danger.
Aside from that, your wage situation is atypical. I think the last figures I saw show the US median income to be somewhere around $50K, although some claim it’s actually lower. Apart from a few select high income sectors like investment banking and some minimum wage bumps on the low end, wages have been mostly stagnant for decades.
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Tengen
Not true. Wages in tech have always been rising. They are going through the roof now. 
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  MPO45
It’s not impossible but it’s not sustainable either. 
0
0
Dr. Manhattan23
Dr. Manhattan23
4 years ago
Maybe Fed is trying to engineer its way out of $30 trillion in debt by inflating it’s way out of that debt. Is it worth the risk of destroying the currency? 
@mish – great commentary on this matter for the last few days. I agree with you. They are trying to kick the can down the road, but I don’t think it will work. This is a race between the pain tolerance voters have for increased prices due to inflation and the next fed meeting. The more pain consumers feel, the less wiggle room the Fed will have. It already has its back to the wall
0
0
ohno
ohno
4 years ago
Don’t frgt the fed can also talk out of its a.. 
0
0
Counter
Counter
4 years ago
Very strong very many times. Algos were picking up on how many times he said tools I believe
0
0
LawrenceBird
LawrenceBird
4 years ago
They have about 3.2T in non-Treasury paper and 5.7T in various UST.  Looking at the maturity profile from the H41, only 1.4T of the treasuries are > 10 years, with roughly 50% between 2 weeks and 5 years.   WRT mortgages, the duration is probably order of 5 years, depending what method and prepayment assumptions you use.  In a rising rate environment prepayments will likely slow so duration will extend, at least a bit.    I’m guessing the overall duration of the treasury portfolio is not much over 5 or 6 either given heavy 10 year issuances on the long end.
So even if they “dump” everything, the hedging needs are far lower and more more towards the front of the yield curve, not the back.   They should end up with a pretty flat and possibly humped curve. 
0
0
Maximus_Minimus
Maximus_Minimus
4 years ago
Socks where to? Not a typo?
I notice a subtle hint. /s
0
0
Doug78
Doug78
4 years ago
Reply to  Maximus_Minimus
What do you drop before you grab your socks? Maybe the Fed did that finally.
0
0
Mish
Mish
4 years ago
Reply to  Doug78
Second Time I did that.
First was in a title
0
0

Decorate Your Walls with Mish Fine Art Images

Click each image to view details or purchase in the store.

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.