The Fed will pause at its next meeting on September 20. Then what? Will the next move be up or down?
Weighted Average Chart Notes
- Data is from CME Fedwatch
- The dates shown are from snapshots I took on those dates
- Starting today, I added May and June of 2024 so there is only one bar for those dates, reflective of September 11, 2023.
Weighted Average Example
How Perceptions Have Changed
On March 24, 2023, the market thought the March 20, 2024 interest rate would be 3.62 percent.
Today, the market thinks the rate on March 20, 2024 will be 5.38 percent. That’s a huge difference of 1.76 percentage points, the equivalent of 7 quarter point hikes.
Higher for Longer
The market has firmly bought into the idea of higher for longer. So have my Twitter followers.
With one hour left, and 174 votes in, 61.5 percent of respondents think the Fed’s next move will be a hike.
The current rate is 525-550. Call it 5.375 percent. The December expectation is 5.50 percent, an eighth of a point higher and that’s as high as it gets.
But the Fed won’t hike or cut by an eighth.
Looking ahead to June 12, 2024, the market anticipates the Fed’s first quarter point cut, back to 5.13 percent from the current 5.375 percent.
Goldilocks Through Mid-2024?
That’s the market perception right now with no more than an eighth of a point difference in any month between now and March 2024.
Nine months of Goldilocks’ complacency is too much to expect.
The Fed will be put to a test in one direction or the other. Regardless of which way, I don’t believe it will be good for stocks.
Tough Budget Deficit Talk by Hard Line Republicans, Ignore It
Meanwhile please ignore the clown show and Tough Budget Deficit Talk by Hard Line Republicans.
If you want something to worry about look no further than the UAW Gearing Up for a Strike,
I think the strike will be long and nasty. If accurate, GDP will take a big hit. If there is a quick settlement, expect much more inflation. Place your bets.
TA skip, SPX 1W with the cloud. SPX might be turning around to test the lows :
K, 26 bars to the left, is moving up b/c it lost Mar 13 low. K will keep moving up.
Senko B, 52 bars to the left, will lose its Oct low within 3 weeks.
T&K might flip. The front end might flip and turn red.
JP will stay put.
If SPX will move higher this TA isn’t valid.
I just finished teaching my daughters about certificate of deposits. I used this as a teaching time for them to show that most of the time saving accounts are loosing them money.
I also try to teach them about the Fed and their reasoning. Our current politicians have done a great job teaching them about inflation.
The world reserve can’t keep their rate below zero so we know where that limit is. The peak seemed to be in June of 1981. My question is: will the momentum continue to push up the rates because we are on the other side of the pendulum?
Keep in mind that the Fed just realized that the public doesn’t care if they use MMT. They also have a few tools left in their tool box.
#1 AI to work along with the IRS
#2 100% digital transactions for tracking and maybe control
#3 Steal(print) from some people to pay others. All in the name of good and safety like “Stimulus.”
My guess is that people who are rich and don’t pay much taxes will continue to be untouched.
Projecting fed moves is akin to deciding whether to wear a raincoat on a Tuesday in 2 weeks.
You might, maybe, get an idea by looking at the jet stream & any weather upstream.
Therein lies the problem, I personally believe commodities & softs are manipulated by the big banks, large investment institutions & large suppliers to affect outcomes to their benefit. (Atop oil & banana republic dictators)
The banks did it to oil in 2008 to benefit sub-prime shorts, there’s no reason not to question if it has happened in the last few years as well.
We need disclosure in the futures/derivatives market, the same as we require in regular markets, it’s absurd to allow unlimited positioning and transactions in futures when it wields so much control of regular market & economy.
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“it’s absurd to allow unlimited positioning and transactions in futures when it wields so much control of regular market & economy.”
To me, it’s absurd that we all know this happens and many have not joined and boarded the money train. If you know oil is being manipulated higher then buy oil stocks. If gold is being manipulated lower then short gold miners. What’s so difficult about it?
That’s why I’m here, even the crazy conspiracy nuts periodically prove helpful in helping me find the next profit bonanza. A new COVID variant coming out courtesy of some lab in Asia? Well it’s time to buy big pharma stocks again isn’t it?
For every action, every decision, someone somewhere is profiting and those that don’t become losers and whiners. Which one you want to be?
In 2033 (ten years from now) will you be posting comments that you knew oil was being manipulated in 2023 to cause a recession and housing defaults so the banks could buy up everything? Well join them!
It’s ALL a game, learn the rules, learn where you can bend them or break them and then position yourself for profits. After you’ve accumulated enough profits you can move to anywhere on the planet and live happily ever after. That’s how the game ends and you win.
“What’s so difficult about it?”
When the dealer rigs the deck, you can’t win.
In 2008, did you know $145 oil had nothing to do with supply or demand?
Did you know that CDO’s really weren’t triple A rated?
No one did, except a few prop desks that were causing/creating it.
Kyle Bass’s story is amazing, it took him about a year to finally find a big bank insider who could tell him what CDO’s were comprised of.
The CFMA allows secrecy in derivatives and futures, while everyone’s convinced food and material prices are the result of excess consumption, the reality is we have no way to know what % of raw costs are the result of futures s-peculation.
If, say, I think a food MFG is getting too frothy, I take up shorts on the regular market then pump grains or meat futures, inflated input costs then effect earnings.
That’s just one example, think of how having the ability to move input costs can affect equities.
To your own end, how about the builders, how’s that short going? and energy?
Are those sectors moving the way you expected 6 months ago?
Generally speaking, I am almost always LONG and SHORT at the same time with equities. With homebuilders, I am only short. My puts expire at various strikes from $55 to $65 and yes I am down about 20k right now but don’t ridicule me until the third Friday in January 2024 when they expire worthless or perhaps not. If I lose 20k, I lose 20k, it happens. It was a calculated risk and it (maybe) didn’t pay off. It was my fault for deviating from my long/short strategy and it has been a learning experience that was cheaper than 1 year in college, Lol.
And I never said there wasn’t risk and all trades are profitable. If that were true I’d be a trillionaire but it is far better to learn, try, learn again, try again than just sit and whine waiting for the government or politician or deity to swoop in and save everyone because that’s never going to happen. I have 2000 year history to back me up on that last statement.
My oil trades are fantastic. I bought back my DVN calls today for half the price so I made 50% profit. It will go back up at some point and I will sell more calls. If it doesn’t go up I will just get by with 7% dividends until something better comes along.
MPO, I’m soooo sick of your b.s. and can’t wait for an ignore feature to be instituted, but in the meantime…
“My puts expire at various strikes from $55 to $65 and yes I am down about 20k right now but don’t ridicule me until the third Friday in January 2024 when they expire worthless or perhaps not. If I lose 20k, I lose 20k, it happens.”
You’re either downplaying your current loss on this position or you exagerated the size of the trade to begin with. Which is it? I remember you using a cliche like “do or die” or “make or break” to describe the size of the put position and now it’s just $20k loss?
For someone as wealthy as you profess to be, making millions every day, $20k seem like a pittance not “make or break”. Choo choo!
It’s simple, do the math. Go back to when I started my position and look up how much I paid for the puts. It’s all public information. You can take the value of the puts when I bought them and subtract what they are currently worth. Since you know I have 20k in losses, it’s simple math to calculate my initial position.
you do know how to do math right?
As for ignore, go ahead. What exactly have you contributed here? Do you think not reading my comments is a loss to me? I’m not here to impress or serve you, I am here to share with liked minded individuals what I am doing to make money and even sharing when things go wrong.
No one can know with certainty what the Fed’s next move will be, all we can do is position for profits on:
1. A hike – Go short the market by selling calls on stocks I own. Buy more T-bills.
2. A stall – Keep going long the market but sell calls on stocks I own to hedge short. Buy more T-bills.
3. A cut – Buy TLT and maybe EWJ. Buy more T-bills.
Of course it depends on other factors too, not just what the Fed’s doing. China may launch a Taiwan blockade, Putin may invade Poland, or other mayhem. Gotta take it day by day, profit by profit.
I presume you realize all three of your answers equate to ‘buy more TBills’.
That begs the question, what exactly could the Fed do that wouldn’t equate to ‘buy more TBills’ in your opinion?
Cut rates to zero or near zero because that will drive housing and stocks to the moon!
In my opinion, there is just too much risk out there not to be in a safe asset like T-bills. But off the top of my head here are some strong headwinds…
1. China
a. demographics bad for U.S. will force China inward
b. belligerence (Apple/Taiwan) – A blockade would panic markets, chip stocks fall hard.
2. US
a. student loans repayment
b. credit card debt / tap out
c. housing debt
d. commercial real estate debt
e. strikes & wage inflation
f. overvaluation (houses, stocks)
g. demographics
And inflation, inflation, inflation….
Be forced into raising the FFR by another 50-100 basis points. The later is not likely at this time but 50 more is a real possibility. The labor market has softened in the last few months, but it’s far from soft. Services, rent & OER are not ready to roll over. As I’ve said MANY, MANY times, I just don’t think the average economist is willing to admit how much upward pressure having so many illegals running around in the US is going to cause over the next 12-18 months that they all think inflation is going to break.
1st-time claims are avg about 230K or less over the last several months. Continuing claims have dropped as well. Oil has risen and will stay higher than most expect through the end of the year, seasonally adjusted of course.
To-date, the stock market has laughed off the last 100-150 basis points rise. Housing has bottomed and will rise, seasonally adjusted.
Personally, I think we’re into a very extended period of time whereby the fed’s core PCE inflation target will remain above 3.5%.
1.5 years ago, it was the fed saying inflation was transitory. Now, all the gurus are acting like the last mile of inflation is “transitory” and will be tamed withing 6-9 months.
Hogwash! Inflation is here to stay. Markets, as usual, are fighting against what everyone knows is true. Higher for longer.
When at least 60% of all mortgages are under 4%, housing just has to come to terms with existing home sales will stay cratered for years to come. New homes are where it’s at. Builders continue to sit on huge gross margins to do all sort of buy downs. That could take years to overcome as well.
The only thing that corrects all of the imbalances is a recession. The question is does JPowell have the balls to go 50-75 more basis points to ensure that happens.
The government could dramatically increase home inventory in one month by phasing out investor tax breaks for home ownership. Owner-occupiers don’t get those tax breaks just for owning, and investors shouldn’t get them either. The only thing housing investors should get tax breaks for is new construction, not existing home purchases/ownership. The inflation problem could be solved essentially overnight since housing cost is the only thing driving wage pressure at this point. But Congress isn’t about solving existential economic problems; it’s about maximizing cash flow for member portfolios of real estate investments, which many of them have.