{"id":12643,"date":"2015-09-26T09:17:05","date_gmt":"2015-09-26T14:17:05","guid":{"rendered":"http:\/\/olduvai.ca\/?p=12643"},"modified":"2015-09-26T09:17:05","modified_gmt":"2015-09-26T14:17:05","slug":"everyones-praying-but-no-ones-believing-the-fed-put-is-dead","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=12643","title":{"rendered":"“Everyone’s Praying But No One’s Believing” – The ‘Fed Put’ Is Dead"},"content":{"rendered":"

“Everyone’s Praying But No One’s Believing” – The ‘Fed Put’ Is Dead<\/a><\/h3>\n

Chalk Outline<\/strong><\/p>\n

Yellen\u2019s detailed speech initially triggered an out-sized market reaction.\u00a0<\/strong>\u00a0Unfortunately, it was mainly due to shallow market depth and weak-hand positions.\u00a0The \u2018risk-on\u2019 trades that ensued seem driven by positional unwinds from short-term traders. These markets will likely reverse back to lower prices once those initial trades are digested.\u00a0<\/strong><\/p>\n

Yellen\u2019s speech should quickly begin to hurt over-priced financial assets.\u00a0<\/strong>The stellar performance of financial prices over the past several years has primarily been driven by central bank accommodation. The double digit average returns (15%+) of the S&P 500 from 2009-2014 was not driven by economic strength, but rather by massive global central bank actions. There is simply a poor correlation between economic activity and the S&P 500 in any given year.<\/p>\n

Since the Fed\u2019s balance sheet flat-lined in 2014 (with the policy rate locked at 0%) risk assets have chopped side-ways-to-lower.\u00a0\u00a0Therefore, a sooner (than priced-in) removal of accommodation should be hurting, not helping, risk assets.<\/strong><\/p>\n

The looming 2015 rate hike, threatened by Yellen and other FOMC members, is desirable and plausible in their eyes due to several factors<\/strong>:<\/p>\n

\n
1)\u00a0 confidence that the US economy is on firmer footing and has moved materially away from crisis conditions;<\/div>\n

2) a sense of desire and urgency to move off the \u2018zero lower bound\u2019;<\/p>\n

3) anxiety about not having any ammunition during the next economic downturn;<\/p>\n

4) fear of missing the business cycle and with it the opportunity to move off of zero rates, and;<\/p>\n

5) as stated in Yellen\u2019s speech, the potential that holding rates too low for too long \u201ccould encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability\u201d.<\/p><\/blockquote>\n

Yellen\u2019s speech was the first time I can ever remember a Federal Reserve Chairperson commenting that inappropriate risk-taking might be undermining financial stability.<\/strong><\/u>\u00a0 This is explicit confirmation that the Fed\u2019s aim of lifting asset prices in the hopes they bolster broader economic activity has reached the end of its useful life.\u00a0 Barring a financial or economic disaster, the \u2018Fed put\u2019 has been put out to pasture.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

“Everyone’s Praying But No One’s Believing” – The ‘Fed Put’ Is Dead Chalk Outline Yellen\u2019s detailed speech initially triggered an out-sized market reaction.\u00a0\u00a0Unfortunately, it was mainly due to shallow market depth and weak-hand positions.\u00a0The \u2018risk-on\u2019 trades that ensued seem driven by positional unwinds from short-term traders. These markets will likely reverse back to lower prices […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[98,6237,303,305,8989,4512,9285,451,534,696,841,4318,1939],"class_list":["post-12643","post","type-post","status-publish","format-standard","hentry","category-economics","tag-business-cycle","tag-confidence","tag-fed","tag-federal-reserve","tag-financial-assets","tag-fomc","tag-guy-hasalmann","tag-janet-yellen","tag-monetary-policy","tag-sp","tag-us-economy","tag-zerohedge","tag-zirp"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12643","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12643"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12643\/revisions"}],"predecessor-version":[{"id":12644,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12643\/revisions\/12644"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12643"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12643"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12643"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}