Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Hot Inflation Reports to Dominate Next Fed Meeting

Interest-Rates / Inflation May 27, 2014 - 05:13 PM GMT

By: EconMatters

Interest-Rates

Important Econ-Inflation Events

The Federal Reserve meeting begins Tuesday June 17th with the FOMC meeting announcement the following day Wednesday June 18th which will be followed by their forecasts and the Fed Chair press conference.

In the last Fed meeting a weak housing concern cropped up on the Fed`s agenda, but all the housing data has rebounded in the latest economic reports with the spring weather, and the new concern at next month`s Fed meeting will be inflation.


With much hotter CPI & PPI reports the last two months and another hot set coming right before the Fed meeting with the PPI coming on Friday June 13th, and CPI coming out on Tuesday June 17th. We anticipate these reports to be on the high side of estimates with higher food, energy and rising wage cost pressures; and that the Fed will probably have to address these new inflation pressures in their statement and the following press conference by Janet Yellen.

We also think the Employment Report which comes out nextweek will show some rising wage pressures which are the real push through on the inflation numbers. We think the Fed and the market at large is way behind this inflation curve, the market is still trading and making decisions on numbers that came out three months ago, all the latest economic inflation data has been very hot, and well above expectations, with the consensus just thinking these are temporary data blips. However, a third hot round of CPI and PPI reports right before the Fed meets is going to raise some eyebrows and establish the inflationary trend that we anticipate will be with us for the next 5 to 10 years.

Bond Market: Mispriced Asset Class

The fallout from this is obvious the Bond Market in the United States is the most mispriced asset class right now and this time they are wrong, and equities are telling you that inflation is full bore upon us. Look for the S&P 500 to hit 2200 much sooner than most realize with the 2500 area pinging on the radar as investors run out of bonds and into equities as inflation heats up and the Fed starts raising rates much faster than the market has currently built into their models.

The Trade

Valuations can be a concern regarding equities, and who knows what type of volatility hits that market once Bond Yields spike so the best place to be from a risk reward perspective is long 10-year yields.

Bond Investors are dangerously asleep at the wheel with the chasing yield fervor reminiscent of a Gold Rush that the best play is in the Bond Market. Start building short positions in the 10-Year Bond exposure area either through Futures or Treasuries, and do it now while yield is so low relative to where we believe it is headed over the next six months and beyond. If playing Futures just build a position and have enough liquidity to stay in the trade for the long haul, and keep rolling over your short Futures Price and Long Yield trade over the next six months.

This is one of the few times I am going to say this so pay attention, investors cannot lose on this trade if they get involved at these low yield levels in the 10-Year over the next six to nine moths time frame, this is essentially as free money as Wall Street ever gives investors, take advantage of it while it lasts.

The Fed will continue tightening based upon the good manufacturing and housing economic data of last week, and with the upcoming hot Employment and CPI/PPI Inflation Reports, this is really going to push the Fed into a stronger tightening mode. However, the Fed is going to raise rates regardless as they normalize monetary policy over the next six to nine months, Don`t fight the Fed, make money being on the right side of this trade, which is long yield and short price from where we are right now relative to 10-year treasury yields.

Further Reading: Fed to Raise Rates in 9 Months

Positive EV & Risk Reward Profile

This is the best Risk Reward Trade on Wall Street right now but you have to get in while yields are mismatched with where the Federal Reserve is eventually going to be forced to go, so that your risk profile is better managed by having such an excellent relative entry price.

Investors will start jumping on the trade when 10-Year Bond yields reach 2.8% and we break out of the recent range from 2.47% to 2.70%. But the beauty of getting in when the market is “sleepy” is that an investor has much more room to manage the trade to the upside, and really let the trade breath, i.e., let the trend develop by getting in early, and let your winners run.

This isn`t a short-term trade, and an investor isn`t looking for a quick profit, i.e., nobody is concerned about inflation right now, hold the trade through when everybody is worried about inflation – this is how you really get paid as an investor for taking on the risk of the unknown.

And as ‘Unknowns’ go this is one of the surest or knowable ‘unknowns’ the Fed is going to raise rates, inflation is going to rise and be a problem in the future, and 10-year bond yields are going to be higher in the future, and as an investor find a way to play this market and monetary normalization process.

Inflation, Inflation, Inflation

But mark my words the topic de jure three weeks from now will all be about inflation and how the Fed needs to start raising rates much sooner than is currently priced in the market. Mark your calendar for the Employment Report next week, CPI & PPI Reports 13th and 17th, and the Fed Meeting Announcement on the 18th of June. Inflation pressures will be more than an economic blip, and these reports will reinforce this recent trend, and markets will have to adjust to this new paradigm.

We have now entered the Inflation Paradigm of the Fed`s loose monetary experiment, it is time to pay the piper for all this excessively lax money printing complacency. We all knew this day would eventually come, ‘the boy cried wolf too many times’ we then let our guard down, and boom inflation smacks us and the Federal Reserve in the face, and nobody is prepared for the absolute carnage in the Bond Market!

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2014 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

EconMatters Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in