Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20
Global "Debt Mountain": Beware of This "New Peak" - 13th Nov 20
Overclocking Zen 3 Ryzen 5600x, 5800x, 5900x and 5950x to 4.7ghz All Cores Cinebench R20 Scores - 13th Nov 20
Is Silver Leading Bitcoin or is Bitcoin Leading Silver? - 13th Nov 20
How Elliott Waves Simplify Your Technical Analysis - 13th Nov 20
How to buy Bitcoins using debit/credit card? - 13th Nov 20
Will COVID Vaccine Kill Gold and Silver? - 12th Nov 20
Access to Critical Market Reports - 12th Nov 20
Stock Market Dow Futures Reach 30,000 on News of COVID-19 Vaccine Trials Success - 12th Nov 20
8 Terms & Conditions You Must Know Before Asking For Life Insurance Policy Quotes - 12th Nov 20
Gold Stocks Post 2020 US Election Outlook - 11th Nov 20
Champions’ League Group Stage Draw: All You Need To Know - 11th Nov 20
Stock Market Secular Trend - 11th Nov 20
Stock Market Correction Curtailed by US Election - 11th Nov 20
What Causes a Financial Bubble? - 11th Nov 20
Ryzen 9 5900X RTX 3080 - Scan.co.uk vs Overclockers.co.uk UK Custom PC System Builder Review - 10th Nov 20
Killing Driveway Weeds FAST with a Pressure Washer - Saving Block Paving from LOTS of WEEDs - 10th Nov 20
Trump Fired, Biden Hired, What Next?  - 10th Nov 20
Looking for a Personal Loan? Here Is What You Have To Know  - 10th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

BoJ, FOMC and Where To Now?

Interest-Rates / Central Banks Sep 26, 2016 - 12:23 PM GMT

By: Gary_Tanashian

Interest-Rates

The Bank of Japan gave us a glimpse as to just how far down the rabbit hole we may have to follow global policy makers as we try to make sense of ever more complex and shall we say, innovative ‘tools’ being used in the effort to engineer individual economies and asset markets within the global financial system. BoJ announced it would conduct “JGB purchase operations” in order to “prevent the yield curve from deviating substantially from the current levels”.

The market initially interpreted this to mean BoJ stood in support of a rising yield curve, which would for example, help the banks (ref. MTU and SMFG, which exploded higher off of the support levels we had projected), but by the end of the week the Japanese Yield Curve had eased substantially and there seemed to be confusion about what the policy’s intent, or would-be effects, actually were. I wonder if the BoJ even fully knows what it is doing now. Lots of moving parts in a complex system.


As for the FOMC, it was non-business as usual. For all the pomp and bluster of the August-September Jawbone blitzkrieg we’ve been subjected to, the damn committee simply rolled over again, admonishing through hints that they really, really mean it when they imply a rate hike is still coming in 2016. But for now and to the surprise of very few, they did what they have done for the last 8 years; obfuscate and delay.

This time we even saw renowned dove Eric Rosengren rightly (in my opinion) shifting to the hawk side of the table as he observes a landscape of cranes to nowhere in Boston and extrapolates… ‘hmmm, I think we are blowing an asset bubble’. Yet still, the committee chaired by Janet Yellen – she of the hawk-tinged Jackson Hole Jawbone (with handy QE “tools” in her back pocket) went on to vote NO HIKE despite elevating CPI and soaring real estate, healthcare and services costs. Also, let’s not forget the ‘near all-time highs’ stock market, which unsurprisingly got an across the board price surge in response.

Where to now? Speaking as a lowly participant, I gave my stance in Friday’s in-day market update (profit retention). As you will see in this week’s report, weekly US stock market charts remain just fine, as we have noted for months now. But the daily charts of NDX and SPX used in the update gave some parameters to shorter-term correction potentials. What’s more, the global macro is a confusing mess. Japan took confusion to a new level last week, but the US is also a Wonderland of its own, post-2008.

The chart above asks whether we are at a time like 1993/94 and 2003/04 or a time like 2000/01 and 2007/08. The interplay between the Fed Funds Rate (FFR) and the 2 year Treasury yield is – in my opinion, due to unprecedented bond market meddling under the Bernanke Fed – now dysfunctional.

Declining in 2016, the 2 year has been acting like it does at important economic and stock market tops, but Fed policy has not caught up to and exceeded the 2 year. We have long noted that the Fed decides nothing; the bond market makes the decisions. Yet the 2 year has been rising since 2013 and only in December of 2015 did the Fed decide to start to get in line with the message. Ever since then the 2 year yield has been declining, as it does at market tops, and this assuredly factors into the FOMC’s dovish rollovers.

Yet the starting point of this process is unlike any that came before. In 2000 the process began with yields above 6%. In 2007, above 5%. Today? 1% on the 2 year and .5% on the FFR. Those data points are lower than even the bombed out post-recession levels of 1992/93 and 2003, which preceded new cyclical bull markets.

Did someone say “confusing”? Did someone imply that even the likes of the Fed and the BoJ are confused? Did someone name a market report and associated service after the story of Alice in Wonderland during the lead-in to Q4 2008, when so many of the distortions built into the system were first introduced? I make a big deal about “playing it straight”, i.e. using the indicators and market signals for what they tell us, not what our most closely held views (biases) want them to tell us. But there is a highly technical term we can use for the chart above; it’s all screwed up.

Now there is little going on in macro markets that is conventional, and because of that it is difficult if not impossible for conventional analysts, quants and various other data miners to extrapolate forward in any accurate way. If the process noted above were coming from, say, 3.5% to 4% yield levels it would be easy to call it a ‘high risk, sell stocks’ atmosphere because all the ducks would be lined up and we would be believing the Fed when it poops rising interest rates talk out of its orifice. We could then expect the typical over shoot and ensuing bear market. I think that is what is coming, but the timing – in line with continual ‘obfuscate and delay’ of the Fed, is what is in question.

The chart above shows the ongoing 2016 downtrend in the 2 year yield. That is the plan that the Fed is following. Notice the big spike in October/November 2015? Notice the single Fed Funds Rate hike in December of 2015? Ever since then the 2 year has trended down and so the Fed has stood down. They ramp up the tough talk however when the dupes on the long end of the curve begin to get unruly. As noted recently, the 10 year yield broke its downtrend. About the only ones who would like that are the Banks, pigs that some of them are [insert Stumpf photo and time-wasting belly aching here].

A rising yield curve is not what is happening yet, however. But if it were to happen confidence in the Federal Reserve would take another hit. So for now they ‘tough talk’ the bond market, holding that massive would-be .25% rate hike over our heads.

I think they’ll probably raise in December if the markets do not fall apart in the interim. They do have a bit of wiggle room before they overshoot the 2 year per the first chart above. Another hike would give them a second little nugget of credibility. But if long-term yields resume climbing at any point, the message would be inflationary and the Fed may have to chase the curve higher. If on the other hand, yields do not resume upward we’ll have seen the last rate hike in a long while. Here’s the daily yield curve; it is no wonder Fed sensitivities got stoked in September. Last week it was tamped back down.

Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2016 Copyright  Gary Tanashian - 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.

Gary Tanashian Archive

© 2005-2019 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

6 Critical Money Making Rules