Tag Archives: FED

Will the Fed raise rates on Thursday?

Do you belive the Fed will hike on Thursday?

If so, you are among economists and strategists that belive so, but traders are betting strongly against it, and that alone is enough to wait at least one month before liftoff, according to Morgan Stanley.

CME FedWatch tool says the probability is at just 21 percent, and Morgan Stanley said its readings on trading show a 30 percent probability that «overstated the chance» of a rate rise.

Lessons learned in 1994 that reverberated into 1999 and 2004 will prelude a rate hike until the futures market prices one in. In 1999 and 2004, the central bank waited for market expectations to exceed 50 percent before moving, learning a lesson from 1994 when it tightened.

CNBC said there is one good reason the Federal Reserve won`t vote to raise interest rates, and that`s History. So, what is all this about?

percentage

Rates have been near zero since the recession, and the Fed have delayed its first-rate hike since 2006. But why is the interest rate so low? See it like this; The lower the rates, the more problems it is in the economy.

When the economy is strong and everything is okay, interest rates are hiked in order to curb inflation, but when we face tough times, the Fed will cut rates to encourage lending and inject money into the economy.

Investors can predict what the Fed (or other central banks) will do by looking at economic indicators such as;

Retail Sales: Consumer spending
The Consumer Price Index (CPI): Inflation, and
Non-farm Payrolls: Employment levels

If these indicators improve and the economy is doing well, rates will be raised, but if the improvement is small, it will be maintained. Drops in these indicators can mean a rate cut in order to encourage borrowing.

Other indicators to foreshadow changes in the economy is building permits, average weekly hours, new orders and the spread between 10-year Treasuries and the Federal Funds Rate, which is published every month by The Conference Board.

Raising rates will have an impact on the markets. Raising interest rates will cause the dollar to appreciate over the Euro, which means the pair EUR/USD will decline, which is good for the U.S dollar.

If Chairwoman Janet Yellen sends out a dowish signal on Thursday, it may help to boost stocks and undermine the dollar. Investors will pay less attention to gold and allocate more of their capital into equities.

A hawkish message, including a rate increase, may help unpin the dollar and undermine stocks and gold. So, the upside will be limited for gold in both scenarios, unless we see a massive selloff in equities and the dollar.

Changes in monetary policy will ultimately cause currency exchange rates to change, and paying close attention to the news and analyzing the actions of the Fed (in this case) is vital for forex traders.

The interest rates impact currencies because the greater the rate of return, the greater the interest accrued on currency invested and the higher the profit. So how can you profit on it? The strategy is very simple, but also very risky. You can simply borrow currencies with a lower interest rate in order to buy currencies that have a higher interest rate, and this strategy is known as carry trade.

The shift in interest rate represent a monetary policy-based response as a result of economic indicators that assess the health of the economy. Most importantly; they possess the power to move the market immediately. So, how healthy is the U.S economy?

Nonfarm Payrolls is up: 215K
May, June Revisions: 14K
Unemployment Rate: 5,3%
Avg. Hourly Wages: 0,2%
Labor Force Participation: 62,6%
Consumer Price Index: -0,1%

A key measure of inflation dropped 0,1% last month for the first time since January due to sliding gasoline costs, and this is something for the FOMC (Federal Open Market Committee) on its policy meeting Wednesday and Thursday this week.

Central bank leaders have said they want to be confident inflation is heading toward their 2 percent target. Low inflation is a sign of economic weakness, and raising rates too soon risks harming the economic expansion.

IMF (International Monetary Fund) and the World Bank have asked the Fed to delay its first-rate hike since 2006.

The world`s financial watchdog is the BIS (the Bank of International Settlement) and are considered the «bank of central banks». BIS has warned that a Fed rate hike could have a huge effect on the global economy and particularly in emerging markets.

According to a BIS report, much of the global financial system remains anchored to U.S borrowing rates, and a rate hike at home tends to have an impact on higher rates in other economies. The enormous amount of debt in the emerging markets has the potential to move the markets even with a small rate hike.

Everybody knows that sooner or later, a rate hike might be necessary. No matter the results in the financial markets will be. Some belive the Fed will hold off on raising rates until December.

I really look forward to Janet Yellen`s speech on Thursday at 2 p.m. Washington time.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. UA-63539824-1.

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Bank Stocks and Interest Rates

The IMF (International Monetary Fund) predicted the U.S economy would grow only 2,5% in 2015, and that`s down from their previous prediction at 3,1%. IMF urged the Fed (The Federal Reserve) to wait until first half of next year to start raising short-term interest rates.

The U.S central bank has kept its key benchmark rate at a record low near zero since December 2008, and the IMF said the Fed should wait for more signs of improvement. What they will look for is «greater signs of wage or price inflation».

IMF Managing Director Christine Lagarde said «The economy would be better off with a rate hike in early 2016», and Fed Chair Janet L. Yellen said she expects to begin raising rates by the end of the year, while some economist speculate that the Fed will start raising rates in September. They both know much better than me that deflation is more dangerous than inflation, and deflation is what they are fighting against and not inflation.

Many are bullish on bank stocks.

 

 

BKX Bank Stocks
The KBW Bank Index is up 0,86% right now. Trading at 77,96 which is up 0,66 points. That`s much better than the bottom at 18,62 on March 6, 2009, but down since the top at 118,06 on May 18, 2007.

Technically speaking, the index is breaking the resistance, and the bank stocks are increasing, while the precious metal is declining. Gold is still in a bearish territory and the price is still below $1,200 an ounce.

What`s going on? Higher rates is good for the banks because they can charge more for loans and earn more because of bigger profits on the spreads between loan rates and deposits. Buoyant outlook for the U.S economy in the second half of 2015, and the expected interest rate hikes blows up the banking index.

In the predictions for 2015 I talked about the interest rate to start to increase in 15 – 18 months, and that should be next year. I also talked about how it will start, and it is predicted to see that the rates will go up slowly.

Banks will benefit from a stronger economy and higher interest rates. The legendary investor Warren Buffett seems to see something in the banks earnings, which reflects more than their current stock valuations.

Warren Buffet and his company Berkshire Hathaway (BRK-A) has added much more to its holdings of Wells Fargo (WFC) and U.S Bancorp (USB), and the banks seems to have taken its reputation back since the financial scandals a few years ago.

Citibank is upgraded to buy by Goldman and the New York-based firm is showing progress in increasing earnings and returning capital to shareholders. Citibank is the only firm in the KBW index that is trading below tangible book value, but that will probably end soon.

Investors are keeping a close eye on bank stocks, especially money center banks, since the Fed has indicated a rise in the interest rate. Their key focus is Bank of America, because they will earn on the rise in interest rates.

If the rates increase 1% it is estimated that Bank of America will increase their earning by a whopping 20%.

Rising dollar means a strong economy, and stronger dollar and rising interest rates is bearish for gold, but the precious metal can go up in a rising interest rate environment, but only if an inflation problem is implied by the rise in yields.

To measure that, you can look at the spread between inflation protected U.S Treasury bonds (TIPS) and unprotected long-term bonds (TLT). The rise in yields (drop in T bonds) is due to rising concerns about inflation.

280,000 new jobs was added and that was better than expected (estimate of 226,000) in May, which created a steeper yield curve. Long-term interest rates increased more than short-term interest rates.

Rising bank stocks are signaling economic recovery.

Bank stocks are increasing because they earn money. If not, a flattering yield curve would squeeze bank net interest margins and profits, and investors would run from the banks.

IMF and the Fed said that they don`t know when to rise the interest rate. They will wait for the coming data and so should you.

 


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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. UA-63539824-1.

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Other predictions for 2015

Spending a few minutes reading the headlines today can make you feel bad. It feels like the world is on fire. Ebola, ISIS, Ukraine and some extremely currency movements. In a world like that, the U.S is seen as a safe harbor and the greenbacks is the safest, most reliable currency on the planet right now.

2015b

We witnessed a fantastic corporate earnings season, which was one of the best in the last decade. It is still a lot of work on jobs and housing, but the economy is well underway. How is it gonna be in the markets next year? No one knows, but there is a lot predictions out there. I will refer from two different investors today. One is positive and one is negative. Let`s take a look at the positive first;

No doubt, there is a market shift ahead, but it isn`t what you think it is. Based on different analysis, many indicators shows us that next year will be another fantastic year in the stock market. It will be another year to make money and the bull market will continue.

The bull market will not be what we have seen so far. It`s not gonna be another broad market rally like the rally we`ve seen the last few years. Stock picking will still be important, as there is a lot of stocks you should sell in 2015.

What you should buy is high-quality stocks with great fundamentals. You should buy one type of stocks next year.

Look at the truth about the economy. It took seven years to finally rebound from the Great Recession, and here are some key reasons why some investors expect the economy to keep charging ahead next year;

Fist of all; the oil shale revolution. According to the International Energy agency, the U.S will become the world`s leading oil producer next year. The energy boom will create jobs and lowering the gas and utility costs for consumers. That`s good news for the economy next year.

In addition; there will be low-interest rates. It may rise in the next 12 months, but the Fed will manage that rise slowly, which means it will remain ultra-low by historical standards, and that`s also good news for M&A activities, stock buybacks and cheap corporate borrowing that fuels stock prices, and business expansion.

Consumers are more positive to the economy and consumer confidence soared in October. Household net worth is back above 2007 levels, and consumer spending are rising at a moderate clip.

It looks safe in the U.S compared to the rest of the world. England`s housing market is collapsing. The Euro zone is on a brink to a deflationary disaster. Germany`s economy is deteriorating, and the growth has stalled in the once-hot BRICS. The U.S economy is surging. GDP was much stronger than expected 3,5% in Q3.

Chairwoman Janet Yellen has made it clear she intends to do whatever it takes to keep the economy and job growth strong. We survived the end of the Fed`s QE program and that was just one of the weapons in her arsenal.

The other one I talked about is negative. He expect the stock market to crash any time soon. It did in 1929, 1987, 2000 and 2008. The next crash will be next year he says. The bull market we have had over the past years is one of the longest, and most generous bull markets in history.

But, no bull markets lasts forever he says, and this one has about run its course. If you look at key long-term measures, U.S stocks are about 80% overvalued he says. There have been only five times when stocks have been more than 50% overvalued, and that is 1853, 1906, 1929, 1969 and 1999.

He said that each one of those years marked the peak of a massive, once-in-a-generation stock-market bubble. Only two of those bubbles were bigger than today`s, and that was in 1929 and 1999. This is the end of the line for this bull market he says.

You have to be sceptical about everything you read and it is very important to make up your own mind. I have heard about a 1929-stock-market-crash in ten years now. Many talked about a stock market crash all months this year. Same people talked about it in 2013 and 2012, but what we saw was a strong bull market.

But I can promise you one thing; one day they will have right!

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Is this the end of QE?

Two things are important right now. Earnings and the Fed. 80% of the S&P companies that have reported earnings have beaten estimates, according to Bloomberg. The catalyst for last week`s 4% rally was the reported earnings, and will continue to be the catalyst this week for any move in the market.

Todays FOMC Statement and Fed Funds rate decision will also play a big role in the market this week. Interest rate is very important in the stock market, and the big question for investors now is when the Fed will start to raise the interest rates. Any hint or insight will likely stir the markets.

Fed Chair Janet Yellen is worried about the low inflation, and the inflation gauge has fallen short of the Fed`s 2% target. The risk of deflation may weight against raising interest rates too soon.

Prices as measured by the personal consumption expenditures index rose 1,5% from a year earlier in August, and oil prices is something Fed has no control over. As you may know, the oil prices has dropped over 20% so far this year.

Many investors expect the Fed to end its third round of asset purchases today, while others say the central bank should consider a delay in ending QE in light of the falling inflation. It is possible for the Fed to reduce the monthly purchases by $10 billion and leave the final $5 billion reduction for December.

The Fed will still hold a record $4,48 trillion balance sheet accumulated during QE 3 despite an end of QE today. That will limit the supply of securities and keep the yield lower as their borrowing cost is limited.

Market volatility and sign of slowing global growth will make the Fed to act with caution, and it`s expected to see the interest rate to near zero for a «considerable time» after bond buying ends. Fed`s benchmark rate has remained at zero to 0,25% since December 2008, but it is expected to see the rate to increase in mid-2015.

FOMC`s next meeting is in December.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Quantitative Easing

Cash is NOT King

The money as we know it, will disappear. All the cards we use today will also disappear. In the future, we will transfer with digital currency. Bitcoin is just the beginning. They have been on the marked for six years and many will follow. Ecuador seems to be the next.

Wallet-with-Money

But what will happen if the money disappear? Will the Federal Reserve still print money? And what is really money? It`s not what you think it is. Today`s money is a payment transfer system, known as checking.

The presumption is that money is in the bank and is transferred to someone by means of writing a check. That is where the greenback comes in, for it is presumed to be the money one is transferring. The greenback today is the Federal Reserve Note. It is the paper we carry in a wallet and call «cash». We have two kinds of money; the check that is not money and the greenback that is money.

So, what is greenback? It got its name in President Lincoln`s administration. It is a pejorative term in that it was scorned by banks, which paid only part value for it when presented by clients. History had been unkind to the paper money put out by the Continental Congress during the Revolution against England.

To downgrade something, one might say, «not worth a Continental.» The Continental Congress had no taxing authority; so, any paper money it issued could not command payment of a commodity without risk.

History text do not say that the true greenback was as good as gold, until banks persuaded the U.S Senate to strip it of its legal tender feature. The Treasury authorized issue of $150 million of legal-tender notes on February 28, 1862 for payment of all debts public and private. The vote in Congress was 93 to 59. These greenbacks never lost their value against gold coin.

The President in Ecuador, Rafael Vicente Correa Delgado want to quit the money in the Republic of Ecuador and start with digital currency. They have not yet the technical details, but say it will not be like Bitcoin.

Refael Correa was officially declaired President of Ecuador on 4 December 2006 by the country`s electoral court. He say that the socialism will continue. The Ecuadorian people voted for that. We are going to continue the fight to eliminate all forms of workplace exploitation within our socialist conviction; the supremacy of human work over capital, he says.

Correa has criticized the neoliberal policies of pervious presidents, particularly former president Mahuad`s adoption of the U.S dollar as Ecuador`s domestic currency in 2000. He has characterized dollarisation as a «technical error» which has effectively eliminated Ecuador`s ability to set its own currency and exchange policy.

Ecuador`s relationship with the United States has deterrorated considerably in recent years, since Correa took office in Ecuador, mostly due to his Correa`s growing relationship with Cuba, Venezuela, Bolivia and Iran and also his public criticism of the Foreign Policy of the United States.

Last year, Ecuador announced that it will auction more than three million hectares of Amazonian rainforest to Chinese oil companies. The indigenous people inhabiting the land protested the deal, but Ecuador`s Shuar People`s women`s leader, Narcisa Mashienta, said that the government lied when claiming that the people would have given their consent.

The NGO Amazon Watch claims that the reason for the projects is the governments 7 billion dollar debt to China and the desire to get Chinese funding to build a 12,5 billion dollar oil refinery. In fact; they are not talking about dollar debt but a new digital currency debt very soon.

Ecuador is probably not the only one to start with a new digital currency. In addition; many will start to pay and transfer electionically by phone which means the greenback money will disappear. In the future; it will be difficult to say; Cash is King.

Reports today:
10.00 a.m USA ISM Manufacturing PMI

 

Please give us some feedback;

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

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