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Let’s Do This One More Time

After a week of falling interest rates it looks like we will have a bit of a change of direction today as the 10 year treasury yield is around 4% this morning – up from 3.94% yesterday – let’s hope we can keep rates in the 4% area, or at least have movements that are modest day to day.

Even with falling interest rates all week I have seen little (or no) movement in my portfolio as prices do some ‘backing and filling’–the good part is at least values didn’t drop more and patience will be rewarded–eventually.

Yesterday we had GDP announced for the 1st quarter and it was stronger than anticipated while durable goods orders were softer than expected–so a mixed bag. Today we have the personal consumption expenditures price index deflator being released at 8:30 a.m. with consumer sentiment at 9 a.m. and the pending home sales index coming at 9 a.m. as well (all times central time). The PCE has potential to move markets.

It is almost time again for the FED to hike interest rates–Wednesday next week. This will be a wild day–all focus on the press conference after the 3/4% rate hike. Markets are probably set up right now for huge moves that day–hints of a pause send prices skyrocketing up while a hawkish tone will send prices plunging.

Today I will likely do nothing–after being out of the office yesterday I need to review numbers and see where I might add shares and I am not in a rush to buy.

13 thoughts on “Let’s Do This One More Time”

  1. If the Fed just pursued QT and left interest rates alone wouldn’t this just affect the long end of the curve? Couldn’t this all be manipulated in a way such that the curve is no longer inverted, and if that did happen would it in fact be beneficial?

  2. My company is doing their 4th quarter projections and next year’s projection.
    The 4th qtr. is a mixed bag. We have a good chance of beating last year’s and our projection for this qtr. estimate may move up from 6 months ago if production can get orders out the door and transportation cooperates.
    Now next year is interesting.
    Keep this in mind when thinking of companies overall. They are projecting a flat year in sales volume but are pushing for profit increase. They plan to to this by raising prices.
    Think Jerome and the economy with go along with this inflationary increase?

  3. I wonder if the “two negative Qs of GDP = recession” people will now say the recession is over. One thing I know they won’t do is admit they were wrong.

    1. LI – I continue to take my cues from the bond market. The 3m/10y is inverted and the fed knows this is recessionary. Today you get paid more to own a 3 month treasury than you do a 30 year treasury. SUMTINGWONG!!!

  4. Since the economic crises of 2008, the Federal Reserve has engaged in quantitative easing in an effort to keep interest rates artificially low. Now they are engaged in qualitative tightening- trying to unload their massively bloated balance sheet. If QE kept rates artificially low for over a decade, will QT keep rates artificially high for a decade?

    From Almost Daily Grant’s Interest Rate Observer:

    “QT Progress Report
    A $19 billion weekly decline in Reserve Bank Credit left the Fed’s portfolio of interest bearing assets at $8.7 trillion. That’s down $220 billion from the March highs and is $72 billion below the Sept. 29 holdings. Recall that the Fed’s stated target pace of balance sheet roll-off is now $95 billion per month.

    Time’s a wasting, Jerome. “

    1. QE/QT and adjusting rates are two different things. They both affect Inflation in different ways. They can work together to reduce Inflation, or not. Printing gobs of money is Inflationary and hiking rates to contain it is like running the heater and air conditioner at the same time,

    2. FED is just kidding itself about lowering its 8.7T debt. At this rate it would take over a decade to pull it in.

      1. Hi Martin and payday,

        I agree that it will take a decade and that’s what bothers me. I hope that we don’t have a lost decade of returns- with every rally thwarted by the Fed entering the market to sell.

        1. MarkS–certainly could happen. Some of us lived through the 70’s–not only a lost decade but a grind down year after year. Of course when 82 rolled around everything was made ‘fine’ again.

          1. Hi Tim,

            I graduated from high school in 1973 and still remember the era well. Thanks for responding.

            1. MarkS–so you are year or two younger than I am–it was a brutal investing decade.

              1. I just saw this on Mark Faber’s web page- he compares the 70s with our financial situation today:
                “I wanted to point out once again the colossal incompetence of central banks around the world. With inflation running at between 7% and 12% and with interest rates remaining far below the rate of price increases we should contemplate a scenario similar to the 1970s when with interruptions inflation and interest rates rose. When comparing the current time to the 1970s, I need to point out to some important differences. In the early 1970s, assets were relatively inexpensive compared to the current period. Debt levels were relatively low. The global financial market was relatively small compared to the global economy. Now, the opposite is true. Gold, oil and other commodities were extremely depressed (this is not the case today). Compared to assets, wages were relatively high. And to be fair to the US Fed, it increased interest rates with inflation. [At the time central bankers were more honest than they are today.] Already in 1969, the ten-year Treasury yield reached over 9% and in 1974, close to 13%. But even with these punitive interest rates inflation kept on accelerating. How could we now expect inflation to cool down when central banks today are already talking about slowing down the rate at which they intend to increase rates????”

                1. They could raise rates to the moon, with associated catastrophic consequences, but that wouldn’t change our energy supply problem. We continue to denigrate what we need most. Windfall tax them suckers. Yeah, that’ll do it. lol To the moon, Alice.


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