March 21, 2015: Losing Patience With The Fed

Well, now they’ve done it. As we suspected the Fed is having its cake and eating it too, they just did it the opposite way. We thought they were likely to use the word patience in their minutes, then suggest that they could change at any time. Instead they said they were no longer going to be patient, but they weren’t impatient either, which convinced most people that interest rates would stay low until at least September, and many believe until December.

Why does any of this matter? It matters because the free money from the Fed is the only thing keeping the market at current levels and once it appears that the free ride is over, many people will start heading for the exits; preferring to beat the traffic rather than waiting to see the encore. Understand, it doesn’t matter how much or how often they raise rates, it is the knowledge that the party is nearing the end that will send money elsewhere, much like the announcement that they were considering ending QE sent people to the cashiers’ cage in real estate in 2013.

Watch these next few days, they will tell you a lot about how much buying conviction is left in the market. It could be quite a bit, but I doubt it. It doesn’t mean the market has to collapse tomorrow, but with the best possible news out of the way (probably no rate increase in June), attention will turn elsewhere. If it turns to fundamentals (which are awful right now, and getting worse), or to places like Greece (also awful right now, and getting worse), a lot of people may wish that they hadn’t stayed for the last song.

All that said, we have long maintained that the Fed can’t raise rates without taking a huge risk and therefore they probably won’t. However, they have talked about it so much, they may feel forced to, thinking that if it is small enough that it won’t matter, but it will. The other issue they face is that if they don’t start raising this year, it will be very difficult to do so in 2016 since it is a Presidential election year. No one is talking about that yet, but they will as it gets closer.

May you live in interesting times…

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March 14, 2015: Short-Term Income And Long-Term Wealth

We took a look at a number of macro issues that could drive the market up or down over the next several weeks. The key in the near-term is the Fed meeting on 3/17-18. Watch to see how the market behaves on the 18th and 19th, this will give us a big clue as to market sentiment over the next few months. I suspect the market will go higher, at least briefly, but as always in the market, anything can happen. I think the Fed knows that it has dug itself (and us) a huge hole, and they are looking for a way out. I suspect they will not change the wording significantly, indicating that the first hike will not be until September, but look to see if they use the word “patient” early to trigger computer buying, then they may come back with a more nuanced statement to give them room to raise.

I still don’t see how they can raise rates this year, but two things. If they don’t do it this year, it will be very hard to start to raise next year. If they start to raise in 2016, people will say they are interfering in the election, which could keep them on the sidelines an entire additional year. I am sure they see this risk and that could push them to act this year. Second, if they do start to raise, the market could take a significant hit, not because of the raise itself, but because it will send the message that the party is over and everyone will head to the door at once.

An update on Greece. The boot will not be lifted from their necks. The EU will not risk encouraging citizens to support the leftist parties in Portugal and Spain in elections this fall, so they will crush Greece to send the message that nothing will change, regardless of who wins those elections. If the Greek government does not withdraw from the EU, their troubles will mount and the riots will become more violent.

We are about to hit another debt limit ceiling, and no one cares. That is probably the right stance…

One other note. For months we have been saying that it is likely that student loan debt will be forgiven (at least for those w/parents making under $250,000/year) and rolled into the debt. That topic is now getting more and more attention. It appears to be yet another bad idea whose time has come, but you heard it here first, quite a while ago…

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If you would like to submit a question to the show, or to give us feedback, please send an email to: phoenix@tradingacademy.com. Also, check out our sister show, “The Right Side Of The Trade” on the following stations:

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◾1100 KFNX: Thursday at 4pm and Sunday at noon

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All Quiet On The Western Front, Or Eye Of The Hurricane?

Complacency is back with a vengeance. The VIX is again below 14 and the AAII sentiment survey shows the Bears have gone into hibernation. Most US Indexes are at or very near all-time highs. The question: Are all of our problems solved, or is this the calm before the storm? Spoiler alert, from my perspective, nothing has changed:

  • The economy has no real growth, what little GDP growth we have simply comes from borrowing future income to try to make today look better, which will eventually make tomorrow look worse
  • The increase in the markets is largely, if not entirely, driven by an unsustainable Fed policy of free-money
  • Most of the world is heading toward slower growth, if not recession
  • The Euro is still toast in the longer-term and when it dies, it will not go quietly into that good night
  • We have no possibility of making good on all of the promises we have made to the American public. As we age as a population, this will become more apparent; with severe negative consequences for individuals and our society. (As a note, in this recording we predicted riots in Greece once people saw that nothing had changed with the new government. They started the next day. They will get worse.)

All this said, the storm may be moving very slowly, the eye may be large, but the storm will come. Can the market go higher? Of course, but the risk/reward of this market continues to become more tenuous for the average retail trader, the opportunity for the educated continues to grow. Check out how and why here: 

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If you would like to submit a question to the show, or to give us feedback, please send an email to: phoenix@tradingacademy.com. Also, check out our sister show, “The Right Side Of The Trade” on the following stations:

◾550 KFYI: Sunday at 4am

◾910 KGME: Sunday at 4am

◾960 The Patriot: Sunday at 10am

◾Money Radio 1510 and 99.3: Thursday at noon and Saturday 10am

◾1100 KFNX: Thursday at 4pm and Sunday at noon

◾910 KGME: Saturday at 6:30am

Of course, you can always find Next Week In Stocks on:

◾550 KFYI: Saturday at 1pm

◾1230 KFYI Business: Saturday at noon and Sunday at 10am