Simple late night doodles with some input of previous crashes from: fred.stlouisfed.org/series/FEDFUNDS and some simple trend following to suggest the increasing fragility of the effect that marginally increased rates may have on the economy. FRED:FEDFUNDS
Increases in the US Fed Funds rate during the FED's hiking cycles have always preceded a recession. A simple analysis of the most recent recessions, the amount of rate hikes preceding them and the downward trending channel in which FED Fund Rates have moved suggest the FED only has room for 150bp worth of hikes (or a total of 6 hikes).
Back in the early 80s, the US10Y gave a return of 8-10% more than inflation. Today, the US10Y gives a return of 5% below inflation. In bonds, you are still losing 5% each year. FEDFUNDS is still at zero, yields are rising slowly. Will the Fed do what they said they would do?
Until U.S. debt loads get to more normalized levels (below 80%) and the 10Y treasury yield has a far enough spread from the short-end of the curve, the Federal Reserve's hand is almost forced in what they can do from a rate tightening perspective.
A higher FEDFUNDS rate (currently around 0%) causes higher rates on treasury yields. Here is our "effective rate" (ER) we pay on the national debt. Currently around 1.9% and 22% of tax receipts go to paying this interest. If ER goes above around 3%, interest payments are around 26% of US federal revenue. If ER goes above around 5%, interest payments are around...
Here is an interesting comparison of the 3 charts. If the history of these charts has taught us anything, there is going to be a rise in rates on a real rate basis more so than actual rates. What is more interesting is how this real rate rise will influence gold prices. Now gold isn't bitcoin, they are the exact opposite things. One is front-loaded with energy and...
Increases in the US Fed Funds rate during the FED's hiking cycles have always preceded a recession. A simple analysis of the most recent recessions, the amount of rate hikes preceding them and the downward trending channel in which FED Fund Rates have moved suggest the FED only has room for 150bp worth of hikes (or a total of 6 hikes). OANDA:SPX500USD FRED:FEDFUNDS
Over the past 30 years markets have been digesting interest rate hikes by the Federal Reserve. I believe this cycle will be no different. In modern markets, the S&P 500 has went on to return 14%, 21%, 40%, & 55% from the first rate hike to the peak rate. This initial correction will phase out and broader markets will run closely with fundamentals.
Despite previous data showing the contrary, many believe that rising fed interest rates will be a catalyst for a down turn. In the chart above, I compare the federal fund rates (blue) to SPY (orange). As you can see in the past, a rising interest rate was NOT a catalyst for a crash. Of course this time could be different, but there is no evidence currently...
Inflation is out of sync with the Fed Funds Rate. The Fed will have to hike the Fed Funds Rate soon to stop inflation or at least stop asset purchases. The "Transitory inflation" narrative from the Fed is not going to materialize, meaning that inflation will drop without the Fed hiking the Fed Funds Rate or stopping asset purchases. The free "BRRRRRRRR" money...
This is the unemployment rate to the FED funds rate and CPI, just noting changes relative to events. I'll only be posting the economic charts as more events unfold.
Disclaimer: This post will be heavy speculation - but let's have some fun. Let's play this fun game as a mental exercise. In no way is any of this financial advice, nor in any way political, nor does it even reflect my opinion. It is just a mental exercise. I fully admit that economics is not my background, so I will be taking a different approach to forecasting...
Let's take a walk together, near the ocean floor Hand in hand you and I Let's cherish every moment we have been given Cherish the love we have We should cherish every bagholder that gets decimated The collapse of the United States Has been long coming George Soros broke the bank of england to warm up before breaking the us central bank They cannot...
Quick one here, given the world looks set to resume it's ludicrous experiment with negative rates in order to spur "growth" and encourage spending. I thought it was only reasonable to see what effect the past decade of ZIRP (Zero Interest Rate Policy) has had on the personal savings rate. Before we begin, i understand that the fed funds rate is not the explicit...
This is the Gold Miners Index to DXY ratio. This feels likes 2001 or 2009. Gold is correlating with Fed Funds, the monetary base, and the DXY like its 2009 and 2001. Gold stocks are priced like its 2009. Since 2019 we have seen the Fed Funds Rate free fall, since September 2019 we have seen the monetary base expand past the low set in December 2016, same with...
Interesting to see this move in advance of Fed and other central bank cuts.
The past two times we saw the 3-month vs 10-year treasury yields invert and the Federal Reserve make drastic cuts to the Federal Funds Rate were during the 2000 dot.com bust and the 2008 financial crisis. Each were accompanied by significant stock market declines/crashes. Today we have the 3-month and 10-year yields inverted(two inversions in less than a year)...
Charts: - Top left = SPX - Bottom left = Initial jobless claims (unemployment metric) - Top right = US 10 year and US 2 year spread (Yield curve inversion metric) - Bottom right = Fed funds rate (short-term interest rates) It is no secret that US equities are grossly overvalued, from Warren Buffet to Stanley Druckenmiller to Ray Dalio, the smart money has made...