Tuesday, July 19, 2016

Fed Prays For A Pickup, The Risk - Hyperinflation

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*The binary range of scenario analysis comes down to "Phew" versus "Oh No".
*The Fed is out of ammunition and desperately needs that GDP will not continue to tick lower.
*We have no idea what Fed mechanism is left and, for us, no move, means inflation.
*We review the ECB and Japan policies and show that the US can also not rely on them.
*History shows that such free money ends in hyperinflation. This time it would be on a global proportion.
(Picture: The Fed's all praying for a pickup. Here she is. Nice and red. The plate hopefully is not a foreshadowing of GDP to come.. .8, .5, .3. If it is the Fed's going to have to try harder to get this pickup to go from red to green.)
We looked to see that there are no expected rate hikes until 2018. Given where 10 year treasury notes (NYSEARCA:TLT) (NYSEARCA:BND) (NYSEARCA:AGG) are any rate hike would lead to zero yields. We think if a negative yield curve means recession, certainly negative yields themselves definitely mean recession. With the Fed out of ammo its praying time for the US economy and markets (NYSEARCA:SPY).
No Rate Hike This Year Or Next Year? Fed Is Royally Stuck
We went on a road-trip through Fed Funds futures (here) and we did not see a rate hike expected through all of the click through options out through June 2017. In June 2017 futures say there is a 42.3% chance rates remain 25-50bp and a 41.5% chance rates go to 50-75bp. That's June 2017.
Fed Hike Would Crash Markets
We did some thinking what that actually means and we scared ourselves. The Fed is thinking about raising rates. Based on the report you are about to read we think there is no chance they raise rates without sending the economy and markets into a tailspin.
First we need the yield curve as background. When the yield curve goes negative it foreshadows a recession.
The following chart is the difference between the 10 year yield and the 2 year yield (the yield curve). The lower it goes the less growth investors expect.

Chaim Siegel has been working with hedge funds and mutual funds as an analyst and PM his entire career. Chaim specializes in earnings and predicts, analyzes and reacts to earnings and earnings events as well as developing current company stories with a hedge fund perspective. If you want his analysis real time sign up to the right for real time email alerts. #in, $spy, $qqq, $iwm, $vxx, $ycs, $fxe, $EUO, $YCS, ^GSPC, INDEXSP:.INX, #elazaradvisorsllc, CME Globex: ES Disclosure: These trades can lose you money and principal especially when using leverage BY USING THIS SITE YOU AGREE TO TAKE ALL RESPONSIBILITY FOR YOUR OUTCOMES AND LOSSES AND HOLD BESTIDEAS, ITS CONTRIBUTORS AND ELAZAR ADVISORS, LLC HARMLESS