Yellen with her dovish speech today has pretty much guaranteed 'extended period' language is likely to stay out there for quite a while. I'd argue at least 2 more meetings, which makes my trade an almost lock unless the economy takes off to the upside more than expected by private and Fed forecasters or iexpectations unanchor
Don't take this too far though, Hoenig has been riping the Fed left and right, including blaming it for the commodity boom, and the guy sat at the FOMC. The fact that lots of economists are related directly or indirectly to the Fed probably makes them slightly biased in favor of the Fed. Slightly is the keyword there, that article makes it seem there is some kind of massive collusion going on to prevent criticism from appearing or to support every policy. That's hardly the case
Scott Sumner responded with an obvious but smart point I had missed. Hussman uses data of the monetary base not cash. The monetary base will have its interest rate increased along with the Fed funds. Which means that Hussman could be correct, people might flee cash in favor of USTs but they will not be likely to flee monetary base in favor of USTs given that it will pay interest as well The amount of cash in circulation compared to deposits at the fed is not significant enough to create a problem. It certainly means the Fed will NOT have to sell all its assets before they hike rates
Total US cash in circulation is $941.3B. I believe a lot of it is held abroad by criminals which wont be inclined to buy USTs if rates rise. So the velocity effect should be quite limited given that total US money supply(M2) is almost $9T
A correction here, when I say 'The monetary base will have its interest rate increased along with the Fed funds' I'm referring to the deposits at the Fed portion of it rather than the whole thing
Fine, let's agree to disagree re the Fed, I have no problem with your view. The only thing I don't understand is the logic that allows you to applaud the ECB while lambasting the Fed. As far as I can see, that's just plain inconsistenst, since all the things that you consider evil about the Fed are pretty much there at every CB, including the ECB.
The issue is the Fed steering monetary policy by light of the S&P 500 and bank profits, which it did implicitly under Greenspan and explicitly under Bernanke. Where has it gotten us - a lot of booms/busts and right back where we started half a generation ago. Who could have thought the Greenspan put would have an even tastier strike under Bernanke? What will the next Fed head do for an encore ... make buying shares part of open market operations? The ECB is what it is, but I applaud them in this case for giving the big FU to all the asses worried that a few basis points is going to hurt the poor banks riding the carry trade, or force broke homeowners and broke nations to admit that they're broke. That doesn't mean I don't think 100 basis points might actually cause Spain to go under and that I might not be a big future buyer of euribor futures or seller of euros.
Oil and commodities are collapsing and the front end is rallying hard, it appears that the market has realized that lower commodity prices will be tied to easy money by the Fed and vice-versa. Its amazing how for a few weeks that was not the case and as oil rose the Dec 2011 Fed futures kept going higher and higher during the MENA turmoil
FCX poleaxed. Down nearly 10% from Monday open. Goldman calling for 20% pullback in crude prices part of the big move in CL today. I love their reasoning - they say supplies are not nearly as tight as 08, the last time prices were in this neighborhood. Of course in 08, they were calling for $200 oil right at the top.
BoC, no surprise does not hike, but their statement is pretty dovish. They obviously think the strong loonie is doing the tightening work for them. I wouldn't be so sure.