The Credit Crisis Financial Stocks Short Journal

http://www.bloomberg.com/insight/rate-hike-expectations-getting-ahead-of-the-fed.html

Here's a set of charts/graphs from Bloomberg (done by Richard Yammorone) graphically laying out Daal's case for no change in Fed policy for awhile.

Interesting that this is on the same page as Hoenig's remarks that the Fed must hike soon and bring rates up to 3.5% to 4.5%.

What's a market to believe anymore?

 

"The employment-population ratio, at 58.2 percent in
December, declined by 0.3 percentage point over the month and by
2.7 percentage points over the year. The number of discouraged
workers rose over the year by 287,000, to 929,000 in December
(not seasonally adjusted)."

The first one is the true UR(which Bernanke personally follows) and it moved by 0.3%

 

Yeah, its safe to say the headline UE is no longer reflecting reality (neither are the ramblings of Tom Hoenig).

 

Interesntly enough Hoenig voted in favor of the 75bps emergency cut after MLK day in 2008

 

Heard part of a long interview w/Hoenig on Bloomberg today. The dude is serious as a heart attack. He made it pretty clear that if it were up to him, he'd raise rates right now. Didn't seem the slightest bit concerned about the unemployment rate.

 

Hoenig is part of the 'freshwater' faction together with Plosser, Lacker, Bullard, maybe also Lockhart and Evans. So far they're in the minority, but who knows how this cookie will crumble in the end, eh?

 

Duh! Lockhart is a 'saltwater' boy, I should know this...

 

Let's review: Thom Hoenig has given a speech and an extended interview over a 4 day period - both times essentially calling for an immediate and large increase in rates. The 2 year note has responded to this hawkishness by falling about 10-15 basis points. I expect Hoenig will give up on raising rates this year when the 2 year hits 0.50% again.

 

Well, arguably, we had some real sh1t economic data as well. Doesn't that count for something?

 

The data is unimportant. 85K payroll jobs is a rounding error. The way the market reacts to the data is what interests me. Besides, Hoenig made it clear that he expects more negative data for the next quarter or two. He's completely focused on where we are 18 months out.

I'm pretty sure that Hayes asked him point blank if a 10% + unemployment rate this summer would get him to change his views, and he said no.

Fortunately for my current trade, his view seems like it will remain a small minority on the FOMC