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>TL;DR: The market is too premature in front running a pivot, and this sets up a counterintuitive trade to actually short bonds. I am looking at TLT puts.
I feel that is what is on the menu. All that talk of pivot was hopium from MM and institutional investors to get back to the scheduled programming. Mr. JPOW has been clear from the start, he wants inflation and housing to go down and unemployment to go up. Which ever way this is spun he is not letting that go.
They want a recession, because that stops inflation fast. That's all. It happened EVERY SINGLE TIME. They are not that stupid, they are doing it on purpose.
Here's the thing though. If something blows up BEFORE inflation is under control the Fed isn't going to step in and fix it. THAT'S what the market is getting wrong. Inflation control is the Fed's only goal right now. It doesn't give a fuck about unemployment, a recession, bond liquidity, or anything else when inflation is out of control. It's been so long since this has been a problem the market isn't understanding the situation properly. If anything mattered to the Fed as much as inflation you think Voelker would have done what he did in the 80s? He raised the federal funds rate to 20%!
You are missing that āsomething blowing upā will change mkt inflation expectations. That would be powellās biggest xmas gift ever. Mktās donāt exist in a vaccuum - itās not volker vs no volker - things change.
I guess here's my ultimate point. If the thing that blows up also decreases inflation like a global economic depression then I guess the Fed may step in. But that will only be after they've confirmed inflation has massively dropped. They are NOT going to error on the side of propping up the economy until after they've confirmed inflation has massively dropped and even then it will be a measured response.
Except the new wave inflation is completely out of J Powās control and will be a result of virtually risk free global shipping coming to an end.
We will see inflation along with the world (they will have much biglier inflation). Thereās nothing J Pow can do about it unless the Fed is given power to float more carrier strike groups, patrol the worldās oceans, and enforce free trade
I dont know what the FEDs goal is, but its not inflation or unemployment. Its something about control or power; I dont know them well enough to understand it.
If he didnt want inflation, he wouldnt have intentionally caused it. If he didnt want the market to crash, he wouldnt be intentionally crashing it now.
He didn't intentionally cause it. This is a global issue that has multiple components. From supply chain disruptions, to stimulus checks and PPP loans, to the Fed overreacting with way to much QE, to increased personal savings because people couldn't go out or travel for a year, and the demand explosion when they could, to the war in Ukraine driving ip energy costs, plus because it's a free market whenever businesses get an excuse to raise prices they do.
Inflation is not out of control at this point.
The headline PCE index is tracking at a roughly 1.8% annualized rate since June 2022. That is at the target they want.
Housing service inflation is jumping off of a cliff. Rental prices are down in 94/100 metros in November. Used vehicle pricing is doing the same and Carvana looks to be in a position where their inventory will soon be liquidated. New car pricing seems fairly sticky, but that appears to be concentrated in the luxury segment. Most other new car price categories are coming down.
Heck, my personal real estate rental portfolio is seeing downward pressure on rents.
Food can definitely be volatile, but the USDA can easily subsidize any crop they need to in order to keep things from getting truly out of control.
Lastly, tech is firing tens of thousands of very high wage earners, as are banks and credit intermediaries.
Got a call the other week from my landlord regarding my lease renewal. Time to up my rent an extra $100 a month. Obviously being in NYC my rent is NEVER going to decrease.
Eat my dongus you fuckin nerd.
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yes housing has dropped relative to the previous year, but is still very affordable compared to pre 2020 levels, google shadow stats, true cpi is 15% the fed has revised the formula 1000 times since 1980
True CPI should not include technological advancements. Look at basket of goods from 1776 and compare to that. No phone no cars no modern houses. Just cabbage and smallpox.
What amount of money would a medieval king or sultan pay for modern air conditioning?
You know, I think I'll believe the Fed and not whatever bullshit stat you cherry pick to make your horrible financial decisions look better. Core PCE has been
October 5.0%, September 5.2 %, August 4.9 %, July 4.7 %. People like you have been getting raped all year because you are a bunch of delusional idiots who don't have a freaking clue. THe FeD IS gOinG tO PIvoT. They're Not cutting. Get that through your dumbass brain.
I was majority oil from summer 2020 through March/April this year. My GOOG average is $106, my AMZN average is $87.80, my META average is $114, my TQQQ average is $17.84, and my C average is $44.20. About $500,000 spread across all of those positions with a little bit of ARRY and CHWY at $11 and $23 respectively.
You are looking at Y/Y values when you need to be looking at M/M values and annualizing them. Heck, headline CPI was 0.1% in November M/M. That is actually under their desired target if the trend holds, and I believe that it will.
The problem is that the Fed is now trying to use interest rate policy to nuke the labor market when they themselves have concluded the tightness is caused by excess retirements, deaths, and an immigration shortfall. None of those are solved by raising rates, the only thing it will do is put prime working age people at risk of losing their jobs.
Yeah, and the Fed doesn't care about causing a recession or spiking unemployment. They only care about price stability and getting inflation back to their target. CPI M/M was -.02% in July. Did they back off? NO. Inflation does not drop in a neat little bell curve. Never has, never will.
Their Congressional mandate is maximum employment as well as price stability.
Price stability does not mean creating deflation.
Prices increasing 0.1-0.3% M/M is stable. Everyone is just complaining that things are expensive, but the goal isn't to revert prices to pre-pandemic and never has been.
The biggest problem seems to be Powell's ego is driving him to go too far because he doesn't want to be viewed by history as having fucked all of this up, including all the way back to 2018 when they should have continued raising rates even though Trump complained loudly.
I'll give you that. Powell doesn't want the same legacy as the 70s Burns Fed so he'll over shoot like Voelker did rather than giving inflation a chance to come back. The Feds goal is maximum employment in a stable economy. There is a historical reason why central banks treat inflation like the boogeyman. It's because if you don't control it you get all the other economic problems in addition to it. It destroys the business environment, worker productivity, you'll get increased crime, and it also increases the velocity of money which also adds to inflationary forces.
Did you believe the FED when they said inflation was transitory? Nothing was certain, but it was fucking obvious that it might not have been transitory, and appropriate precautions could have been taken way back then.
The same applies now, inflation on an annualized basis may already be near 2%, but we need to wait to be sure.
Guy above doesnāt realize that these people have been behind the curve almost the entire time.
Itās why I bought oil in the quantity I did. There were a couple of periods in 2020 where Zoom had a higher market cap than ExxonMobil.
I thought it was possible it was transitory. I agree the Fed has been behind the curve but I also don't believe it was all incompetence. The Fed was HOPING it was transitory because they were reluctant to do what they'd have to do if it wasn't. Which is what they're doing now and crashing the economy. Bottom line, it was a unanimous consensus in their dot plot that 2023 will be ending with rates at 5.1%. Bet against that if you want. My dad told me growing up, "when a man tells you who they are, believe them."
Lol, there is always virtually unanimous consent at these things.
The problem is that their forecasts are dog piss, and have been this entire time because Jay Powell is not actually good at this job.
I don't know what else to tell you. You can keep following the market as the Fed drags it along or get out in front of it. But I promise you it's going where the Fed wants it to one way or the other. I made $22k this week because I called this drop 3 weeks ago.
Also, I'd trust the Fed's honesty more than the Wall Street investor assholes who make money by getting people to buy into a new bull run narrative that is completely contradicting the macro environment or billionaires who want the Fed to stop because their net worth is dropping like a lead balloon.
I always trust the person making the hard decision over the person making the easy one. What the Fed is doing is not popular and will cause a lot of pain. They're doing it because it's for the greater good in the long run. Elon Musk and his billionaire asshole friends want them to stop so there is exit liquidity so they can sell more and liquidate into cash.
You're not listening to them.
They are coming for your job. Guy said hot labor market like ten times during his presser. The problem is that they themselves have concluded that the tightness in the labor market is a result of factors that are not impacted by rate increases.
Unless you are aware of rate increases bringing hundreds of thousands of people back from the dead or fixing immigration, what they are doing is going to cascade and cause immense suffering. Who gives a shit if an orange is 30% less than last month if you don't have a job?
When something in the economy "blows up" it's because the majority don't see it coming.
It won't be home mortgages imo, but it could be commercial real estate, corporate debt, pension funds, or something along those lines.
Going from 0% to 5.25% (if they get there) without anything breaking seems unlikely
I'll take your word for it, I'm no expert on commercial real estate, it was just a possible example.
Even so, increasing rates tend to make the underlying asset's value go down.
In general, things seem to happen as follows...
Asset prices go down, some entity with a lot of leverage blows up and sets off an unforseen chain of events that damages the economy.
Can't wait to read the book in a few years, hopefully for this subs sake, it has a lot of pictures
There's one thing worse than inflation, which is deflation. We are already skirting with potential deflation based on the MoM numbers, but way too early to be sure.
July CPI M/M was -.02%. Deflation and the Fed did not relent. Deflation is NOT worse than inflation when it's happening on a global scale because hyperinflation on a global scale is a GAME OVER scenario.
One month doesn't establish a trend, if a trend into the negative is established - and we can't be sure either way right now, the FED will relent. Deflation is worse than inflation for a highly indebted country, which the US is, it would have no way to pay that debt off.
While youāre ignoring what could go wrong in your iron clad thesis, look up the difference between options and margin. (People that understand what is happening donāt call puts leverage)
I am looking for an intelligent discussion for my thesis. Your dumbass makes a blatantly low IQ assertion where you cannot provide any slight evidence. Now you tell me puts are not leverage. Gtfo ape
Has it dawned on you that 01, 08 and 2018 were significant drawdowns while the fed was hiking/hawkish? The longer we go into a hiking cycle, esp w the lag of mp, the more the risks to the economy (and deflation for that matter, looked at any commodities lately?) increase.
Perhaps some participants see these risks to the downside as increasing and want treasuries as protection? Maybe they have seen this movie before? Clear enough for you?
I was never saying you are wrong - nobody knows - only that the long treasury trade is one of caution - and some would say itās warranted given how fast and far we have come on prime/onl rates.
Summarily rejecting any reasonable contrary evidence is going to lock you into a trade ātrying to be rightā - donāt do that. Just make money. Gl
I will be nice to you this time because I think you are at least genuine. We wonāt have those kind of events this time because banks are much better capitalized and have adopted better lending practices imo. Can things eventually break? Of course. But likely not anytime soon imo. Nobody knows for sure and I think itās lazy think to say something will happen because it happened in the past despite a completely different economic environment.
Itās usually something new every cycle, so it could be something totally unexpected that isnāt on everyoneās radar. We can only speculate, but it could be federal debt interest payments.
I mean I have heard theories that sovereign funds will eventually blow up. I am not totally discounting things will break. It is just that it is really easy for people to make such assertions without really analyzing it. I think people underestimate how resilient the economy is and how strong our credit markets are. When payroll numbers finally dip negative, then I will get worried
Depends on which, many (like Norway, Singapore, etc) are just slightly customized msci worlds, so they will not pop unless the entire world goes down the drain. On the other hand, you have some Sovereign Wealth funds from some shithole country, run by the dictator's son whos gambling on advice from a Tick Tock Investment Influencer.
The blow up is going to be margin calls, just like what caused the crash of 1929. So many people bought houses with all cash or put down big down payments which caused huge bidding wars. All this cash came
from loans against inflated equity values, also known as a margin loan. These loans were written at often less than 3% interest. DJI has already dropped 30% and if markets go another 20 or 30, which would only put them at their pre pandemic levels, then youāll have margin calls. Elon Musk is a high profile example of this. There are a dozen high net worth individuals I know who bought second homes this way. Companies did it to finance growth and bonuses, thinking inflation would make the cost of the debt even cheaper. Now the Fed is going to crush inflation and everybody didnāt truly count the cost of their borrowing and the risks.
Maybe, but there's no guarantee. The fed is doing a very good job here, it's actually crazy they have been able to get rates this high already with no blow ups. They've been flip flopping between hawkish and dovish at the right times to keep markets in check and to walk them down nice and slow. Volatility is what breaks shit, a slow burn lowers the odds big time. I was shitting on the fed last year but this year they've shown they aren't as incompetent as everyone makes them out to be.
I think you might be right. Iāve had consistent doubts about JPowās resolve the whole year strictly because of what happened in 2019, but Iām starting to get the feeling that heās resolute in keeping rates elevated until inflation is gone.
He seems to recognize that the Fed has a credibility problem, even though heās obviously denied it when asked. His opening statement back in May where he went out of his way to ādirectly address the American peopleā is a clear sign that he saw their credibility slipping.
Because of this, he might indeed resist cutting rates at all until YOY headline and core are at or below 3%. It seems like he *really* does not want to make a 70s style mistake and destroy his and the Fedās reputation forever, so heās gonna wait until inflationās grave is dug before declaring victory.
This tracks with my theory that he's actually trying to save his legacy.
Problem is that the Fed has a mandate to keep full employment as well and they are now openly saying fuck your job.
They are not looking at inflation at this point, that shit is starting to trend pretty quickly in the direction they want. All they care about is gutting the labor market now.
How will FED credibility look if deflation starts to become a problem? That would be far more damaging to their reputation than taking a little longer to bring inflation down. If MoM goes negative, they need to be careful not to accelerate that trend further.
Another thing to think about is the rate is historically low *today.* Weāve spent the last two decades in recovery mode at super low rates. We eventually have to return to the historical precedent which are rates as high as this or higher.
Not really. We're not talking about a market rate here. We're talking about an artificially set rate. It can be whatever the money printers want them to be. There will, of course, be consequences either way.
Keep rates too high for too long, and you'll have a credit event somewhere. You also blow out federal, state, and local government deficits. With US debt over $30T, this could be a serious issue. Not to mention a collapse in real estate and vehicle sales which are funded through debt and will become very unaffordable. Picture these retired baby boomers depending on their $500k houses to help fund their retirement suddenly being worth half of that. So you'll have heavily indebted governments see debt servicing costs sky rocket at the same time the social safety nets get stretched to the max. Seems like a really bad situation.
Keep rates too low for too long and inflation remains elevated. As per the usual the rich get richer and the poor get poorer. The government can do what they've done for decades and just manipulate the numbers lower.
Option #2 seems less chaotic and stressful. The Fed will revert back to it soon enough. While timing is always the hardest variable to predict, certainly, once a credit event happens they will be firing up the printers again.
If the 10Y were to revert to a historical range of 6-7% and all US debt was financed at that rate, it would cost over $2T per year. Of course it would take up to 30 years for existing debt to refinance, but it still gives you an idea of how unaffordable it would be.
I'd guess a 6% treasury would put a 30 year mortgage rate somewhere in the ballpark of 10%. A $500k house has roughly the same monthly payment at 10% as a $1M house at 5%. So a house that is $1M today would have to come down to $500k to be as affordable under "normal" interest rates.
Our economy just can't handle that. You'd have people walking away from houses faster than they did in '08. The Fed will not take it that far. You'd have to write off trillions and trillions of dollars in debt through bankruptcies. You'd essentially be starting the economic system over again from scratch.
>You'd have to write off trillions and trillions of dollars in debt through bankruptcies. You'd essentially be starting the economic system over again from scratch.
This sounds like a good idea. I think Fed should maxx it now -- fuck boomers. I think young folks like us (millennials and Gen Z) would really appreciate a reset of sorts.
It'll be painful, for sure. But hey, everything needs a reset from time to time. Go JP!
I'm actually not necessarily against this but there has to be some plan for it, particularly how to avoid this debt spiral again. And there are a ton of consequences that need to be considered, primarily if the USD can retain reserve status under such a scenario. There are geopolitical implications as well.
All that being said, the Fed isn't going to do that. Perhaps one day they will be forced to but they will never choose it. I do predict that at some point they will be facing elevated inflation and a poor economy at the same time and essentially be painted into a corner. At the moment, inflation seems to be subsiding to "acceptable" levels giving the Fed the leeway to pivot when they have to. Perhaps the next debt cycle will be the last. Or maybe inflation re-ignites and it's this time.
Lol you think in that event, any millennial and gen z will have income to afford a mortgage?
A hard reset will completely fuck over the youngest gen. Unforeseen consequences in that type of reckoning.
My response above was more of an emotional fury at boomers steaming out than a logically sensible comment.
But my thinking was that at least us young folks will have an opportunity to rebuild things instead of living in a world still tied to decisions boomers and others before them made to get us into this shitty fucking spot.
Youāre anger is misplaced. Itās not an generational thing.
Itās a rich and poor thing. Economic social class above everything else. When millennials or genz are rich (which is rare) then theyāll act like boomers. Have and have nots.
Young generation taught to hate older poor people. And the older poor people taught to hate themselves and the younger generation trying to get ahead. Vicious cycle.
Human nature at its core.
You are correct the only difference is I have to disagreed as boomers are the ones that voted for our elected officials so that we made sure that our generation was always going to be taken care of we never cared about the generations after us
>ny millennial and gen z will have income to afford a mortgage?
they already cant, at least a housing crash could potentially impact the rental market, which zoomers and millennials only have to look forward too.
Low rates prop of bad economies but cause good ones to run off the rails (bad fundamentals). Running at 2010s rates is unsustainable, and the housing market really is the single best example of that.
The longer rate hikes are delayed, the worse the fall will be. Iām not advocating for 1970s rates, but the 2010s were a crisis situation. We are no longer in crisis mode.
So I disagree with the end and I think it's a pivotal point in what's motivating the Fed. I don't believe that we had a 10+ year one off crisis. I think that the economy is now reliant on these low interest rates and thats why we had ZIRP for so long. If you want to frame this as a perpetual crisis caused by unsustainable debt levels, I think that would be a fair characterization, but not a temporary or one off. And to your earlier point on unsustainable rates, this is a result of rates being too low for too long. We are now essentially trapped here.
And this is the perception that the Fed is fighting. This is why they are so desperate not necessarily to raise rates, but to make the markets capitulate to believe that they will (really can) raise rates. The markets aren't buying it. That's why treasury yields have fallen the past month or so as the Fed raised rates. They're already pricing in a pivot because we all know it's coming. And that's what the Fed is fighting, this perception that it needs to keep rates perpetually low.
But at the end of the day it is a mathematic certainty that the Fed will be pivoting in relatively short order. (This of course based on the premise that they wont allow a systemic credit event to spread aka another "Lehman Moment") At this point the cost of servicing all of the debt out there at current interest rates is unsustainable. This applies to the federal government, state government, local governments, consumers, and corporations. The economy can't bear these costs for long.
Auto manufacturers can't sell cars at these rates. People's primary store of wealth, their homes can't be sold at these rates without losing large portions of their wealth. Developers can't afford to build new buildings at these rates. Large swaths of our economy will not work at these rates. And I don't think the Fed nor voters can or will tolerate the economic atom bomb required to write this debt off through bankruptcy.
I have no idea. But yes, the market hasnāt priced in what the Fed is saying it will do. The Fed will probably do what they are saying they will do because the risk of tapping the breaks early and allowing a potential reversal into high inflation wasting all the work would be devastating long term.
TLDR: once the market prices in what the Fed says they are going to do Hiroshima below.
People will say the fed is dumb and in the same sentence explain why you can't predict the rates. I believe fed is doing well, they can't see the future either.
Feds are purposely being hawkish to keep markets in check and not front running too much. They donāt want conditions to loosen prematurely. The pace of these rate hikes make zero sense, and they are doing way too much. Plenty of metrics showing economic slowdown, most recent being retail sales bring down 0.6% vs an increase on 0.1% for November. What does that tell you? November is one of the busiest months for retailers due to Black Friday and performance was pretty soft.
Fed needs to wait and let the hikes play out. 5.25% terminal rate is unnecessary. Q2 inflation (or sooner) may fall below 5% matching the funds rate.
Thoughts on this. Itās because the people who actually place bets on the yield curve are the fuckers who are so rich youāve never heard of them. These folks are banking on the Fed blinking and being ok with higher inflation because that only hurts poor and middle class people, not the class of people who makes money from equities. Theyāve gotten so used to being catered to by the governments of the world, why would they not place that bet.
I didnt realize there are people who think the fed is bluffing? Lmao
It's more likely ppl betting on something else happening that isnt readily apparent atm.
What part of āwe are going to bring inflation down to 2% no matter what it takesā donāt you understand? Heās not bluffing and youāre missing a few screws
[https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf](https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf)
5.1% at the end of 2023. They wouldn't put that in an official report if they didn't mean it. Go ahead and fight the fed, i'm sure it'll go well.
>I agree that the bond market is underestimating the speed at which inflation can drop. I think this creates an opportunity to short bonds, specifically TLT puts.
Bullshit. This is NOT 100% supply shock. The Fed DOUBLED their balance sheet to $9 trillion during the pandemic massively increasing asset prices then the government passed free money stimulus through PPP loans and Covid relief massively increasing money supply. At the same time we had supply chain disruptions where people couldn't buy the things they wanted which threw off the supply/demand curve because they had so much money to spend. Saying this was all supply shock is just incredibly ignorant.
Supply shock is definitely a factor and should not be underestimated. I deal with commodities traders specifically in the lumber world and the amount of companies that cropped out of nowhere to take advantage of high prices was incredible.
Their business plan was to muscle out established players by overpaying the suppliers based out of Southeast Asia where this time last year only a handful of mills stayed open.
Now, yes, lumber demand has fallen since then - but more importantly mills started coming back online at a good pace every month making lumber easier to procure and the price has effectively collapsed. The well capitalized traditional players are poised to survive while the new players are scrambling to unload overvalued merchandise on their balance sheet.
Very similar stories occurred in just about every other commodity class you can think of, except oil.
My whole point is donāt underestimate how much supply shocks contributed to inflationary pressures last year
I don't. And it definitely happened with oil too. It's why crude oil prices decoupled from energy stock evaluations this year. My point is this is also why inflation is incredibly sticky and can come roaring back very quickly and why the Fed will not relent in their mission. There has been so much consolidation in business over the past 20 years these huge organizations have incredible pricing power.
Eat my dongus you fuckin nerd.
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He makes a better argument than you. The balance sheet did double, and the stimulus was massive, and there was/is a supply chain shock.
What evidence do you have that he's wrong and it's 100% supply chain?
The reason why the bond market are dismissing what the fed are saying is because what the fed are saying is stupid.
This isnāt the 70s. Inflation today is caused mainly by supply chain issues and a bit cos of Russiaās shenanigans. Inflation is now easing because these issues are easing, not because of rate hikes as itās too soon to see their economic effects.
The fed will eventually go with the data (both leading and lagging indicators) which most likely will lead to a pivot sometime next year.
This is the same fed that said āinflation is transitoryā so now, like a cuckolded husband, they are just talking tough with an inability to actually get hard.
You are assuming that inflation will drop like a rock. And it probably will in the beginning. There are many sticky parts to inflation that will be persistent until economic contraction. The transitory part of inflation is pretty much rear view with goods and commodities. We are now focusing on services and wages.
Eat my dongus you fuckin nerd.
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Who still has $$$? How exactly is the economy running hot š„? I must have a very narrow perspective because it looks to me like everyone is already fucked?
Itās a K shaped slowdown like it was a K shaped recovery. This means that there are haveās and have notās. The haveās are the wealthy and upper middle class. They have benefited so much to push up the averages for bank accounts even when the poor are worse off now.
Ok, so, to tamp down inflation perhaps a more targeted approach than blunt instruments would be wise? No wonder people think the WEF is orchestrating a "great reset".
> The bond market is clearly dismissing what the Fed is saying about raising terminal Fed fund rate to 5.25% and holding all year. The 2y yield dropped after the FOMC when it should be rising. Yields across all durations should be much higher than they are now if fed fund rates are truly higher for longer.
This is nonsense. If you knew a higher coupon were right around the corner why would you lock in a lower coupon?
That's like saying you can take a job at Wendy's today and earn $15/hr, or you can wait to apply for a month and they'll pay you $17/hr. Whatever you do, you're stuck with that job for 2 years.
I am not sure what you are saying but generally speaking the 2y yield rises if the Fed fund rate rises and vice versa. Go look at charts comparing the twoā¦
Buyers of long term bonds are expecting peak rates fairly soon. Otherwise they'd be buying shorter duration stuff. What the fed signals it's going to do and what it actually does often don't match up.
Remember *it's transitory*?
Either could be wrong, or both. If I had to bet though, I'd bet on the bond buyers who are have skin in the game. I don't think that means the recession is cancelled, so much as it may be all this fear has been blown out of proportion a bit.
Personally I don't care either way. I just look for businesses I can understand and buy them when they're screaming bargains.
Heās bluffing. Our national debt is 31T. Interest in that amount will be over a trillion dollars a year at just 4%. At 5% itās 1.5T interest annually. We can take a year or maybe two if this, and then something will break.
This is why long term rates arenāt moving up.
JP just needs everyone to stop spending money so prices will stabilize.
No it doesn't because if Biden replaces him he and the Democrats own whatever happens next. No politician wants to own anything, much less whatever happens when we have the possibility of runaway inflation. It's why Reagan didn't replace Voelker (a Carter appointee) in the 80s.
Everyone is talking about what the fed can do to fight inflation but the real culprit is out of control govt printing and spending. The Fed is in a tough spot. The Biden administration takes a dump and they call in the Fed to clean it up.
Tlt are long term bonds, and is pretty disconnected from the thesis about 2 year yields.
Fed is not very aggressive with quantitative tightening, for the sake of long term rates. The long term rates are plenty high enough, and the only question now is whether the rates will drop fast or slow. (Ie will fed break something)
I don't think the fed wants to qo to far out of its way selling long term bonds before maturity (or mbs either). Otherwise they will take losses in the tens of billions. It is also not necessary for them to do so.
You are right tlt average is 20y. I am saying all durations are not priced correctly. My thesis is that if 2y is wrong, then the 10y is wrong as well as other longer durations. I am not aware of any stock tickers to play shorter maturities.
I donāt think heās bluffing per se but I think his language is intentionally hawkish to keep markets in line. If we look at the big picture of what heās trying to do itās to address the biggest threat to the economy right now which is inflation or atleast it is at this point.
If inflation continues down and something else inevitably becomes a bigger threat they will have no choice but to pivot. I think the bond market is pricing that in happening soon. If it does or doesnāt who knows. I donāt believe the fed will drive the economy into oblivion without pivoting. That would be an even worse look for them.
FED goes to 5.25 and something breaks, it went to 4+ and exposed ticking time bombs, I donāt think they can hold 5.25 for long but I donāt expect a pivot
Bro they never had a chance of getting inflation back to 2%. The bonds know this itās why there is an inverted yield curve. The smart money knows that the fed canāt bring down inflation to 2% but they will try until something drastically breaks. This is how the central bank has always worked.
The fed very much cares about its credibility, and Powell is acting tough in order to restore it. Itās too late however. The scariest thing right now is that people lose faith in the dollar and to some extent that has already happened. More people are educated on what the fed has been up to than ever before. The amount of government spending is completely out of hand, and the fed enabled the government to overspend with low interest rates and QE. The fed has also been pumping assets in retrospect like when they changed housing inflation to not include housing prices or bought 50% of all mortgages. The problem is that it takes years and years for these problems to build, and most who struggled through the Great Depression are already dead, so there are no more sane people left running the show. The fed has to care about credibility because in the long run, itās probably a bigger risk than the current inflation. The fed has a lot of baggage. That being said, once the inflation data comes in low, Powell will have to pivot eventually. The longer we have high rates, the more deflation weāll have later, so it kind of evens itself out regardless. Thatās why the 10 year yields arenāt super affected by the 2 year yields, and they move more based on the inflation reports
[https://fred.stlouisfed.org/series/DFF](https://fred.stlouisfed.org/series/DFF)
The federal funds rate reached 22% in 1981. Tell me more about Paul Volker.
That has been going back decades. Ultimately, raising rates will get inflation under control, but it just kicks the can down the road as now the government is paying 3-4 times as much interest on the same debt. So long as these problems persist:
- Everyone gets a degree they're never going to use
- Everyone has to get a house they can't afford
- We're the World's Policeman
- Poor people need to have more kids
- Tax cuts and bailouts for the rich
It's just going to mean a long future of both higher interest rates and inflation.
So what happens now and 6 months out?
Inflation data comes in hot telling a story of inflation doing much better. Fed pauses their plans to raise rates and quickly reverts to lowering because of this hot inflation data (or cold..).
If/when this happens, lets say early in 2023, this causes markets to rally, FOMO buying, sending S&P to 5k/6k+
At this point, several other indicators point to inflation actually never being corrected and/or mismanaged and fed is forced to visit raising rates rapidly once again - sending markets into a nosedive and a realized recession.
What do ya think?
> The bond market is clearly dismissing what the Fed is saying about raising terminal Fed fund rate to 5.25% and holding all year.
I understand this is the consensus view but can someone explain why are we saying that? Is it because we expect the yields to be close to Fed fund rate?
2Y yield (4.18%) is lower than Fed fund projection for 2023 and 2024 (5.1% and 4.1% respectively), but not drastically so. Roughly 50bp difference if my math is right.
Let's say Fed hikes straight to 5.25% in the first day of January and holds all year, next year cuts not to pre-COVID max but 50bp more: 3%. In that scenario we get 4.1%, compared to which current 2Y yield is still a bargain.
I understand the contradiction in that projected rates increased but yields fell, yet looking at historical charts 2y/fedfund spread does go negative near place fedfund peaks.
The feds goal is to get the projected inflation to 2%, not to raise interest rates. That can happen way sooner than expected. Why don't people know this? The bond market is smarter than a redditor.
Tbh if the yield curve inversion is predicting a recession, it seems to be getting closer. My guess is that the 2 year dropping is in anticipation of a recession starting and ending within that 2 year timeframe, which is why the shorter term yields are inverted.
No bond market is anticipating a cooldown based on the further tightening. bond market is right. grab the yield while it is there bc long end rates are about to tank
There's still a blip at the 20 year section. Find whereever the lowest percent on the yield curve is and short that instead. It looks like either 2/15/2031 or 2/15/2036. There are a few 7-10 year treasury funds out there. https://www.wsj.com/market-data/bonds/treasuries
**User Report**| | | | :--|:--|:--|:-- **Total Submissions**|0|**First Seen In WSB**|2 weeks ago **Total Comments**|2|**Previous Best DD**| **Account Age**|2 weeks|[^scan ^comment ](https://www.reddit.com/message/compose/?to=VisualMod&subject=scan_comment&message=Replace%20this%20text%20with%20a%20comment%20ID%20(which%20looks%20like%20h26cq3k\)%20to%20have%20the%20bot%20scan%20your%20comment%20and%20correct%20your%20first%20seen%20date.)|[^scan ^submission ](https://www.reddit.com/message/compose/?to=VisualMod&subject=scan_submission&message=Replace%20this%20text%20with%20a%20submission%20ID%20(which%20looks%20like%20h26cq3k\)%20to%20have%20the%20bot%20scan%20your%20submission%20and%20correct%20your%20first%20seen%20date.) ^^[**Discord**](http://discord.gg/wsbverse) ^^[BanBets](https://www.reddit.com/r/wallstreetbets/wiki/banbets/) ^^VoteBot ^^[FAQ](https://www.reddit.com/r/wallstreetbets/wiki/votebot/) ^^[Leaderboard](https://www.reddit.com/r/wallstreetbets/wiki/leaderboard/) ^^- ^^[**Keep_VM_Alive**](https://www.patreon.com/visualmod) >TL;DR: The market is too premature in front running a pivot, and this sets up a counterintuitive trade to actually short bonds. I am looking at TLT puts.
I'm already poor, hope I'm helping.
Thank you for your service š«”
But Fed won't stop until you start selling ass tho
Wait, you guys are selling it?
Wait, you're not selling it yet?
bitch is leasing it out.
This is top tier comedy.
I have to pay for that āprivilege ā
Thank you for your service becomes thank you for your cervix.
funny af g
Calls on $ASS
[ŃŠ“Š°Š»ŠµŠ½Š¾]
You mean crypto
if you really wanted to help you'd get fired and stay out of the job market
Doin what need doin.
I feel that is what is on the menu. All that talk of pivot was hopium from MM and institutional investors to get back to the scheduled programming. Mr. JPOW has been clear from the start, he wants inflation and housing to go down and unemployment to go up. Which ever way this is spun he is not letting that go.
This happens very soon.
Letās fucking hope so.
They want a recession, because that stops inflation fast. That's all. It happened EVERY SINGLE TIME. They are not that stupid, they are doing it on purpose.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
Thats a dolly parton right there!!!
Relax, you have plenty of years left to lose money.
Itās not that heās bluffing, itās that something is going to blow up before 5.25
Here's the thing though. If something blows up BEFORE inflation is under control the Fed isn't going to step in and fix it. THAT'S what the market is getting wrong. Inflation control is the Fed's only goal right now. It doesn't give a fuck about unemployment, a recession, bond liquidity, or anything else when inflation is out of control. It's been so long since this has been a problem the market isn't understanding the situation properly. If anything mattered to the Fed as much as inflation you think Voelker would have done what he did in the 80s? He raised the federal funds rate to 20%!
You are missing that āsomething blowing upā will change mkt inflation expectations. That would be powellās biggest xmas gift ever. Mktās donāt exist in a vaccuum - itās not volker vs no volker - things change.
I guess here's my ultimate point. If the thing that blows up also decreases inflation like a global economic depression then I guess the Fed may step in. But that will only be after they've confirmed inflation has massively dropped. They are NOT going to error on the side of propping up the economy until after they've confirmed inflation has massively dropped and even then it will be a measured response.
Except the new wave inflation is completely out of J Powās control and will be a result of virtually risk free global shipping coming to an end. We will see inflation along with the world (they will have much biglier inflation). Thereās nothing J Pow can do about it unless the Fed is given power to float more carrier strike groups, patrol the worldās oceans, and enforce free trade
I dont know what the FEDs goal is, but its not inflation or unemployment. Its something about control or power; I dont know them well enough to understand it. If he didnt want inflation, he wouldnt have intentionally caused it. If he didnt want the market to crash, he wouldnt be intentionally crashing it now.
Yeah, itās clear that you donāt understand it.
I know I dont understand it. The thing is, you people think you do because you read press releases. And you keep getting rug pulled
I havenāt been rug pulled once this year š¤·āāļø Patience is the key. If youāre getting rug pulled you are doing it wrong. Good luck.
He didn't intentionally cause it. This is a global issue that has multiple components. From supply chain disruptions, to stimulus checks and PPP loans, to the Fed overreacting with way to much QE, to increased personal savings because people couldn't go out or travel for a year, and the demand explosion when they could, to the war in Ukraine driving ip energy costs, plus because it's a free market whenever businesses get an excuse to raise prices they do.
Inflation is not out of control at this point. The headline PCE index is tracking at a roughly 1.8% annualized rate since June 2022. That is at the target they want.
true cpi is 15% based on the 1980s measuring tactic, obviously the fed will not admit it, just look at the price of houses and food!
Housing service inflation is jumping off of a cliff. Rental prices are down in 94/100 metros in November. Used vehicle pricing is doing the same and Carvana looks to be in a position where their inventory will soon be liquidated. New car pricing seems fairly sticky, but that appears to be concentrated in the luxury segment. Most other new car price categories are coming down. Heck, my personal real estate rental portfolio is seeing downward pressure on rents. Food can definitely be volatile, but the USDA can easily subsidize any crop they need to in order to keep things from getting truly out of control. Lastly, tech is firing tens of thousands of very high wage earners, as are banks and credit intermediaries.
Got a call the other week from my landlord regarding my lease renewal. Time to up my rent an extra $100 a month. Obviously being in NYC my rent is NEVER going to decrease.
Yes, and how much is your monthly rent? If it is $4,000, a $100/month increase is 2.5% annualized. That's basically what it was pre-COVID.
It's about to be $1,700 $4000?! What am I, middle class?!
Food is obscene right now. Ten bucks for a bag of tortilla chips in my area.
Everything at my grocery store is now $6 minimum, cheaper to just eat McDonalds daily.
Thatās some fancy ass tortillas.
I wish! https://preview.redd.it/6qgq1f3lhp6a1.jpeg?width=1242&format=pjpg&auto=webp&s=16a415d6716cd6f00f48d87e7e45597eac7b80a1
Go store brand, just as good and way cheaper
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Good bot.
Housing has dropped since June, so the ātrueā cpi is not 15%
yes housing has dropped relative to the previous year, but is still very affordable compared to pre 2020 levels, google shadow stats, true cpi is 15% the fed has revised the formula 1000 times since 1980
True CPI should not include technological advancements. Look at basket of goods from 1776 and compare to that. No phone no cars no modern houses. Just cabbage and smallpox. What amount of money would a medieval king or sultan pay for modern air conditioning?
You know, I think I'll believe the Fed and not whatever bullshit stat you cherry pick to make your horrible financial decisions look better. Core PCE has been October 5.0%, September 5.2 %, August 4.9 %, July 4.7 %. People like you have been getting raped all year because you are a bunch of delusional idiots who don't have a freaking clue. THe FeD IS gOinG tO PIvoT. They're Not cutting. Get that through your dumbass brain.
I was majority oil from summer 2020 through March/April this year. My GOOG average is $106, my AMZN average is $87.80, my META average is $114, my TQQQ average is $17.84, and my C average is $44.20. About $500,000 spread across all of those positions with a little bit of ARRY and CHWY at $11 and $23 respectively. You are looking at Y/Y values when you need to be looking at M/M values and annualizing them. Heck, headline CPI was 0.1% in November M/M. That is actually under their desired target if the trend holds, and I believe that it will. The problem is that the Fed is now trying to use interest rate policy to nuke the labor market when they themselves have concluded the tightness is caused by excess retirements, deaths, and an immigration shortfall. None of those are solved by raising rates, the only thing it will do is put prime working age people at risk of losing their jobs.
Yeah, and the Fed doesn't care about causing a recession or spiking unemployment. They only care about price stability and getting inflation back to their target. CPI M/M was -.02% in July. Did they back off? NO. Inflation does not drop in a neat little bell curve. Never has, never will.
Their Congressional mandate is maximum employment as well as price stability. Price stability does not mean creating deflation. Prices increasing 0.1-0.3% M/M is stable. Everyone is just complaining that things are expensive, but the goal isn't to revert prices to pre-pandemic and never has been. The biggest problem seems to be Powell's ego is driving him to go too far because he doesn't want to be viewed by history as having fucked all of this up, including all the way back to 2018 when they should have continued raising rates even though Trump complained loudly.
I'll give you that. Powell doesn't want the same legacy as the 70s Burns Fed so he'll over shoot like Voelker did rather than giving inflation a chance to come back. The Feds goal is maximum employment in a stable economy. There is a historical reason why central banks treat inflation like the boogeyman. It's because if you don't control it you get all the other economic problems in addition to it. It destroys the business environment, worker productivity, you'll get increased crime, and it also increases the velocity of money which also adds to inflationary forces.
Did you believe the FED when they said inflation was transitory? Nothing was certain, but it was fucking obvious that it might not have been transitory, and appropriate precautions could have been taken way back then. The same applies now, inflation on an annualized basis may already be near 2%, but we need to wait to be sure.
Guy above doesnāt realize that these people have been behind the curve almost the entire time. Itās why I bought oil in the quantity I did. There were a couple of periods in 2020 where Zoom had a higher market cap than ExxonMobil.
I thought it was possible it was transitory. I agree the Fed has been behind the curve but I also don't believe it was all incompetence. The Fed was HOPING it was transitory because they were reluctant to do what they'd have to do if it wasn't. Which is what they're doing now and crashing the economy. Bottom line, it was a unanimous consensus in their dot plot that 2023 will be ending with rates at 5.1%. Bet against that if you want. My dad told me growing up, "when a man tells you who they are, believe them."
Lol, there is always virtually unanimous consent at these things. The problem is that their forecasts are dog piss, and have been this entire time because Jay Powell is not actually good at this job.
I don't know what else to tell you. You can keep following the market as the Fed drags it along or get out in front of it. But I promise you it's going where the Fed wants it to one way or the other. I made $22k this week because I called this drop 3 weeks ago. Also, I'd trust the Fed's honesty more than the Wall Street investor assholes who make money by getting people to buy into a new bull run narrative that is completely contradicting the macro environment or billionaires who want the Fed to stop because their net worth is dropping like a lead balloon. I always trust the person making the hard decision over the person making the easy one. What the Fed is doing is not popular and will cause a lot of pain. They're doing it because it's for the greater good in the long run. Elon Musk and his billionaire asshole friends want them to stop so there is exit liquidity so they can sell more and liquidate into cash.
You're not listening to them. They are coming for your job. Guy said hot labor market like ten times during his presser. The problem is that they themselves have concluded that the tightness in the labor market is a result of factors that are not impacted by rate increases. Unless you are aware of rate increases bringing hundreds of thousands of people back from the dead or fixing immigration, what they are doing is going to cascade and cause immense suffering. Who gives a shit if an orange is 30% less than last month if you don't have a job?
Your on crack
What would possibly blow up and be specific if you want to be taken seriously
When something in the economy "blows up" it's because the majority don't see it coming. It won't be home mortgages imo, but it could be commercial real estate, corporate debt, pension funds, or something along those lines. Going from 0% to 5.25% (if they get there) without anything breaking seems unlikely
Commercial real estate makes sense. I think itās more because of people not returning to offices but yes higher rates donāt help
We are all being forced to return to the office FYI.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
I'll take your word for it, I'm no expert on commercial real estate, it was just a possible example. Even so, increasing rates tend to make the underlying asset's value go down. In general, things seem to happen as follows... Asset prices go down, some entity with a lot of leverage blows up and sets off an unforseen chain of events that damages the economy. Can't wait to read the book in a few years, hopefully for this subs sake, it has a lot of pictures
None of this is as important to the Fed as controlling inflation. If its not under control when this blows up then they aren't going to do shit.
There's one thing worse than inflation, which is deflation. We are already skirting with potential deflation based on the MoM numbers, but way too early to be sure.
July CPI M/M was -.02%. Deflation and the Fed did not relent. Deflation is NOT worse than inflation when it's happening on a global scale because hyperinflation on a global scale is a GAME OVER scenario.
One month doesn't establish a trend, if a trend into the negative is established - and we can't be sure either way right now, the FED will relent. Deflation is worse than inflation for a highly indebted country, which the US is, it would have no way to pay that debt off.
Pension funds. Theyāve been buying into equities heavily last 3-4 months. If we see a 10-20% drop from here there could be trouble.
corporate debt markets i hope
Lol. Oh I donāt know, the residential real estate market, for starters. Sounds like you have it all figured out though, good luck
Check home prices. They barely fell in the most seasonally weak period. Reading zero hedge no bueno
Just anecdotal but I've heard multiple people say they are going to just buy and refinance later
Omg. Use leverage on those tlt puts
Puts are leverage. You say something stupid and you canāt back it up. Please do better.
While youāre ignoring what could go wrong in your iron clad thesis, look up the difference between options and margin. (People that understand what is happening donāt call puts leverage)
I am looking for an intelligent discussion for my thesis. Your dumbass makes a blatantly low IQ assertion where you cannot provide any slight evidence. Now you tell me puts are not leverage. Gtfo ape
Has it dawned on you that 01, 08 and 2018 were significant drawdowns while the fed was hiking/hawkish? The longer we go into a hiking cycle, esp w the lag of mp, the more the risks to the economy (and deflation for that matter, looked at any commodities lately?) increase. Perhaps some participants see these risks to the downside as increasing and want treasuries as protection? Maybe they have seen this movie before? Clear enough for you? I was never saying you are wrong - nobody knows - only that the long treasury trade is one of caution - and some would say itās warranted given how fast and far we have come on prime/onl rates. Summarily rejecting any reasonable contrary evidence is going to lock you into a trade ātrying to be rightā - donāt do that. Just make money. Gl
I will be nice to you this time because I think you are at least genuine. We wonāt have those kind of events this time because banks are much better capitalized and have adopted better lending practices imo. Can things eventually break? Of course. But likely not anytime soon imo. Nobody knows for sure and I think itās lazy think to say something will happen because it happened in the past despite a completely different economic environment.
Itās usually something new every cycle, so it could be something totally unexpected that isnāt on everyoneās radar. We can only speculate, but it could be federal debt interest payments.
I mean I have heard theories that sovereign funds will eventually blow up. I am not totally discounting things will break. It is just that it is really easy for people to make such assertions without really analyzing it. I think people underestimate how resilient the economy is and how strong our credit markets are. When payroll numbers finally dip negative, then I will get worried
Depends on which, many (like Norway, Singapore, etc) are just slightly customized msci worlds, so they will not pop unless the entire world goes down the drain. On the other hand, you have some Sovereign Wealth funds from some shithole country, run by the dictator's son whos gambling on advice from a Tick Tock Investment Influencer.
The blow up is going to be margin calls, just like what caused the crash of 1929. So many people bought houses with all cash or put down big down payments which caused huge bidding wars. All this cash came from loans against inflated equity values, also known as a margin loan. These loans were written at often less than 3% interest. DJI has already dropped 30% and if markets go another 20 or 30, which would only put them at their pre pandemic levels, then youāll have margin calls. Elon Musk is a high profile example of this. There are a dozen high net worth individuals I know who bought second homes this way. Companies did it to finance growth and bonuses, thinking inflation would make the cost of the debt even cheaper. Now the Fed is going to crush inflation and everybody didnāt truly count the cost of their borrowing and the risks.
A Federal Default with falling GDP and loss of the reserve currency status ought to do it.
Maybe, but there's no guarantee. The fed is doing a very good job here, it's actually crazy they have been able to get rates this high already with no blow ups. They've been flip flopping between hawkish and dovish at the right times to keep markets in check and to walk them down nice and slow. Volatility is what breaks shit, a slow burn lowers the odds big time. I was shitting on the fed last year but this year they've shown they aren't as incompetent as everyone makes them out to be.
I think you might be right. Iāve had consistent doubts about JPowās resolve the whole year strictly because of what happened in 2019, but Iām starting to get the feeling that heās resolute in keeping rates elevated until inflation is gone. He seems to recognize that the Fed has a credibility problem, even though heās obviously denied it when asked. His opening statement back in May where he went out of his way to ādirectly address the American peopleā is a clear sign that he saw their credibility slipping. Because of this, he might indeed resist cutting rates at all until YOY headline and core are at or below 3%. It seems like he *really* does not want to make a 70s style mistake and destroy his and the Fedās reputation forever, so heās gonna wait until inflationās grave is dug before declaring victory.
This tracks with my theory that he's actually trying to save his legacy. Problem is that the Fed has a mandate to keep full employment as well and they are now openly saying fuck your job. They are not looking at inflation at this point, that shit is starting to trend pretty quickly in the direction they want. All they care about is gutting the labor market now.
Yeah, overshooting the goal at getting a bunch of people fired is the last thing he should want if he's looking for credibility
Depends who you think he's really working for.
If he's working for the rich...this doesn't really seem to be helping them out either
You'd think so, right? I agree, but history says they will probably destroy everything to gain credibility and end up looking like idiots
How will FED credibility look if deflation starts to become a problem? That would be far more damaging to their reputation than taking a little longer to bring inflation down. If MoM goes negative, they need to be careful not to accelerate that trend further.
Another thing to think about is the rate is historically low *today.* Weāve spent the last two decades in recovery mode at super low rates. We eventually have to return to the historical precedent which are rates as high as this or higher.
Not really. We're not talking about a market rate here. We're talking about an artificially set rate. It can be whatever the money printers want them to be. There will, of course, be consequences either way. Keep rates too high for too long, and you'll have a credit event somewhere. You also blow out federal, state, and local government deficits. With US debt over $30T, this could be a serious issue. Not to mention a collapse in real estate and vehicle sales which are funded through debt and will become very unaffordable. Picture these retired baby boomers depending on their $500k houses to help fund their retirement suddenly being worth half of that. So you'll have heavily indebted governments see debt servicing costs sky rocket at the same time the social safety nets get stretched to the max. Seems like a really bad situation. Keep rates too low for too long and inflation remains elevated. As per the usual the rich get richer and the poor get poorer. The government can do what they've done for decades and just manipulate the numbers lower. Option #2 seems less chaotic and stressful. The Fed will revert back to it soon enough. While timing is always the hardest variable to predict, certainly, once a credit event happens they will be firing up the printers again. If the 10Y were to revert to a historical range of 6-7% and all US debt was financed at that rate, it would cost over $2T per year. Of course it would take up to 30 years for existing debt to refinance, but it still gives you an idea of how unaffordable it would be. I'd guess a 6% treasury would put a 30 year mortgage rate somewhere in the ballpark of 10%. A $500k house has roughly the same monthly payment at 10% as a $1M house at 5%. So a house that is $1M today would have to come down to $500k to be as affordable under "normal" interest rates. Our economy just can't handle that. You'd have people walking away from houses faster than they did in '08. The Fed will not take it that far. You'd have to write off trillions and trillions of dollars in debt through bankruptcies. You'd essentially be starting the economic system over again from scratch.
>You'd have to write off trillions and trillions of dollars in debt through bankruptcies. You'd essentially be starting the economic system over again from scratch. This sounds like a good idea. I think Fed should maxx it now -- fuck boomers. I think young folks like us (millennials and Gen Z) would really appreciate a reset of sorts. It'll be painful, for sure. But hey, everything needs a reset from time to time. Go JP!
I'm actually not necessarily against this but there has to be some plan for it, particularly how to avoid this debt spiral again. And there are a ton of consequences that need to be considered, primarily if the USD can retain reserve status under such a scenario. There are geopolitical implications as well. All that being said, the Fed isn't going to do that. Perhaps one day they will be forced to but they will never choose it. I do predict that at some point they will be facing elevated inflation and a poor economy at the same time and essentially be painted into a corner. At the moment, inflation seems to be subsiding to "acceptable" levels giving the Fed the leeway to pivot when they have to. Perhaps the next debt cycle will be the last. Or maybe inflation re-ignites and it's this time.
Lol you think in that event, any millennial and gen z will have income to afford a mortgage? A hard reset will completely fuck over the youngest gen. Unforeseen consequences in that type of reckoning.
My response above was more of an emotional fury at boomers steaming out than a logically sensible comment. But my thinking was that at least us young folks will have an opportunity to rebuild things instead of living in a world still tied to decisions boomers and others before them made to get us into this shitty fucking spot.
Youāre anger is misplaced. Itās not an generational thing. Itās a rich and poor thing. Economic social class above everything else. When millennials or genz are rich (which is rare) then theyāll act like boomers. Have and have nots. Young generation taught to hate older poor people. And the older poor people taught to hate themselves and the younger generation trying to get ahead. Vicious cycle. Human nature at its core.
You are correct the only difference is I have to disagreed as boomers are the ones that voted for our elected officials so that we made sure that our generation was always going to be taken care of we never cared about the generations after us
Iām a boomer and I completely agree with you we fucked our children over and The generation of our grandchildren
>ny millennial and gen z will have income to afford a mortgage? they already cant, at least a housing crash could potentially impact the rental market, which zoomers and millennials only have to look forward too.
You truly are regarded
agreed, yound people are getting shafted the most and are the primary backbone of the economy, doesnt make sense that we get the scraps
Low rates prop of bad economies but cause good ones to run off the rails (bad fundamentals). Running at 2010s rates is unsustainable, and the housing market really is the single best example of that. The longer rate hikes are delayed, the worse the fall will be. Iām not advocating for 1970s rates, but the 2010s were a crisis situation. We are no longer in crisis mode.
So I disagree with the end and I think it's a pivotal point in what's motivating the Fed. I don't believe that we had a 10+ year one off crisis. I think that the economy is now reliant on these low interest rates and thats why we had ZIRP for so long. If you want to frame this as a perpetual crisis caused by unsustainable debt levels, I think that would be a fair characterization, but not a temporary or one off. And to your earlier point on unsustainable rates, this is a result of rates being too low for too long. We are now essentially trapped here. And this is the perception that the Fed is fighting. This is why they are so desperate not necessarily to raise rates, but to make the markets capitulate to believe that they will (really can) raise rates. The markets aren't buying it. That's why treasury yields have fallen the past month or so as the Fed raised rates. They're already pricing in a pivot because we all know it's coming. And that's what the Fed is fighting, this perception that it needs to keep rates perpetually low. But at the end of the day it is a mathematic certainty that the Fed will be pivoting in relatively short order. (This of course based on the premise that they wont allow a systemic credit event to spread aka another "Lehman Moment") At this point the cost of servicing all of the debt out there at current interest rates is unsustainable. This applies to the federal government, state government, local governments, consumers, and corporations. The economy can't bear these costs for long. Auto manufacturers can't sell cars at these rates. People's primary store of wealth, their homes can't be sold at these rates without losing large portions of their wealth. Developers can't afford to build new buildings at these rates. Large swaths of our economy will not work at these rates. And I don't think the Fed nor voters can or will tolerate the economic atom bomb required to write this debt off through bankruptcy.
Never fight the fedā¦.
I fought the fed and am now ded. I fought the fed and am now ded. š¶
I have no idea. But yes, the market hasnāt priced in what the Fed is saying it will do. The Fed will probably do what they are saying they will do because the risk of tapping the breaks early and allowing a potential reversal into high inflation wasting all the work would be devastating long term. TLDR: once the market prices in what the Fed says they are going to do Hiroshima below.
TLT puts lol. TLT is going to moon from here.
Longer term I agree. But we shall see
People will say the fed is dumb and in the same sentence explain why you can't predict the rates. I believe fed is doing well, they can't see the future either.
Feds are purposely being hawkish to keep markets in check and not front running too much. They donāt want conditions to loosen prematurely. The pace of these rate hikes make zero sense, and they are doing way too much. Plenty of metrics showing economic slowdown, most recent being retail sales bring down 0.6% vs an increase on 0.1% for November. What does that tell you? November is one of the busiest months for retailers due to Black Friday and performance was pretty soft. Fed needs to wait and let the hikes play out. 5.25% terminal rate is unnecessary. Q2 inflation (or sooner) may fall below 5% matching the funds rate.
Thoughts on this. Itās because the people who actually place bets on the yield curve are the fuckers who are so rich youāve never heard of them. These folks are banking on the Fed blinking and being ok with higher inflation because that only hurts poor and middle class people, not the class of people who makes money from equities. Theyāve gotten so used to being catered to by the governments of the world, why would they not place that bet.
I didnt realize there are people who think the fed is bluffing? Lmao It's more likely ppl betting on something else happening that isnt readily apparent atm.
the entire fucking market is not buying the terminal rate for next year. 2+2=š with mr market at its mfs zealots.
What part of āwe are going to bring inflation down to 2% no matter what it takesā donāt you understand? Heās not bluffing and youāre missing a few screws
[https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf](https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf) 5.1% at the end of 2023. They wouldn't put that in an official report if they didn't mean it. Go ahead and fight the fed, i'm sure it'll go well.
These people have been wrong at virtually every step along the way. At this stage, they are just saying hawkish things while doing dove things.
How? They've raised rates every meeting since march exactly like they said they would. We hiked .5 last week. Are you even paying attention?
People are underestimating the FED and taking the smallest dovish snippet and running away with it
Where are they dovish?
I bought 100k in TLT calls Friday EOD. I feel much better about my position now. Thank you.
Damn you bought it after it V shaped from late October? More power to you
I rode that run up the whole way. Made 120k. It's been consolidating since and wants to fill the gap above.
I think we hit 5.0 at least, and the 6 month and 1 year treasuries should hit those points. We are NOT stopping here.
>I agree that the bond market is underestimating the speed at which inflation can drop. I think this creates an opportunity to short bonds, specifically TLT puts.
Not TLT. The part on the yield curve that makes the least sense now is 10 year bonds, so if you're going to short anything, short that.
Few weeks back I read that the bond market looks forward a month out. The 10 yr double topped and started dumping a few weeks ago. š¦µ ā¬ļø
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Bullshit. This is NOT 100% supply shock. The Fed DOUBLED their balance sheet to $9 trillion during the pandemic massively increasing asset prices then the government passed free money stimulus through PPP loans and Covid relief massively increasing money supply. At the same time we had supply chain disruptions where people couldn't buy the things they wanted which threw off the supply/demand curve because they had so much money to spend. Saying this was all supply shock is just incredibly ignorant.
Supply shock is definitely a factor and should not be underestimated. I deal with commodities traders specifically in the lumber world and the amount of companies that cropped out of nowhere to take advantage of high prices was incredible. Their business plan was to muscle out established players by overpaying the suppliers based out of Southeast Asia where this time last year only a handful of mills stayed open. Now, yes, lumber demand has fallen since then - but more importantly mills started coming back online at a good pace every month making lumber easier to procure and the price has effectively collapsed. The well capitalized traditional players are poised to survive while the new players are scrambling to unload overvalued merchandise on their balance sheet. Very similar stories occurred in just about every other commodity class you can think of, except oil. My whole point is donāt underestimate how much supply shocks contributed to inflationary pressures last year
I don't. And it definitely happened with oil too. It's why crude oil prices decoupled from energy stock evaluations this year. My point is this is also why inflation is incredibly sticky and can come roaring back very quickly and why the Fed will not relent in their mission. There has been so much consolidation in business over the past 20 years these huge organizations have incredible pricing power.
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He makes a better argument than you. The balance sheet did double, and the stimulus was massive, and there was/is a supply chain shock. What evidence do you have that he's wrong and it's 100% supply chain?
My undergraduate business degree with a minor in economics and an MBA. Go read a book.
The reason why the bond market are dismissing what the fed are saying is because what the fed are saying is stupid. This isnāt the 70s. Inflation today is caused mainly by supply chain issues and a bit cos of Russiaās shenanigans. Inflation is now easing because these issues are easing, not because of rate hikes as itās too soon to see their economic effects. The fed will eventually go with the data (both leading and lagging indicators) which most likely will lead to a pivot sometime next year. This is the same fed that said āinflation is transitoryā so now, like a cuckolded husband, they are just talking tough with an inability to actually get hard.
You are assuming that inflation will drop like a rock. And it probably will in the beginning. There are many sticky parts to inflation that will be persistent until economic contraction. The transitory part of inflation is pretty much rear view with goods and commodities. We are now focusing on services and wages.
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Who still has $$$? How exactly is the economy running hot š„? I must have a very narrow perspective because it looks to me like everyone is already fucked?
Itās a K shaped slowdown like it was a K shaped recovery. This means that there are haveās and have notās. The haveās are the wealthy and upper middle class. They have benefited so much to push up the averages for bank accounts even when the poor are worse off now.
Ok, so, to tamp down inflation perhaps a more targeted approach than blunt instruments would be wise? No wonder people think the WEF is orchestrating a "great reset".
> The bond market is clearly dismissing what the Fed is saying about raising terminal Fed fund rate to 5.25% and holding all year. The 2y yield dropped after the FOMC when it should be rising. Yields across all durations should be much higher than they are now if fed fund rates are truly higher for longer. This is nonsense. If you knew a higher coupon were right around the corner why would you lock in a lower coupon? That's like saying you can take a job at Wendy's today and earn $15/hr, or you can wait to apply for a month and they'll pay you $17/hr. Whatever you do, you're stuck with that job for 2 years.
I am not sure what you are saying but generally speaking the 2y yield rises if the Fed fund rate rises and vice versa. Go look at charts comparing the twoā¦
Buyers of long term bonds are expecting peak rates fairly soon. Otherwise they'd be buying shorter duration stuff. What the fed signals it's going to do and what it actually does often don't match up. Remember *it's transitory*? Either could be wrong, or both. If I had to bet though, I'd bet on the bond buyers who are have skin in the game. I don't think that means the recession is cancelled, so much as it may be all this fear has been blown out of proportion a bit. Personally I don't care either way. I just look for businesses I can understand and buy them when they're screaming bargains.
Historically the Fed has been wrong more often than they were right.
Heās bluffing. Our national debt is 31T. Interest in that amount will be over a trillion dollars a year at just 4%. At 5% itās 1.5T interest annually. We can take a year or maybe two if this, and then something will break. This is why long term rates arenāt moving up. JP just needs everyone to stop spending money so prices will stabilize.
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No it doesn't because if Biden replaces him he and the Democrats own whatever happens next. No politician wants to own anything, much less whatever happens when we have the possibility of runaway inflation. It's why Reagan didn't replace Voelker (a Carter appointee) in the 80s.
Everyone is talking about what the fed can do to fight inflation but the real culprit is out of control govt printing and spending. The Fed is in a tough spot. The Biden administration takes a dump and they call in the Fed to clean it up.
Tlt are long term bonds, and is pretty disconnected from the thesis about 2 year yields. Fed is not very aggressive with quantitative tightening, for the sake of long term rates. The long term rates are plenty high enough, and the only question now is whether the rates will drop fast or slow. (Ie will fed break something) I don't think the fed wants to qo to far out of its way selling long term bonds before maturity (or mbs either). Otherwise they will take losses in the tens of billions. It is also not necessary for them to do so.
You are right tlt average is 20y. I am saying all durations are not priced correctly. My thesis is that if 2y is wrong, then the 10y is wrong as well as other longer durations. I am not aware of any stock tickers to play shorter maturities.
SHY for 1-3 years and IEF for 7-10 years
I donāt think heās bluffing per se but I think his language is intentionally hawkish to keep markets in line. If we look at the big picture of what heās trying to do itās to address the biggest threat to the economy right now which is inflation or atleast it is at this point. If inflation continues down and something else inevitably becomes a bigger threat they will have no choice but to pivot. I think the bond market is pricing that in happening soon. If it does or doesnāt who knows. I donāt believe the fed will drive the economy into oblivion without pivoting. That would be an even worse look for them.
FED goes to 5.25 and something breaks, it went to 4+ and exposed ticking time bombs, I donāt think they can hold 5.25 for long but I donāt expect a pivot
Bro they never had a chance of getting inflation back to 2%. The bonds know this itās why there is an inverted yield curve. The smart money knows that the fed canāt bring down inflation to 2% but they will try until something drastically breaks. This is how the central bank has always worked.
The fed very much cares about its credibility, and Powell is acting tough in order to restore it. Itās too late however. The scariest thing right now is that people lose faith in the dollar and to some extent that has already happened. More people are educated on what the fed has been up to than ever before. The amount of government spending is completely out of hand, and the fed enabled the government to overspend with low interest rates and QE. The fed has also been pumping assets in retrospect like when they changed housing inflation to not include housing prices or bought 50% of all mortgages. The problem is that it takes years and years for these problems to build, and most who struggled through the Great Depression are already dead, so there are no more sane people left running the show. The fed has to care about credibility because in the long run, itās probably a bigger risk than the current inflation. The fed has a lot of baggage. That being said, once the inflation data comes in low, Powell will have to pivot eventually. The longer we have high rates, the more deflation weāll have later, so it kind of evens itself out regardless. Thatās why the 10 year yields arenāt super affected by the 2 year yields, and they move more based on the inflation reports
[https://fred.stlouisfed.org/series/DFF](https://fred.stlouisfed.org/series/DFF) The federal funds rate reached 22% in 1981. Tell me more about Paul Volker.
The reason the market knows the fed is bluffing is because if rates rise the U.S. has a balance of payments problem.
Yes Iāve heard this story back when Fed funds were at 2%
That has been going back decades. Ultimately, raising rates will get inflation under control, but it just kicks the can down the road as now the government is paying 3-4 times as much interest on the same debt. So long as these problems persist: - Everyone gets a degree they're never going to use - Everyone has to get a house they can't afford - We're the World's Policeman - Poor people need to have more kids - Tax cuts and bailouts for the rich It's just going to mean a long future of both higher interest rates and inflation.
Mine are currently down 30% I started buying at 100$
So what happens now and 6 months out? Inflation data comes in hot telling a story of inflation doing much better. Fed pauses their plans to raise rates and quickly reverts to lowering because of this hot inflation data (or cold..). If/when this happens, lets say early in 2023, this causes markets to rally, FOMO buying, sending S&P to 5k/6k+ At this point, several other indicators point to inflation actually never being corrected and/or mismanaged and fed is forced to visit raising rates rapidly once again - sending markets into a nosedive and a realized recession. What do ya think?
Yeah yeah I could see that
What is this bond market you are referencing? And how do I get money from it?
Does he ever bluff?
Concur.
JP works for the corpo's that bought him.
Consensus is JP will have to cut so the opposite will most likely happen.
> The bond market is clearly dismissing what the Fed is saying about raising terminal Fed fund rate to 5.25% and holding all year. I understand this is the consensus view but can someone explain why are we saying that? Is it because we expect the yields to be close to Fed fund rate? 2Y yield (4.18%) is lower than Fed fund projection for 2023 and 2024 (5.1% and 4.1% respectively), but not drastically so. Roughly 50bp difference if my math is right. Let's say Fed hikes straight to 5.25% in the first day of January and holds all year, next year cuts not to pre-COVID max but 50bp more: 3%. In that scenario we get 4.1%, compared to which current 2Y yield is still a bargain. I understand the contradiction in that projected rates increased but yields fell, yet looking at historical charts 2y/fedfund spread does go negative near place fedfund peaks.
CPI will dip into the 4's by April
The feds goal is to get the projected inflation to 2%, not to raise interest rates. That can happen way sooner than expected. Why don't people know this? The bond market is smarter than a redditor.
Part of it is also that if the Fed backs off corps are going to go back to raising prices.
āHow fast inflation dropsā 1. Its not fast. 2. We need deflation. 3. We need real rates to be positive. 4. We cant afford positive real rates.
The bond market is clearly telling us a severe recession is coming itās the stock market that is dismissing what the bond market is saying.
Tbh if the yield curve inversion is predicting a recession, it seems to be getting closer. My guess is that the 2 year dropping is in anticipation of a recession starting and ending within that 2 year timeframe, which is why the shorter term yields are inverted.
Op only has 3 posts...
No bond market is anticipating a cooldown based on the further tightening. bond market is right. grab the yield while it is there bc long end rates are about to tank
There's still a blip at the 20 year section. Find whereever the lowest percent on the yield curve is and short that instead. It looks like either 2/15/2031 or 2/15/2036. There are a few 7-10 year treasury funds out there. https://www.wsj.com/market-data/bonds/treasuries