Looking for a Quiet Week – Until Thursday Afternoon

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There should be a bunch of vasillating during the trading day this coming week–at least until Thurday afternoon when the FOMC will release their meeing statement, followed by Chair Yellens press conference. While up until a week or so ago we were confident that the Fed Funds rate would be raised we now think the odds are more like 50/50. You can be certain they will be damned if they raise and damned if they don’t. Personally we think it is time to put the hammer down on easy money–not because any economy globally appears to be overheating, but simply because easy money promotes too many shenanigans by hedge funds and other financial types, outrageously high priced buyouts by companies such as biotechs and because simply a zero interest rate policy has done almost nothing to stimulate growth.  Who cackles the most when a rate increase is threatened?  Only financial folks—mom and pop on the street mostly don’t give a damn and if they do give a damn it is because they think after a lifetime of saving they should earn more than 1 or 2 basis points on their savings account. Reasonably speaking a movement of 1/8 or 1/4% in the Fed Funds rate should make little difference–long rates may tick a bit higher temporarily, but long rates will take care of themselves regardless of what the Fed does.

We would suggest that if the Fed decides to leave rates unchanged that they at least quit buying bonds and mortgages as their current holdings ‘roll off’—simply let the balance sheet start to decline from the outrageous 4 trillion dollars. In theory this should move long rates a tiny bit higher, but not too much. Do something other than look like a bunch of lackies!

We know what we will be doing this week—-nothing until Thursday. We are holding plenty of cash all around and if a panic of any sort we set in because of a rate hike or lack of a rate hike we are ready to take advantage of that situation.

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