Understand the set up here. A Fed hike itself shouldn’t be a concern, but what comes after it. For example, will a stronger dollar cause HIBOR to keep blowing out, amidst renewed capital flight from China? Or will the strong dollar begin to cause issues in both commodity markets and US exports? That won’t happen until after the rate hike, if it’s coming at all.
This is all about Rosengren’s speech, who notoriously is a dove.
JP Morgan believes the Fed is purposely backing themselves into a corner.
“I think the key thing here is Eric Rosengren’s speech,” said David Kelly, chief global strategist at JPMorgan Funds. “I think they are trying to box themselves into a corner where they have to raise rates in September in order to maintain credibility.”
“If the market does sell off in anticipation of a rate hike, I think it will recover pretty quickly,” Kelly added, noting a rate hike would ultimately be seen as a vote of confidence for the economy.
The result of these new Fed fears is sharply lower equities and bonds. I’ve always said longer duration bonds shouldn’t be affected by Fed policy. But TLT is getting hit today, for the second day in a row. I believe this has more to do with German bunds soaring in yield than the specter of a hike.
The usual suspects are pronounced today: lower gold, oil etc, higher dollar and volatility.
My bear thesis has always been contingent upon two things.
1. China unraveling.
2. Credit defaults in the energy space.
Fed hikes actually help towards those two headwinds gaining steam. I’m hard pressed to believe they’d be so stupid as to upset the apple cart, unless of course they’re trying to disrupt things on purpose.
It’s worth noting, my Exodus inspired ‘Fuck France‘ call ended up on the right side of the trade.
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Humpty dumpy sat on a wall that the fed kept raising. But the fed knows humpty dumpy is who he is and must fall. Odd situation isnt it.
When will you consider selling your conviction tlt long trade? any scenario? It seems the long bonds are having a broad selloff around the world and breaking technical supports for many…
Only when yield curve inverts. There is no other scenario for me.
props to your discipline and focus.
Respect, fly. you have earned it.
what japan does not make your list of ignition sources.
student and auto loans are piled high and dry as well.
Why is TLT selling off? Shouldn’t that be the flight to safety trade? Pardon my ignorance.
when Kaboom comes, all is destroyed except fiat.
Bunds lifting off end of ECB QE. all bs
fly what you make of Gundlach’s warning?
http://www.zerohedge.com/news/2016-09-09/%E2%80%9C-big-big-moment-gundlach-warns-fed-may-surprise-markets
I think he’s right today, ultimately he will be wrong.
vix looking feisty and dax looking dumpy.