Fundamentals (Draft)

9) Fundamentals

Rates have been artificially low far too long. The US now needs raise record amounts of money to continue to finance their reckless deficit spending.

9.1) US Federal Debt
9.2) US annual budget deficits
9.3) US debt to tax receipt growth
9.4) US debt to GDP ratio
9.5) US debt to personal income ratio

In order to do this the US will have to offer purchasers of their debt a positive rate of return consistent with, or higher than the historical average of +1.47% above inflation, rather -0.25% below (negative rate of return). This is assuming you believe the official inflation rate ,  most economists that do not work for the Fed or US Government  don’t

1968-2007 historical averages versus post 2008-2018

Period Fed Funds 3 Month CPI Return
Current 2.15% 2.25% 2.50% -0.25%
1968-07 6.61% 5.96% 4.49% 1.47%
2008-18 0.75% 0.65% 1.83% -1.18%
Pre/Post + – -5.86% -5.31% -2.66% -2.65%

9.1) Can’t the Fed just create trillions more?

Another over indulgence of  “Quantitative Easing” just won’t cut it a second time round. Should the US government decide to fire up the  “Quantitative Easing” printing press creating trillions more dollars out of thin air, over 6 trillion in US Federal debt owned by non US investors could hit the market hard.  This could cause panic liquidation of US Treasury debt and dollars. What will add more fuel to the fire will be traders like myself entering net new short positions to capture this move. I believe the question isn’t if this move will occur but when.

US Treasury debt held by non US investors

9.2) Once this move engages Non US investors will move into the debt of countries with higher credit ratings.

US credit rating versus other countries

9.3) Or tangible investments like gold, what I believe to be the best house in a bad investment neighborhood.

1983 through 2018 Historical chart  also see my Metals Analysis page

10) Why Fed credibility is at a new low

The Fed’s policy decisions and calls on the market have been so consistently wrong over the last 25 years more often than not traders now fade the Fed fueling an overreaction and creating trading opportunities.

Ask yourself would you higher these people to run the largest central bank on the planet with no disclosures or audits?

10.1) Greenspan admits policy was wrong and still doesn’t know what happened.

10.2) Bernanke’s calls on the economy and Fed policy prior to the financial crisis and “Great Recession.

10.3) Yellen’s calls on rates. according to her rates should be at 3.25% now

10.4) Fed Chair Powell last Fed press conference on the 26th September 2018 when he told us

“The US Economy is strong”
“Growth is running at a healthy clip”
“Unemployment is low”
“The number of people working is rising steadily”
“Wages are up ”
“Inflation is low and stable”
“All of these are very good signs”
Rates will move from 2.15% to 3.40% by December 2020

From the Fed’s press conference (5:00 minutes, rate expectations 4 minute in)

10.5) If the market believed the Fed it should have fueled stocks and rates hike expectations higher.

What did happen shortly after Powell’s glowing report on the US economy

10.6) The S&P 500 sold off 310.25 points from 2,913.25 to 2,603.00 by the 29th of  October 2018,  down -10.64%


10.7) The NASDAQ sold off  1,160.75 from 7,610.25 to 6,449.50 by the 23rd of November 2018, down -15.25%.


10.8) 17 trillion in interest rate derivatives positions went from pricing in 0.6450% of the Fed’s anticipated 1.25% in rate hikes to just 0.1975%.

September through November 2018 chart  Each 0.01 = $250.00

10.9) Using the Federal Reserve’s and U.S. Governments own numbers the US is in the worse fiscal shape in 150 years. Until these fundamentals  fully engage we’ll continue to have exceptional opportunities trading the range in interest rates.

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Asset Investment Management

Family Office, Advisors