1) Since November 2015 the Federal Reserve has told us at every Fed meeting they will raise the Fed Funds rate to a minimum of 3.25% to as high as 3.75% by December 2020, their most recent call was 3.40% by December 2020. They’ve been wrong on their calls at every press conference since 2015 for confirmation see the Fed’s website.
Translated this means the Fed is expecting the Fed Funds rate that they set to move from 2.15% to 3.40% by December 2020 from an increase in his rate of 1.25%
As of the 6th of December 2018 15 trillion in the face value of open positions is pricing in -0.045% by December 2020 versus the Fed statement on the 26th of September calling for a 1.25% increase by December 2020.
Just how bad has the Fed become with their calls on the Economy and for the rate they set.
From the Fed’s posit meeting press conference 26th of September 2018
Full Fed post meeting press conferences the 26th pf September 2018 (57:51)
“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”
“Rates are normalizing”
“All of these are very good signs”
4:07 into the video above Fed Chair Powell tells you where the Federal Reserve sees the rate they set and when.
2.15% Current
3.10% December 2019
3.40% December 2020
“The US Economy is strong”
“Growth is running at a healthy clip”
When you look at growth in US Federal debt versus GDP how could you possibly qualify this economy as strong and growth at a steady clip?
Growth in the GDP Versus Growth in US Federal Debt 2000 through 2018
“Unemployment is low” (they boast it’s at a new all time low)
“The number of people working is rising steadily”
The percentage of the US that is employed has dropped by 1.33% since 2000.
2000 the employed population was 46.64%
2018 Employed population is 45.31%
“Wages are up ” not in relationship to nearly every tangible asset.
| Actual Median Income | Gold Price | Income in Gold 2000 Versus 2018 |
| 2000 $41,990 | $280 | 150 ounces |
| 2018 $59,039 | $1,240 | 47 ounces |
| Increase or decrease | -68.67% |
“Inflation is low and stable”
Then why using the Fed’s and US Government’s own data has the Average for all expenses gone up on average twice what reported inflation is? See this link for all corresponding charts and data.
“Rates are normalizing” normal by what definition?
Currently Fed Fed Funds rate at 2.15% which is 4.36% below the 1968 to 2007 per-financial crisis average of 6.61%.
At Fed’s target of 3.40% by December 2020, the Fed Funds rate would still be –3.21% below the 1968-2007 per-financial crisis average of 6.61%.
| Period | Fed Funds | 3 Month | CPI | Rate – CPI |
| 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% |
“All of these are very good signs”
Since this statement was made on the 26th of September 2018 through 6 December 2018
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 they just create trillions ore?
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.
11) Services
11.1) Introduction
11.2) Exchanges we trade on
11.3) Brokerage firms
11.4) What an ATA is and how they work
11.5) Fee structure
11.6) How to define overall risk on your account
11.7) How balances are protected
11.8) Open An Account
If you have any questions send a message or contact me
Regards,
Peter Knight Advisor
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