Thread: Will the Fed pause in September?

I had a small sliceof that pie 30%C 30%S The question now is when will the big boys take their profits and run. Tomorrow is another day as I am locked inat 50% C 50% S

I believe as long as oil stays down Katrina will keep the feds in check and we should have a good run for a while or at least that is what they want us to believe.

This is a Lot of work

Quips,

Please, are you suggesting that I move my positions into bonds - I'm SCARED of bonds - they operate off negativity. I would seek shelter in the G fund before I would even consider a bond or bond fund. I would learn to sing in the choir before contemplating a bond purchase. Nope, no bonds ever for me - it's on principle.

Dennis

Birch, my comment was about the C Fund and your position in it; not the F Fund.

The article mentioned the yield curve is inverted between 2 and 3 year bonds with a sliver of a spread between the 3 and 4 year yields.

Another raise in interest rates would lead towards a further inversion(?). I doubt if the Fed will raise interest rates two more times this year .. and so does the market.

tsptalk wrote:

The Fed should stop, and probably should have stopped earlier. But this is Greenspan, "The Inflation Fighter." I say he will not pause, but raise again.

I will agree with you Tom.....but I have reasons...

First of all, the M3 money supply increase over the last five years has jacked up prices on everything, hence housing price jumps, energy, and so forth.....only thing not jumping is personal fixed income which in effect makes the labor cost decline.....but also kills the buying power of the general public.....makes the dollar cheap, and investment overseas attractable.....which if you are aneconomic controlling party and want to make some money on a opportunity, I WOULD do it....

Next, inflation, created by the M3 increasesis not being contained by % increases, in reality it can't be, but in imagination it should be.....thus, inflate % increase so that treasuries can be bought and held for several years until an economy is rebuilt....

I have other reasons but these two are the main attractions to the fed raising rates......in reality, the M3 money supply was increased to "cheapen" the fed debt....what else was it done for......the result is this chaos is created .....

Lastly, given the above, the high prices of everything and the fed saying there is no inflation but are raising rates to contain it.....dictate that the situation is in chaos and out of control......looking for that market plunge just like it did after the 1973 oil crises........

M3 money supply should never have been allowed to be increased.......

:dude:

CNBC poll .




[align=left]L I V EV O T E RESULTS

Total Votes: 1483

What do you think the Fed will do next?

[/align]


[align=left]Hike =47%
[/align]

[align=left]Pause = 51%

Cut = 3%

[/align]

The Technician wrote:

tsptalk wrote:

The Fed should stop, and probably should have stopped earlier. But this is Greenspan, "The Inflation Fighter." I say he will not pause, but raise again.

First of all, the M3 money supply increase over the last five years has jacked up prices on everything, hence housing price jumps, energy,....only thing not jumping is personal fixed income which in effect makes the labor cost decline.....but also kills the buying power of the general public.....makes the dollar cheap, and investment overseas attractable.....which if you are aneconomic controlling party and want to make some money on a opportunity, I WOULD do it....

Next, inflation, created by the M3 increasesis not being contained by % increases, in reality it can't be, but in imagination it should be.....thus, inflate % increase so that treasuries can be bought and held for several years until an economy is rebuilt....

....in reality, the M3 money supply was increased to "cheapen" the fed debt....

Lastly, given the above, the high prices of everything and the fed saying there is no inflation but are raising rates to contain it.....

Some very good points are made by the Tech, but what about the effect of the Chinese economy in that whole premise? Not only are they purchasing Treasuries, but are providing very cheap labor and goods for the American consumer. Not inflationary whatsoever.

So prices have not been increasing because of the China trade.

I believe the Fed is raising interest rates to get back to a more neutral monetary policy and to stench the speculation that all that liquidity leads to. However, it will act to the economy and circumstances that affect it. It's "measured pace" is not written in stone.

more news on interest rates:

Dollar Gains for First Week in Three Versus Euro on Fed View

Sept. 10 (Bloomberg) -- The dollar gained for the first week in three against the euro as traders pared bets the destruction from Hurricane Katrina would deter the Federal Reserve from raising interest rates this month.

Fed Bank of Chicago President Michael Moskow said in a speech on Sept. 7 that rising inflation pressures need to be met with ``appropriate'' interest rate increases. Last week the dollar fell 2 percent against the euro as the hurricane pushed oil prices to a record high.

``Moskow's comments really caught the market a little off guard,'' said Greg Salvaggio, vice president of capital markets at currency trading firm Tempus Consulting in Washington. ``The dollar rallies significantly'' in the event the Fed raises its benchmark overnight rate this month, he said.

The dollar advanced 1 percent this week to $1.2410 per euro at 5 p.m. in New York yesterday, according to electronic currency dealing system EBS. It fell 0.1 percent to 109.72 yen. Higher rates make a country's financial assets more attractive to foreign investors.

Moskow, who votes at the Fed's rate-setting meetings, was the first policy maker to give a speech since Fed Bank of Philadelphia President Anthony Santomero spoke on Aug. 31. San Francisco Fed President Janet Yellen said on Sept. 8 that the need to raise rates is a ``probable scenario'' even though the need is ``not as obvious'' after the hurricane.

No Policy Reversal

``A hurricane disaster can't make a 180-degree turn in Fed policy,'' said Tomoko Fujii, a currency strategist in Tokyo at Bank of America Corp. ``The Fed will keep increasing interest rates at a measured pace, pushing up the dollar.''

Since June 2004, the Fed has raised its target rate for overnight lending 10 consecutive times, to 3.5 percent. The European Central Bank has kept its rate at 2 percent for the past two years, and the Bank of Japan this week held its key rate at almost zero, where it has been since March 2001.

The dollar is about 9 percent higher this year against the euro and 7 percent higher versus the yen.

Santomero said ``the expansion is strong enough to withstand'' the hurricane's effects and oil prices. The U.S. government's Congressional Budget Office said U.S. growth in the second half of this year may be curbed by 0.5 to 1 percentage point by the hurricane.

The September federal fund futures contract yielded 3.585 percent, up from 3.565 percent on Sept. 1, showing traders see about 90 percent odds the Fed will boost its key rate by another quarter percentage point to 3.75 on Sept. 20.

It may be interesting to note the increased tendency for the yield rate to flatten. I can only comment on the obvious: something is overpriced and something has got to give.

30 year government bond rates --yields -- have dropped (prices have increased) 0.18% from a month ago

10 year government bond rates -- yields --have dropped (prices have increased) 0.28% from a month ago.

5 year government bond rates -- yields --have dropped (prices have increased) 0.31% from a month ago.

2 year government bond rates -- yields -- have dropped (prices have increased) 0.24% from a month ago.

One would expect a larger spread between the 2 year and 5 year yields; but not a smaller or decreasing spread from 5 year to the 30 year.

That shows the market expects more in the way of shorter term risk; the market also shows that longer term maturities may be overvalued; for instance the 10 year yield is now 4.11% and the 30 year yield is 4.39%.

So, the Fed raises its overnight lending rate on a "measured pace"; longer term maturities are not budging so far... its price is not dropping. Those who are holding long term debt have the most to lose if those prices drop. There must be many holders of great sums of debt since there seems to be no problem with its float. That tells me there are buyers of that debt out there and they are comfortable with the price they are paying for it so far. There is no premium being paid for taking on more debt so far.

Domestically, real estate appreciation is doing better than either equity or debt instruments. It matters if it is artifical because of speculation or if it is real; there are a great many contruction cranes on new projects in downtown Miami; and there will be many more the greater New Orleans environs.

If real estate is not a bubble here, then long term (low) interest rates will be maintained. However, the rate of appreciation of real estate itself counters its duration. So far the ability to make good on long term debt remains in tact as well.

But I would suppose making good on long term debt is one thing, and future growth is another ... especially for the equity markets.

The market is showing us that the cost of long term debt is acceptable especially for assets that appreciate in value; and is preferable -- so far -- when compared to other investments.

Quips can you give me the site you used to get the currency report for Saturday.

The last report on the Dollar I saw was from A.P and that was for Fridays close

AP
Dollar Falls Against Euro
Friday September 9, 6:32 pm ET



Dollar Falls Slightly Against the Euro and Other Currencies





Thanks

Jo

Jo:

I get most ofmy info from http://www.bloomberg.com

Like most here I work full time, and currently the commute adds another couple hours each way to that, so I haven't lots of time to peruse things like the Wall Street Journal or Barrons.

However, I don't see the value of trying to time the market on a daily or weekly basis. I did subscribe to a market timing newletter, and will re-subscribe to it at the beginning of 06. Until then I will coast on its recommendations, but even so the writer of the letter doesn't make very many changes ... maybe a major change every 3 to 4 years if it is necessary.

There is another market timing service out there just for TSP and for a fee, supposedly, it maximizes market returns. I see some on this board try to achieve the same purpose by the same means, so I will not cast any stones at them. Whocan rag about how others spend or invest their own assets? In some cases it involves thousands, tens of thousands and some beyond that. What they do does not hurt anyone unless their readers follow their advice ... and that can be very dangerous.

Conversely, some strategies and advice here can be very beneficial. Some are very bearish, some are very bullish, some are in the middle, and some try to successfully be all over the place. Be that as it may, the bottom line is everyone is out for themselves to pay their own mortgages/rents or to deal with their own girlfriend/wife and feed back here will only offer chit-chat in the way of congratulations or sympathy.

Treasuries May Extend Gains as Fed Sticks to `Measured' Pace
Sept. 12 (Bloomberg) -- U.S. Treasuries are likely to extend a 14-month rally as the Federal Reserve sticks to its ``measured'' pace of interest-rate increases to keep inflation from accelerating after Hurricane Katrina.

Treasuries maturing in 10 years or more gained as the central bank raised its interest-rate target 2.5 percentage points since June 2004 on signs inflation remained tame. The benchmark 10-year note's yield dropped to 4.12 percent on Sept. 9 from 4.69 percent the day before the Fed started raising rates, lowering borrowing costs for companies and consumers.

After the hurricane caused record damage along the Gulf of Mexico coast, speculation mounted the Fed may pause after 10 consecutive rate increases to assess the economic effects from Katrina. Interest-rate futures show traders last week renewed bets the Fed will lift rates at its Sept. 20 meeting. A Bloomberg survey showed economists boosted estimates for inflation even as they lowered forecasts for economic growth.

``The Fed is raising rates not because of an acceleration of growth, but because of concerns they have about inflation,'' said Michael Materasso, who oversees $19 billion as head of fixed income at Fiduciary Trust Co. in New York. Additional increases ``would be good for the long end of the market,'' while a pause may send bonds down, he said.

The benchmark 10-year note's yield rose 8.2 basis points, or 0.08 percentage point, last week, recouping more than half the decline after Hurricane Katrina hit. Chicago Fed President Michael Moskow and San Francisco Fed President Janet Yellen suggested in speeches they are concerned about faster inflation.

Fighting Inflation

The 4 1/4 percent note posted its first weekly loss since the week ended Aug. 5, falling 11/16, or $6.88 per $1,000 face amount, to 101 1/16. The note's yield rose less than the yield on the benchmark two-year note, which is more sensitive to changes in monetary policy. Two-year yields surged 12 basis points to 3.87 percent.

A Sept. 9 survey of 38 money managers who oversee a combined $1.27 trillion found that 61 percent said the Fed shouldn't pause. Seventy-nine percent in the poll by Jersey City, New Jersey-based Ried, Thunberg & Co. said the risk of faster inflation, which erodes the purchasing power of fixed income payments, would rise without an increase. The survey showed participants expect 10-year notes to fall by year-end.

Long-term yields ``have been falling because as the Fed's been raising rates, the market has taken comfort that they're fighting inflation,'' said James Bianco, president of Chicago- based Bianco Research LLC. ``If the Fed pauses it could produce higher interest rates.''

How much yields rise depends on how long the respite lasts, Bianco said. Ten-year yields may return to the year's high of about 4.70 percent should the central bank goes months without raising rates, he said. Increases at each of the Fed's three remaining meetings this year will likely keep the note's yield between 4 percent and 4.25 percent, Bianco said.

`Stopping Short'

The October federal funds futures contract shows traders see a 78 percent probability of a rate increase next week, up from about 70 percent a week ago. Before the storm, they expected about a 100 percent chance of an increase.

The consumer price index will rise 3.5 percent this quarter, up from a forecast of 3 percent a month ago, according to the median forecast of 54 economists surveyed by Bloomberg between Aug. 31 and Sept. 8. A Sept. 15 government report may show prices, excluding food and energy, increased 0.2 percent last month, in line with the average since 1999, the median estimate in a separate survey showed.

Treasuries maturing in five years or less ``are a better value in this environment with inflationary threats and with the potential of the Fed stopping short of where they would have based upon a slower economy'' resulting from Katrina, said Bill Gross, chief investment officer at Newport Beach, California- based Pacific Investment Management Co. and manager of the world's biggest bond fund.

`Collateral Damage'

The economy will expand at a 3.6 percent annual rate from July through September instead of the 4.1 percent forecasters predicted a month ago, according to the median estimate of 57 analysts surveyed by Bloomberg from Aug. 31 to Sept. 8.

Investors such as Marc Seidner, who oversees $26 billion of bonds at Standish Mellon Asset Management in Boston, said the economy is too fragile to withstand higher rates.

``The more the Fed raises interest rates, the higher the probability that there is collateral damage to the economy,'' he said.

Hurricane Katrina destroyed property worth at least $125 billion, according to storm modeler Risk Management Solutions Inc. It shut 10 percent of U.S. refining capacity, pushing gasoline futures to a record $2.6145 a gallon on Aug. 31. The Congressional Budget Office on Sept. 7 said Katrina may cut U.S. jobs by 400,000 this year.

Inflation Estimates

Some investors and Fed officials are concerned that energy prices won't drop and will feed through to so-called core inflation, which excludes food and energy prices. The Chicago Fed's Moskow said Sept. 7 that inflation on that basis is ``running at the upper end of the range that I feel is consistent with price stability.''

Yields on Treasury inflation-protected securities, known as TIPS, show expectations for inflation have risen. The difference in yields between 10-year TIPS and fixed-coupon Treasuries widened to a four-month high of 2.48 percentage points. The so- called break-even rate shows the expected pace of inflation over the life of the securities. TIPS pay interest at lower rates than regular Treasuries on a principal amount that increases in line with the consumer price index.

``Of the two main challenges for the Fed, a slight slip in activity versus a pick-up in inflation, we think insuring long- term price stability is the more pressing issue,'' said Jason Evans, head of U.S. Treasury trading in New York at Deutsche Bank AG. The firm is one of the 22 primary dealers of U.S. government securities that trade with the New York Fed.