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2022-09-20 07:00 by Karl Denninger
in Monetary , 848 references Ignore this thread
75 bips
[Comments enabled]

The Fed does not lead the market; the opposite is almost-always the case.

(Ed: You can click "customize" to see the entire graph and change its timeframe, etc. or if your screen is too small for it to properly display.)

What does this tell you?  With the 3-month "constant maturity" trading at 3.20% and effective Fed Funds at 2.33% a minimum of 75bps is coming this week and 100 is not off the table by any means.

In fact 100bps, from this data, was the right number just last Tuesday.

Indeed if you go to the source and look at this data series over time you find that in virtually every case the market leads The Fed, so the idea that the Fed "controls" rates rather than doing whatever the market tells it to is, on the evidence, crap.

That is, on the way up and on the way down the 13-week T-bill leads, not follows the EFF; it almost always moves first.

Go ahead and run all the Reynolds-wrapped nonsense you'd like; the data says The Fed does not make these decisions; rather, it is led around by the nose whether it likes it or not.

The Fed is not "behind" this time -- they're behind every time because it is a myth that they actually get to decide.

Until you see the 13 week turn the other way in a meaningful fashion rates are going higher and, from the slope of things at this point, not slowly either.

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Cmoledor 1k posts, incept 2021-04-13
2022-09-20 08:37:13

What I hear you say is market holds the power, not the fed. Am I reading this right?

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The whole world is one big fucking scam
Why are you giving a vulgarity warning here? Our genial host is an advocate of both skullfucking and sodomy via rusty chainsaw. Credit to Rollformer
Thombradley 209 posts, incept 2021-11-01
2022-09-20 08:37:16

I assume the market has priced in 75, we will see what a 100 will do.
Iou 1k posts, incept 2009-03-16
2022-09-20 08:37:20

Let's get this party started! This is long overdue. I've got some special bottles to uncork in celebration of the end of this free money bubble. Here's to the end of 0% no money down bullshit. I got cash and I want a deal Mother Fuckers!

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"When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies
Tickerguy 188k posts, incept 2007-06-26
2022-09-20 08:40:07

@Cmoledor -
Quote:
What I hear you say is market holds the power, not the fed. Am I reading this right?

Yep.

The data is what it is. Find the instances where The Fed's policy rate changed FIRST. They are few and far between.

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NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?

Cmoledor 1k posts, incept 2021-04-13
2022-09-20 08:50:59

Gotcha. Thanks Karl.

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The whole world is one big fucking scam
Why are you giving a vulgarity warning here? Our genial host is an advocate of both skullfucking and sodomy via rusty chainsaw. Credit to Rollformer
Prof_dilligaf 398 posts, incept 2021-09-02
2022-09-20 09:00:50

I know "this time it's different!", but just extending the left side of that chart to 1970 says there's plenty of room left to run on the upside, just from a historical perspective.
Whitehat 10k posts, incept 2017-06-27
2022-09-20 09:11:14

Like everything else, the private sector does what it must; the govt and its agents follow along.

If one can avoid purchasing anything other than the most basic necessities including experiences for the next two years, liquid cash is going to have unprecedented purchasing power. This will end in a deflationary form.

Sadly for most reading, the time to liquidate assets and other non-essential items has closed or is really close to ending. Personally, if i was in this position would grab any deal to cash for non-essentials right now. Stop financial investment losses right now and keep what one actually has with the hard lesson.

Now add in the normal ageing out of a concentrated retiring class, and many life and lifestyle items are going to become quite affordable without a liquid and financially secure generation following behind to create a proportional demand.

Lots of recreational industries, already hanging on for two or more decades in many places, are going to crash. Add in hobbies and retirement lifestyle venues.

People who did the ex-pat thing, some friends of mine, are going to regret not being here for the opportunities and stability, yes stability.

Prediction: Some freer US States are going to slowly, quietly and effectively roll back some regulations, taxes and plans for control to help people make it there. It will be kind of slipped in. I have my theories as to how and where. They will know that those rebuilding in the ashes have to be given a break.

It will be so quite that some might miss it.

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smiley Je souhaite
Dingleberry 498 posts, incept 2011-11-06
2022-09-20 09:15:39

So we will finally be at rates over 3%! Still 1/3rd of "official" inflation. I imagine Volcker would smile and say "how cute".

Mortgage rates are already over 6%...trending to 7%. All those realtors and mortgage brokers better dust off their resume'! Maybe get that old bartending gig back? I could not buy my own house now with those rates. Look out below!

The USD is strong and may get even more so, maybe that keeps inflation from getting even worse here, but perhaps leading to lots of problems elsewhere in the world. I suspect this next rate increase will only add fuel to the fire as Europe is starting to feel the effects of their economic seppuku, and Japan appears hell-bent on destroying their own currency for some reason.

Long popcorn.
Eoinw 128 posts, incept 2021-07-14
2022-09-20 09:15:56

Is it incorrect to think that due to the massive amount of debt that's been created, and is still being created, that the Fed has no choice but to continue raising in order to save the dollar from hyperinflation?

Even the Bank of Canada is raising which, to me, means Bay Street is standing with Wall Street.

Meanwhile Trudeau, as well as Biden, continues to create more money out of thin air. I would have thought governments would wish to protect the value of the dollar because their power is based on their control of that money. Now if these governments are Quislings meant to destroy that value then what they're doing makes sense.

Looking ahead, are we going to see the Fed raising rates while the US government tries to counter that by creating more debt?

Finally, I can't help but think the only way to avoid runaway inflation collapsing the economy(plus a political and social collapse) is to see a stock market crash that triggers massive debt destruction.
Tickerguy 188k posts, incept 2007-06-26
2022-09-20 09:17:29

@Eoinw - Neither Biden or Trudeau actually cause emission of credit. Both can (and do) ask, but it is the respective legislative bodies that do it.

Take your ire out on them.

Oh, I know, you like yours; he or she is good, the rest are shit.

Well, guess what? You then get to eat your own shit because in point of fact your shit stinks just like everyone else's.

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NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Geckogm 5k posts, incept 2007-06-26
2022-09-20 09:29:11

Price and yield move inversely. You hear things like capital flight to safety. How is that when the market appears to be selling off yields are rising and price is dropping. I watched the correlation for a long time. I don't understand why now it does not apply. Inflation has been above 2% for some time yet yields were ridiculously low for a long time. As much as I think I understand I don't have a complete grasp.
Tickerguy 188k posts, incept 2007-06-26
2022-09-20 09:31:00

@Geckogm - Trade sequestration, which I found was a near-exact correlation. It's gone now and will not come back; the international community destroyed it, whether intentionally or not, with the Russian sanctions.

That's how they've gotten away with it for the last 20+ years but that's gone and so is the asset price pimping that came with it. Plenty of people made their entire living doing nothing other than moving paper at negative real rates, which looks like "free money."

It isn't. You just shoved the slavery "over there" which feels real good until it comes back in your face, and it always eventually does.

----------
NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Veeger 669 posts, incept 2013-02-13
2022-09-20 09:33:32

I talked with a friend who is a mortgage broker with his own company. They're keeping their long term core of people but letting the newer ones take training for other jobs before being let go. They saved resources to be able to do this but he said, they will have NO income for at least the next year and a half!

It's a bloodbath in the lending world. However, they all 'knew' it would happen eventually. Only some prepared, like my friend, but precious few.

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I remember the Diamond Princess.


Slowly at first, then all of a sudden.
Aquapura 3k posts, incept 2012-04-19
2022-09-20 09:40:21

Yeah, but even if they raise by 100 it still doesn't even scratch the bottom of where real inflation is. When is Jerome going to grow a pair and start raising multiples of 100's??
Tickerguy 188k posts, incept 2007-06-26
2022-09-20 09:41:21

@Aquapura - Again, look at that graph and tell me when The Fed has ever actually set policy.

The answer: Never. The market does.

Stop believing people's bullshit. He will go exactly where the market goes, exactly as all the other Fed heads have before him.

----------
NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Nashville 101 posts, incept 2018-02-27
2022-09-20 09:54:11

I so enjoy these economic Tickers and cast my vote for more of same. Also more like @Whitehat's viewpoints as well. Especially regarding the imminent demographic change as boomers (like me) die off and the baton is passed to the upcoming and mostly clueless cohort of children. Personal example: I live in a house that's way too large for me and Mrs. We have been here 34 years. Raised 2 kids and ran a biz out of it that entire time. Now, the kids are gone, the dogs have died, and the biz long since sold off. We know we need to move and downsize, and may have missed the R.E. peak but inertia keeps us here - for now.

My older brother two decades ago told me he foresaw mass forced selling destined to take place as boomers exit stage left. Downsizing, medical bills, etc. It seems the FED may have simply delayed all that since 2008 with their insane policies. I feel a reckoning is due soon?
Flappingeagle 4k posts, incept 2011-04-14
2022-09-20 09:54:33

Quote:
What I hear you say is market holds the power, not the fed. Am I reading this right?

I have a somewhat different take on this. The FED does NOT have a crystal ball that lets them see the future. To put it bluntly, economic forecasting is shit.

Therefore, all that is left is to be reactionary. The FED can look at what the market is doing currently plus other data that is a few weeks old such as the amount of credit or inflation, and from there make a decision based on what they think is the best thing to do.

Flap

----------
Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave
Aquapura 3k posts, incept 2012-04-19
2022-09-20 10:04:32

Agreed that the Fed doesn't set policy. When I extend the FRED graph back to the 1980-81 highs I can't get it to show the treasury yield line. Assume Volker was reacting to the market then when rates went up to 19%

If today's inflation is matching what we experienced 40 years ago what is different now that the market isn't pushing the Fed to raise faster to crush the inflation?
Ocdawg 345 posts, incept 2019-03-14
2022-09-20 10:04:42

@ Veeger- "... It's a bloodbath in the lending world"

Dumped my 50th Anniversary Mustang Friday. Cars have been a bad vice for me (flip yearly and learned the hard way). Leasing a truck to eliminate neg equity and keep max cash. Took 20 mins for GM to convince lender that despite 792 credit and 8 previous purchases from same dealer (I know, bad vice), I was worthy risk.
smileysmileysmiley

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The greatest trick the devil ever pulled was convincing the world he didnt exist. -Verbal Kint, The Usual Suspects
smiley
Eoinw 128 posts, incept 2021-07-14
2022-09-20 10:05:01

No ire here. At my age, I feel honoured to have a front row seat for such history making events. I'm merely asking questions to try and better understand what's going on and what to expect next.

I'm a conservative who has never voted for the conservative party in his life. I don't see any white hats, only a delusional and incompetent political class.

Are legislative bodies good for anything more that rubber stamping executive decisions? In theory checks and balances exist but you need law and order for that. Dies that still exists after March 2020?

Sorry a corrupt system will not fix itself. A corrupt society must live with the consequences of that corruption.
Tickerguy 188k posts, incept 2007-06-26
2022-09-20 09:57:46

In a word, no @Flappingeagle.

If The Fed attempts to go against what the market does the result is immediate arbitrage against them. Since The Fed has none of its own funds and generates them by fees and such, less expenses, and can't keep any of the surplus it generates (it has to remit it back to Treasury) the only way they could do that for any length of time would be for Congress to explicitly take actions they demand in order to fund it.

That's a bridge wildly too far, even for these assholes, since there's no way to do that sort of thing quietly (you need to pass bills into law, etc.)

Note that Bernanke and others have said repeatedly that what Congress was doing with their fiscal policy was unsustainable. Well, it was and is. But what they do leads The Fed to HAVE TO follow the market's reaction to it, and now its folding back on Congress for their decades of insane fiscal abuse.

The Fed can't stop it.

----------
NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Boredfree 660 posts, incept 2021-09-15
2022-09-20 10:05:23

Most people have viewed my financial choices as being childish. I have never tried to maximize my income, rather, I've focused on enjoying what I do more than what I make.

My retirement plan has been to work until I die, which might sound horrible to some if you, but is the best way I know of staying mentally and physically healthy.

I've watched people's emotional health suffer with rise and fall of their retirement funds as political winds shift.

To me the scariest financial news always deals with people losing their retirement due to poor stewardship of the retirees investment pool. How much would it suck to wake up one morning to discover you're poor?

It's easier to just be poor, as there isn't much distance to fall, and you know everyday you have to hit the ground running.

Yeah, it sometimes sucks to not have extra money for stuff we want (ahem, coffee roaster...). On the other hand, lacking cash makes you good at manifesting stuff you want or need. I'm certain, if I NEED a coffee roaster, the universe will provide. Maybe a friend and I will buy a used one we can share, or we'll make one or I'll do without.

Today I'm installing some new lights for a neighbor. Rather than money, the neighbor is giving me stuff he doesn't need(lumber, metal, firewood) we both win.

America has so much wealth, people throw it away! Dumpster diving is an interesting scavenger hunt. Do it enough and you'll learn what businesses and neighborhoods have the choicest pickings. I was at the dump and a guy threw away a 6 inch grinder that looked fine. He left, I grabbed it-replaced the brushes and I have a nice grinder!

I've been around wealth, and as nice as it is, it also comes with headaches I don't want or need.

I admire the folks who have 'made it'. I hope looking back, the work was worth the reward.

I may not have money in the bank, but I have a wealth of experiences I wouldn't trade for Gates money. Seriously.

The baby bummers are a generation of hoarders. They're checking out, and their hoards are being sold cheap. My wife's sister-in-law's dad has five giant buildings full of stuff like 5 brand new turkey roasters because they were on sale.

Don't worry, be thrifty, and keep your eye on the obits for future sales...

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The problem is most people want to point a finger rather than their thumb when dealing with challenges.
Swredpill 27 posts, incept 2022-01-04
2022-09-20 10:14:53

The Fed must always follow. To do otherwise would be positive feedback. Any system using positive feedback will invariably oscillate out of control be it monetary or electronic. Not that the negative feedback is working so well right now.
Flappingeagle 4k posts, incept 2011-04-14
2022-09-20 10:16:49

Quote:
Note that Bernanke and others have said repeatedly that what Congress was doing with their fiscal policy was unsustainable.


IIRC, ten to twelve years ago Bernanke et al told congress that they could cover for them for ten to twelve years but that would be all. Looks a lot like we are there...

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave
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