The market is in a rates hike purgatory and forced into inaction until the critical decision becomes fathomable. Renowned trader, Paul Tudor Jones, comments on the Fed’s position vis-a-vis interest rates and the global market status quo, once again, favors stocks.
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Mon 5 October
UK Services PMI (actual:53.3 expected:56.4 previous:55.6)
US ISM Non-Manufacturing PMI (actual:56.9 expected:58.0 previous:59.0)
Tue 6 October
Australia Trade Balance (actual:-3.10B expected:-2.48B previous:-2.79B)
Canada Trade Balance (expected:-1.1B previous:-0.6B)
US Trade Balance (expected:-47.6B previous:-41.9B)
ECB President Draghi Speaks
Wed 7 October
Japan Monetary Policy Statement
Japan BoJ Press Conference
UK Manufacturing Production (expected:0.4% previous:-0.8%)
Thu 8 October
UK Monetary Policy Summary
UK Official Bank Rate (expected:0.5% previous:0.5%)
US Unemployment Claims (expected:274K previous:277K)
US FOMC Meeting Minutes
Fri 9 October
Canada Unemployment rate (expected:6.9% previous:7.0%)
Legendary trader and hedge fund manager, Paul Tudor Jones, has offered some insights on what exactly the Fed’s current predicament entails and where he sees the market heading.
Jones, founder of Just Capital and the Robin Hood Foundation (!) for large investors, is best known for his quotes that have become latter day market truisms, such as:
The most important rule of trading is to play good defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down.
I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.
What is interesting about Jones’s remark is that it points to the Fed’s “rates hike” rhetoric being rooted in fear and not optimism that a rates hike will alleviate the current US (and global) economic malaise. He mentions the shift in focus to credit and remarks: “I think they’re concerned about the expanding global debt-to-GDP.”
As pointed out in previous Global Economic Outlook articles, the Fed’s action of contracting available credit may be a critical policy mistake at the moment when a random credit default could send the whole house of cards tumbling.
I think it points to a choppier market. – Paul Tudor Jones
In a Zero Hedge article collating various public statements by investment bank, Goldman Sachs, the shadow bank’s spokespeople gleefully join the “rates hike debate” by offering the pros and cons of a now-versus-later policy decision. Although it is not a widely publicized fact that Goldman Sachs is a partner to the Fed’s “Overnight Reverse Repurchase Agreement” (ORRA) it is, nonetheless, surprising that the bank implies zero knowledge of the mechanism.
The ORRA mechanism allows the Fed to covertly raise interest rates by paying shadow banks a higher overnight interest rate than the prevailing rate that they would get from borrowing to the regulated banks, as has become the borrowing pattern during the ZIRP era. By always offering the largest lenders a higher interest rate (payable with freely available QE dollars), the Fed hopes to raise interest rates “organically” – as outlined in Global Economic Outlook of 14 September.
With a cleverly framed wait-and-see approach being promoted for interest rates, any labor market deterioration or manufacturing slump implies loose monetary policy. This is exactly what the ORRA mechanism is: loose monetary policy (to guarantee paying whatever rate of interest) on the road to massaging rates higher (thereby discouraging borrowing).
Paradoxically, the wait-and-see facade implies continued low interest rates and coaxes investors back into stocks – support for the big business that funds government and the current regime. So, when things continue to go bad, invest in stocks; when the economy picks up, it’s a good time to invest in stocks. Absolute bloody genius. If you published it as fiction, the reading public would dismiss it as far-fetched.
My sense is we’re better off making sure we can maintain control.
– James Bullard, St. Louis Fed president
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