With the markets awaiting the Fed decision, today one of the greats in the business sent King World News a fantastic piece that covers everything from the FOMC decision to the earthquake in Chile and some wild trading in global markets.
September 17 (King World News) – From Art Cashin’s notes: What Goes On In That Room? – We got some sense of that from the insightful and articulate former head of the Dallas Fed, Richard Fisher, who appeared on CNBC’s Closing Bell on Tuesday afternoon. According to my notes, this is how he described what goes on at an FOMC meeting:
“These are passionate intellectual arguments but this isn’t the Congress of the United States. We let our children play together. We like each other. We hug each other or pat each other on the back when it’s over.”
“This is a matter of trying to do your earnest best – hawk or dove – to get it right for the sake of the American people. It’s a civilized discussion.”
“Janet by the way is a great Chair, who moderates that discussion in the most civilized way – as – Ben Bernanke and as Alan did – I served under all three of them.”
“These are good intellectual arguments. No one loses their temper with each other. It’s a magnificent thing to behold. I think people are being very deliberate here.”
“We are getting to a point where we should be moving. I can’t say ‘we’ anymore – it’s ‘they’. It’s now or October or December. The problem with December is that you don’t give people enough time to dress their books, which may create additional volatility.”
If it’s as forthright and candid as Mr. Fisher conveys then we citizens will get our money’s worth, whatever the decision is.
Overnight And Overseas – There was a very large earthquake off the coast of Chile. That caused a spike in copper on the risk that the quake may have damaged some mines.
Shanghai sold off sharply in the final thirty minutes of trading as sellers awaiting late government buyers found the latter had called in sick. Hong Kong fell slightly. Tokyo was higher while India was closed. Emerging markets broadly better (hinting no hike?).
European markets are mixed to little changed. U.S. futures went from mixed to mildly lower as first light hit Manhattan. The dollar is a bit weaker as are crude and gold. Yield on the ten year was down a smidge.
Dot’s Dot – Whether the FOMC hikes or not there will be a great deal of attention to the so-called Dot plot. That is the amalgam of FOMC members perception of where rates will be over the next 12 to 24 months. That more than anything will suggest to markets how gradual the gradual normalization of rates will be. Here Yellen has the least direct control so that presents a bit more risk. Watch the dots, please.
Consensus – Yellen has not spoken in public in over 60 days. I still think the Fed leans against a hike due to reputational risk. If they move and something goes wrong, all the calls for delay will be thrown in their faces. Keep your seatbelt fastened. Stay wary, alert and very, very nimble.
Jeffrey Saut weighed in with this note ahead of the FOMC Decision: “Still quiet as FOMC waiting game continues. Despite constant barrage of Fed stories, no additional color on liftoff timing. Still too close to call. Recent market volatility seen as big reason for staying on hold. However, also thoughts tightening and dovish rate path signal will remove overhang.” — FactSet’s “Street Account” (9-16-15)
Speaking to the intense volatility of the past few weeks, the astute King Report notes, “We must reiterate what we recently wrote about market volatility. The extreme moves of the past two weeks in stocks, oil and other markets are a disturbing development. This is not healthy; it indicates distress and shrinking liquidity.”
While I agree with that statement, the stock market over the past two sessions certainly has not as the S&P 500 (SPX/1995.31) has gained ~42 points during its two-day two-step. I did find it interesting in yesterday’s minute-by-minute trading that the SPX “banged its head” up against its August 28th intraday high of 1993.48 some 22 times before it decisively popped through that level at 3:23 p.m. Of course, the upside breakout elicited emails from many of our financial advisors (FAs) like this from one particularly insightful FA.
“Hey Jeff, is this ‘Buy the Rumor, Sell the News’ that we are currently witnessing? I was implying to this rally leading up to the Fed announcement. I remember when the House and Senate were voting on the bank bailout in 2008. The market rallied hard into the announcement and subsequently rolled over; if I am not mistaken, the Dow closed down roughly 1000 points that day. The quote that was used to describe that series of events was, ‘Buy the Rumor, Sell the News’.” My response read, “Buying the capitulation lows on August 24th was pretty easy. From here, it’s not so easy. Quite frankly, I just don’t know on a Short-term basis. There are too many conflicting indicators and disconnects.”
Two of those indicators that are arguing for more caution, even if we are going to get another Spoos Spurt to the upside into the 2040+ overhead resistance zone, are the McClellan Oscillator and the credit spreads. First, the NYSE McClellan Oscillator, after yesterday’s leap, is now just about as overbought as it ever get. Second, I do not like what is happening with credit spreads.
Take the ratio between SPDR Barclays High Yield Bond ETF (JNK/$36.89) and the CBOE 10-Year Treasury Yield Index (TNX/23.03). In the attendant chart, study what happened to stocks last May when this ratio started breaking down like it is now. Back in May stocks were topping. While past is not necessarily prelude, the first rule in this business is “Do no harm!” Today there are several economic reports (Housing Starts 1.168e; Jobless Claims 275Ke; Philly Fed Survey 6.3e), but they will all be overshadowed by the Fed at 2:00 p.m. ***ALSO JUST RELEASED: Bill Fleckenstein On What To Expect From Tomorrow’s Fed Desision CLICK HERE.
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