Fed Shocks The Market…

The fed minutes were announced today at 2 PM ET. The market was expecting the minutes to say that things aren’t that good economically, and that the prospect was for continued low rates. SURPRISE!!!! The minutes said that Ms Yellen would hike if the data improved in Q2. While that’s not very likely, it is interesting that she talked about raising rates in June. She’s so far behind of the curve that maybe she’s getting anxious about keeping rates too low. Maybe she’s preparing the market for the inevitable. It has to happen some year. Maybe this year will be that year, although I wouldn’t hold my breath. That said it does seem she wants to hike and maybe the market is simply picking up on that. That it doesn’t matter if the economy doesn’t recover.

Yellen has been so dovish that this was a real shock to the system. At least it keeps things more interesting. The bulls not always getting what they want. The bears finally getting a bit of good news for their side of the story. The one and only thing that has kept this bull market alive the past few years has been the prospect of low rates forever. If that goes away, then we can’t count on the market holding up like we have before. The low-rate bull market may have just taken a devastating blow, but then again, the burden of proof is on the bears to make things happen that haven’t happened for seven long years. Let’s remember this day. It may have been the day the market took a blow from which it simply can’t recover. The next several days to weeks will be very telling where we go longer-term. Maybe Yellen finally realized that keeping rates this low isn’t healthy after all, and is finally waking up to the real world. Maybe her friends have done well enough, or maybe it’s time for some market medicine.

Let’s take the other side of the argument. Play devil’s advocate. If she raises one or two times this year, would it be enough for folks to take their money out of the market? Are there still enough alternatives for people to run to? Doesn’t seem likely. If rates are 1%, would that make any of you run somewhere with your dollars? I doubt it, so an argument can be made that this news won’t kill the market. Maybe the market struggles, but maybe the bears also don’t get what they want. Maybe it’s just more of the same. Lots of volatility. Lots of whipsaw back and forth. You can play either side and be right in your thinking.