Which Way Wednesday – Hilsenrath Loses His Touch

Fool me once, shame on you.

Fool us every time there’s a Fed meeting – then we’re just idiots who will believe anything just because it’s printed in the Wall Street Journal. That’s right, Jon Hilsenrath, the Fed Whisperer, was at it again yesterday with his 3:18 prediction that the Fed will leave rates on hold next week to which we say: “Duh!”  I’ve been on record all year that the Fed will have no more than two (2) hikes in 2016 and likely 0.25 each and not likely for the first one until June – now can I get a job where I only have to write one column per month?   

Market expectations for rate increases have shifted down since the Fed met in December (aligning with PhilStockWorld’s projection). Traders in futures markets see an average fed-funds rate of 0.6% in December and 0.9% at the end of 2017, well below the Fed’s median projections of 1.375% at the end of 2016 and 2.375% at the end of 2017. The Fed’s rate projections could recede as officials delay raising rates.

You can see the little bump in the S&P, right when that article came out at 3:18 but it didn’t last because everyone was getting out and we still have 10-year notes to sell this afternoon so we don’t want investors being too complacent about equities or they won’t hand the Government their money to hold for 10 years at, LOL, 1.62% interest. By the way, anyone who feels the urge to spend $20Bn on today’s auction – just send the money over to PSW and we’ll pay you 2.5% interest only for 10 years, no problem!  

There is something very interesting going on in these auctions. If you follow that link, you’ll see that we currently have $24.8Bn in outstanding 10-years (for this cycle) and we’re only rolling $20Bn over because that awful Obama has cut our deficit once again and we don’t need to borrow money (when will the madness end?). That then forces $4.8Bn to find somewhere else to go and that’s why there’s such a high demand for notes – even at these incredibly low rates – like Richard Gere, they’ve got nowhere else to go. 

Since 2012’s QE3 (infinity, as it never ended), we’ve been hovering around 1.6-2% and, currently, we’re at the low end of the range because the US is borrowing less and less money and other countries are offering less and less interest for their bonds – even as they step up borrowing. So it’s not about US rates being ridiculously low, it’s about other countries being ridiculously lower so, relatively, we’re a pretty good deal (and so, then, is PSW’s offer, so please send cash or certified check for $20Bn before 1pm!).