Monthly Archives: September 2016

Hello Everybody

As I predicted previously on this site, no rate hike happened at the Sept 20-21 FOMC Meeting.  Inflation targets of 2%, have not been achieved (this too, has been discussed on this site, numerous times…), and thus this appears to have been the primary factor for the lack of a rate hike.  At the 35:40 time mark in the video, 2% inflation is pretty strongly mentioned, if you are a Yellen watcher like I am.  Full video is below:

The indexes responded very positively to this, with the often watch Dow Jones Index closing up 163 points for the day.   The tech-heavy NASDAQ attained a new All-Time-High (ATH) of 5299.40.   See chart:

International Stocks (I-Fund) responded best to today’s news, next was Small Cap stocks (S-Fund), then large cap stocks (C-Fund).   I personally am not participating in the I-Fund, but it indeed offers greater rewards (and risk) than the other funds right now.

Lets take a look at the FOMC Statement, issued after the meeting.  This is not the same as Ms. Yellen’s transcript, it is more of a summary of the FOMC overall sentiment:

Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.

It is evident that the FOMC is pretty set on achieving 2% Inflation, and without this achievement, I do not see rates being raised.   The next meeting with a possible rate hike is December 13-14.

On Friday Sept-23 12PM Eastern Time, Federal Reserve Bank of Philadelphia President Patrick Harker, Cleveland Fed President Loretta Mester and Atlanta Fed President Dennis Lockhart participate in “Presidents’ Perspectives: The Fed’s Role in Our Communities“ in Philadelphia.   It is possible that interest rate discussions (but no action can be taken, this is merely a forum) will occur at this meeting.

Interesting is that the same talking heads on the cable business shows, to include major fund managers, all who erroneously “predicted” a rate hike to occur this September meeting, are now backpedaling and now claim that triple cross your heart, that a rate hike will occur in December “for sure.”  I suppose even a broken clock is correct twice a day.

Thanks for reading and talk to you soon.   Thanks for being a supporter.   I think I have analyzed these FOMC meetings for 2 years now and each time I “called it” with 100% accuracy.  Just saying…

I remain 50% S-Fund and 50% C-Fund.

-Bill Pritchard

Hello Folks

I typically don’t put out updates over the weekend, however I wanted this past week to “close out” before I did any analysis or assessment of things.   We are two weeks away from exiting the historical stock market storm system, with associated turbulence and foul weather, called “September.”   As discussed in prior posts, September is a month of poor performance and high volatility (huge price swings), and it apparently has chosen to keep its reputation this year.

This year’s September turbulence has two additional fuel sources, known as: 1) Presidential Election and 2) Interest Rates.   As most realize, this is a very tight Presidential race, charged with emotion and with both candidates touting their own economic plans for the country.

Regarding Interest Rates, it is my opinion that the rates will not be raised at the September 20-21 Federal Reserve Open Market Committee (FOMC) meeting.   You can read (if you are having trouble going to sleep) some of my theories and opinions on this matter via the search box on this site, however bottom line up front, the Jobs data and Core PCE Inflation data, is not where it needs to be, if the FOMC adheres to past policy statements made before Congress and at official press releases.  Now, I suppose they could wake up one morning and deviate from those previously stated positions, but I am not sure how that would work out, even more so if you consider the tight campaign polls and other “backdrop” issues.

News did come out on Sept-16 regarding the Consumer Price Index (CPI), it rose 0.2% in August.   This prompted some to speculate that this would be fodder for the FOMC to raise rates in September, but I get very frustrated by these sentiments, I wish those folks would review the public policy statements by the FOMC and adopt my conclusions.  In addition, I would hope the FOMC would not take data received in September (the August CPI data) and take action on it less than 30 days later, an action with global implications.  As I sit here typing this, I feel that the belief that August CPI will cause rates to rise in September is an absurd idea.

The SP-500 Index has had quite a few large swings, starting with the huge drop downward on September 9 on heavy volume.  Note:  No doubt, we have seen selling/distribution, on above average volume, with down-trending action, this month.  None of which is desirable.   Lets take a look at the SP-500 Chart:

The 2120 level is the new support level for the index, as apparent in the chart (red horizontal line), the index has found support there and closed above that level (thankfully) during last week’s trading.   Any penetration down thru this level will be worrisome.

Yet again, the market action is “all about the Fed” (FOMC) and in an apparent cycle of lily pond jumping, the market’s big moves are all jumps from one FOMC lily pad meeting to the next one, with relatively flat action in between.  We need a larger, more powerful force to sustain these trends, a force which apparently is non-existent right now.  The next interest-rate events are the Sept 20-21 FOMC meeting (press conference will occur on Sept 21) and a panel/forum of Federal Reserve presidents will occur in Philadelphia on Sept 23, called the Presidents Perspectives Forum.   I am quite certain that interest rates will be discussed directly, or at least alluded to, at that forum.

I remain 50% S-Fund and 50% C-Fund.

Please continue to share this site with your friends and colleagues, I appreciate the great email feedback, thank you very much.  Thank you for reading and talk to you soon !

-Bill Pritchard

Hello Folks

As expected (predicted?) the markets have remained in a mostly side-ways trend, or lack there of, since July.  I spoke earlier regarding the fact that August and September are historically weak months-  the markets are living up to that reputation.   Lets take a look at the SP 500 index, as can be seen, the index is basically flat, bound by 2194 as overhead resistance, and 2147 as a support level.   Any break/penetration of those areas would give reason to believe the subsequent action will continue in that direction.

Observe that volume has been fairly quiet since mid-July, however we indeed have had some minor selling on above average volume, as indicated by the black circles above.  Chalk this up to “summer doldrums” as I see no signs of heavy, institutional selling which we did see back in the BREXIT Panic of June.  Note that even in light of that, me personally, back in June I saw no reason to bail out of stock funds and was confident that things would return to the upside (which they did).

Now that we have talked about the recent action in the markets, lets move forward to what is in store for the near future.  On Sept-2, at 8:30 AM Eastern Time, the most recent “Jobs Report” will be released, many in the financial world believe this will set the stage up for a possible interest rate hike at the September 20-21 FOMC meeting, or possibly at the December 13-14 meeting.   Most economists are forecasting that 180,000 jobs will have been added.  With that said, the consensus is that unless the jobs report is “out of the park”, meaning 225,000+ jobs added (reflected a 25% improvement on the expectation of 180,000), then there will be no fodder for a rate hike.   Observe that we are still in the “bad news = good news” market climate.   If we get “bad news” such as 175,000 jobs added, below the expectation, the markets will rally, due to no rate hike, if we get “good news” such as 250,000 added, the markets will likely tank, due to a looming rate hike.  Ideally we get a jobs report of 175-185,000 and an unemployment rate no less than 4.9%.  I say 4.9% because that was what last month’s rate was.   Any rate less than that, aka 4.7%, would reflect an improving economy and give the FOMC additional horsepower to raise rates.  A rate higher, aka 5.1%, would reflect a worsening economy, which is not a good sign either, long-term. 

Further note that (discussed on this site previously) the FOMC is mostly using two criteria to determine rate hikes:

1.  Jobs/Unemployment Rates – Mostly flat in 2016, minimal improvement.  Graphic:

2.  12-Month Core PCE Inflation target of 2% – No improvement. Graphic:

So in my opinion, we will see no rate hike at the September 20-21 FOMC meeting, especially if you include the fact that we are voting for a new President in November, and it is unlikely the FOMC will receive any green-light, tacit, implied, or otherwise conveyed, to raise rates, until the new President is in-place.   Indeed we could see a minor rate hike in December, due to this very reason.   Did I say this was all my opinion ?

In other news, the FEGLI Life Insurance Open Season has officially begun, Sept-1 to Sept 30, information at this link:  https://www.opm.gov/healthcare-insurance/life-insurance/open-season/

Just as an FYI, but if you fall into the below categories, double check that your non-FEGLI life insurance will cover you (aka pay money if you get killed), as many will not.   This is a common statement many have told me, they don’t have FEGLI because they have “cheaper insurance” via another company, which may not pay if your death is:

• Ops in War or Combat Zones, etc.
• Flights on non-commercial/non-airline flights or on any non-FAA registered aircraft
• Outside of USA
• Death for any reason, to include suicide.  In other words, insurer cuts a check “no questions asked”

As a reminder, consult with your own HR department, financial advisor, etc. in regards to life insurance planning, but this question comes up quite frequently and I wanted to put it out for general awareness.  You may be shocked at the situations non-FEGLI insurance will not pay.

That is all I have for now, I apologize for the length of time between updates, but as the above charts show, nothing of mention is happening in the markets.   Once we get past September, hopefully things resume to the upside.

I remain 50% S-Fund and 50% C-Fund.  

Thanks for reading and talk to you soon !

-Bill Pritchard