Sunday, March 12, 2017

The FED will continue to tighten until something breaks


Fed to go "old school" with rate increases?

With inflation targets pretty much met, unemployment at multiyear lows and the support of improving economic data, DoubleLine Capital’s “bond king,” Jeffrey Gundlach, said the Federal Reserve has no excuse not to lift interest rates in March and at subsequent monetary-policy meetings, but, he said, that might unleash an “old school” central bank that keeps on raising rates.

“Something has changed in influence of the Fed over the market, and vice versa,” Gundlach said in a webcast late Tuesday.

Something has changed alright, the election of Donald Trump. My view is that Trump is at war with the entrenched interests of government and Wall Street. I believe that the FED will raise rates, using the excuse of full employment and inflation, until they break something in the economy or financial markets and then Trump will end up being the bag holder.

The deep state can then get one of their own elected in 2020 and it is back to business as usual. 

One of my investing heros was Marty Zweig who wrote a book called "Winning on Wall Street". In the book he said the following:

Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate - primarily the trend in interest rates and Federal Reserve policy - is the dominant factor in determining the stock market's major direction.

He also said that after three interest rate hikes by the FED you can count on a big drop in the stock market. With interest rates at historical lows so it may take more than three hikes this time. However you can bet your bottom dollar that if inflation continues up and employment continues to gain that the FEd will be raising rates. Look at the chart again at the beginning of the article. Every time the FED goes into a rate raising cycle something bad happens. 

Keep your stops tight and beware the FED. 

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