Is the Fed even tapering?

[Krugminator2]

Nasdaq close to green. Probably a good spot to get long stocks 3 to 7% move seems doable short term based on everything lining. Obviously Russia could invade Ukraine but doesn't seem like it will happen at least for a couple of weeks.

 

[Madison320]

So , is the fed tapering ? tapering purchases maybe , raising interest probably . None of which matters from where I see it . The country is in a considerably weaker position as far as money , debt , interest , inflation etc than it was 13 years ago before the debt tripled.

They've been printing 120 billion a month for the last year and a half and were supposed to reduce that by 25 billion a month, starting in november and finishing in march.

My point is not whether they are going to taper in the future but that they haven't even STARTED. Now they are going to have taper about 50 billion a month for the next 2 months to reach their goal of no QE by march.

My other point is that markets are almost in a bear market, despite the fact that the fed has not started!!! Imagine what's going to happen when they actually DO something!

 

[oyarde]

They've been printing 120 billion a month for the last year and a half and were supposed to reduce that by 25 billion a month, starting in november and finishing in march.

My point is not whether they are going to taper in the future but that they haven't even STARTED. Now they are going to have taper about 50 billion a month for the next 2 months to reach their goal of no QE by march.

My other point is that markets are almost in a bear market, despite the fact that the fed has not started!!! Imagine what's going to happen when they actually DO something!

I think by the end of 2023 the fed will want to be about 2 percent . There will be double digit inflation all yr this yr and still a lot of inflation next. So yes they have problems but the stock markets are grossly overvalued so they were going to dump at the end of fed purchasing regardless of rising interest rates probably.

 

[Krugminator2]

My other point is that markets are almost in a bear market, despite the fact that the fed has not started!!! Imagine what's going to happen when they actually DO something!

Markets are forward looking..... The 20% Nasdaq selloff was from anticipated rate hikes. It doesn't mean the market can't go lower over time but it will have nothing to do when the Fed starts hiking rates. By the time a known action happens any move that will happen will have already been priced in.

 

[Madison320]

Markets are forward looking..... The 20% Nasdaq selloff was from anticipated rate hikes. It doesn't mean the market can't go lower over time but it will have nothing to do when the Fed starts hiking rates. By the time a known action happens any move that will happen will have already been priced in.

Yeah, except the markets have no idea what's going to happen in the future.

The exact same thing happened in 2019. The fed started tightening, everything was "priced in", and then the bond market imploded.

If everything is priced in wouldn't the markets remain unchanged? The market would just hit a price based on the sum of all future events and that would be it.

 

[Krugminator2]

Yeah, except the markets have no idea what's going to happen in the future.

Markets aren't crystal balls but they are like betting lines in sports. They are the best guess based on collective wisdom and it is hard to outguess the wisdom of crowds.

If everything is priced in wouldn't the markets remain unchanged?

Markets move for two reasons- anticipation and surprise.

 

[Madison320]

I think by the end of 2023 the fed will want to be about 2 percent . There will be double digit inflation all yr this yr and still a lot of inflation next. So yes they have problems but the stock markets are grossly overvalued so they were going to dump at the end of fed purchasing regardless of rising interest rates probably.

I think the chance of this tightening cycle lasting until the end of 2023 is about .01%.

My guess is sometime this year they reverse course, set rates back to zero and launch and even bigger round of QE.

I'm getting another idea where this could go. I'm starting to think that the Fed might want to stop the idea that they are either on a tightening cycle or loosening cycle. It might be to their advantage to constantly flip back and forth from tightening to loosening. That way they could simultaneously ease the worries of inflation and a market crash.
They seem to be emphasizing being flexible and data dependent anytime someone asks them about what they are going to do in the long term.

 

[oyarde]

Ya , but the inflation isnt going anywhere unless they change some parameters to make it look better

 

[Madison320]

Markets aren't crystal balls but they are like betting lines in sports. They are the best guess based on collective wisdom and it is hard to outguess the wisdom of crowds.


Markets move for two reasons- anticipation and surprise.

I agree about the sports betting, but somehow I think there's a fundamental difference between markets and sports betting. With sports you are betting on a specific event with odds, with markets you don't even know what the event is. I have to think about this some more but I have a hazy feeling that sports betting and markets are different. If the Chiefs are favored over the Bengals by 7 we know that's the most likely outcome. If the Dow is 34K what does that say about the outcome? Does Dow 34K tell you that there's going to be 4 rate hikes this year? What exactly does Dow 34K tell you about future events?

Do you think the Fed is going to tighten monetary policy? Do you think they can tame inflation without crashing the markets?

 

[Krugminator2]

I agree about the sports betting, but somehow I think there's a fundamental difference between markets and sports betting. With sports you are betting on a specific event with odds, with markets you don't even know what the event is.

I think shorter term trading and sports betting are one in the same. I take the view markets are basically right but deviate from being exactly right based on too many people going to one side of the boat and tilting the line enough from its correct value to get small edges that way. But they don't occur often. This past week was a big exception and had once in year opportunities in stocks.

What exactly does Dow 34K tell you about future events?

My best guess for 1 year from now is 34k plus whatever the historical return is for markets. That is of course is going to be wildly wrong but I think that is the best guess and I have seen no evidence even from the best traders that they can do much better than that guess.

Do you think the Fed is going to tighten monetary policy? Do you think they can tame inflation without crashing the markets?

I have no idea what will happen and wouldn't even try to predict how that will affect markets. I think monetary policy is much too loose and that is going to have a negative effect somehow but the timing and path of prices before you get a negative consequence matter.

 

[Krugminator2]

Do you think the Fed is going to tighten monetary policy? Do you think they can tame inflation without crashing the markets?

Something no one really points out is inflation was 7% in 2021. Interest rates are still very low. Even if the Fed hikes rates and inflation comes down, real rates are still going to be negative for some time.

Not a prediction but an out of left field possibility is not only do markets not crash with rising rates but markets rocket to new all time highs and go parabolic because of how LOOSE policy still is with rising rates. I am not predicting that but I am literally the only person I can find who thinks that is a possibility. The consensus seems to be this is a bear market and will go much lower and you will see all the valuation charts and talk about rates rising and pricking the bubble. Things are rarely that easy and that obvious.

The returns for the Russell 2000 are negative over the last year. A lot of the froth from junk companies has gone out of market. The ARKK fund was done over 50% from its highs.

Very bearish sentiment now.

 

[Madison320]

Something no one really points out is inflation was 7% in 2021. Interest rates are still very low. Even if the Fed hikes rates and inflation comes down, real rates are still going to be negative for some time.

Not a prediction but an out of left field possibility is not only do markets not crash with rising rates but markets rocket to new all time highs and go parabolic because of how LOOSE policy still is with rising rates. I am not predicting that but I am literally the only person I can find who thinks that is a possibility. The consensus seems to be this is a bear market and will go much lower and you will see all the valuation charts and talk about rates rising and pricking the bubble. Things are rarely that easy and that obvious.

The returns for the Russell 2000 are negative over the last year. A lot of the froth from junk companies has gone out of market. The ARKK fund was done over 50% from its highs.

Very bearish sentiment now.

Yeah, I guess that's possible but for sure the bond market will crash.

This will be only the second time they tried to tighten monetary policy since they started this whole thing in 2009. Last time in 2019 they only made it to 2% before the bond market crashed so it makes sense that it'll crash before 2% since the debt is that much worse.

So maybe the bond market crashes and they resume QE and ZIRP before stocks crash and stocks never go down? I guess that's possible.

 

[Krugminator2]

Yeah, I guess that's possible but for sure the bond market will crash.

This will be only the second time they tried to tighten monetary policy since they started this whole thing in 2009. Last time in 2019 they only made it to 2% before the bond market crashed so it makes sense that it'll crash before 2% since the debt is that much worse.

So maybe the bond market crashes and they resume QE and ZIRP before stocks crash and stocks never go down? I guess that's possible.

What I think you (and everyone else) are missing is 2019 was a totally different set of circumstances. I wouldn't (and didn't on this forum) support tightening interest rates. From what I remember there were major liquidity problems with bank overnight lending around that time. I think policy was just about right and should have been slightly looser. Right now the Fed is extremely behind the curve and should hike rates aggressively and give aggressive forward guidance given how much money was added to the system in 2020.


Raising rates like they are is just making loose policy less loose. It isn't really contracting credit. It is still loose policy. And I guess because rates are rising it makes equities less attractive but there still is a flood of liquidity that has to go somewhere.

 

[Madison320]

What I think you (and everyone else) are missing is 2019 was a totally different set of circumstances. I wouldn't (and didn't on this forum) support tightening interest rates. From what I remember there were major liquidity problems with bank overnight lending around that time. I think policy was just about right and should have been slightly looser. Right now the Fed is extremely behind the curve and should hike rates aggressively and give aggressive forward guidance given how much money was added to the system in 2020.


Raising rates like they are is just making loose policy less loose. It isn't really contracting credit. It is still loose policy. And I guess because rates are rising it makes equities less attractive but there still is a flood of liquidity that has to go somewhere.

The liquidity problems came when the Fed started tightening. Not before. That's the problem.

 

[oyarde]

Something no one really points out is inflation was 7% in 2021. Interest rates are still very low. Even if the Fed hikes rates and inflation comes down, real rates are still going to be negative for some time.

Not a prediction but an out of left field possibility is not only do markets not crash with rising rates but markets rocket to new all time highs and go parabolic because of how LOOSE policy still is with rising rates. I am not predicting that but I am literally the only person I can find who thinks that is a possibility. The consensus seems to be this is a bear market and will go much lower and you will see all the valuation charts and talk about rates rising and pricking the bubble. Things are rarely that easy and that obvious.

The returns for the Russell 2000 are negative over the last year. A lot of the froth from junk companies has gone out of market. The ARKK fund was done over 50% from its highs.

Very bearish sentiment now.

At this point with the too little too late fed on interest rates I think its a given inflation will be unchanged this yr . It is also just as likely that markets go up as go down because there is very few other places for most people to put that money where they may get a return they think they are happy with . So the odds ought to be 50/50 best I can tell. Not very good odds though.

 

[Madison320]

The Fed just printed another 45 billion last week! They were supposed to be done now that they started hiking rates. Like I've been saying, I think things may already be breaking behind the scenes from the lack of liquidity.