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Will Yellen raise rates? We do not know but sell everything, just in case

Friday trading was a carnage. I consider this quite funny.

Since FED’s chairman changed the policy of transparency some time ago now any Mr. Fed Unimportant can talk about FED policy publicly.

But what they do is not expressing the policy or what FED will do or will not, they rather express their opinions. Any Fed’s Governor, President of the Fed’s bank can now open their mouth and say whatever they want.

Unfortunately, their opinions, speculations, and guesses caused more confusion and frustration among investors and the entire world than transparency.

We now have an even bigger mess and noise of what will, should or may happen as far as the Fed’s policy. And so any Fed’s schmuck now-a-days even a Fed’s janitor can express his opinion about Fed’s policy and spook the markets as happened today morning when one Fed official Eric S. Rosengren, who was historically dovish suddenly changed his mind and expressed his opinion on the low rates and a need on raising them.

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Yet, they are not united themselves on what they want to do. One says raise the rates and two others oppose it.

And, as is typical, in the today’s stock market, investors without judging and thinking sold off. They do not know whether the rates would go up or not. There is no sign and there is no economical need for it. It will actually hurt the economy. Yet they sold off.

And they sold everything.

There was no instrument which was saved or spared.

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They were rushing into bonds which bear even less interest than what you can get in the stocks. And the more they are buying the bonds and pushing them up the lower interest these bonds will carry. And when FED raises rates, what happens to the bonds?

Indexes fell about 2.5% in average.
Gold erased about 3/4 of a per cent.
Silver lost 2.78%.

There is no way Yellen would raise rates before election in November and disrupt the whole world and the markets.

We know that Yellen wants to keep the market going so the Obama Administration can boast about it.

We know that Democrats want to make Clinton’s chance great pointing to Obama’s policy continuation.

We know that economy isn’t as rosy as they try to tell us. Until today, higher interest rates were always used as a breaker for overheating the economy.

Today, low rates are supposedly overheating the economy. Yellen was dovish, hawkish, dovish, hawkish, dovish… always saying that she was data dependent. If data is what matters, then apparently only data which matter to her are a bogus unemployment rate and stock market at all time high.

Last time when Yellen raised rates into slowing economy, the dollar got stronger (which hurts our already minuscule export) and the stock market plummeted. She wouldn’t risk upsetting the market again before election!

And investors apparently freak about it.

At least we can see an action on Wall Street, finally.

Many are taking gains of the table prior to election. I think if Trump wins, Democrats let the bubble burst so they can point finger on him telling the nation “see we told you so, he can’t manage the economy”. And there will be plenty of people who will believe it.

As of now the market dropped more than 2.40% in an uninterrupted downtrend. There was no single buying attempt to stop this selloff.

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It is significant because the Bollinger Bands were quite tight until today for a period of a month. That always signals a calm before a storm. It only won’t tell you which direction the storm is heading. Today, we know. It is downside.

Now, we need to wait and see if it spills over into the next week (and I think this will) and how big the damage will be.

However, I think that due to a political demand on keeping the economy look rosy this downtrend will not last for long (maybe a few days or next week) and we will see a quick recovery again when bargain hunters and algos step in and buy the dip. Ultimately, this may be good for the markets as it refreshes the standing waters of our Wall Street pond.

Now the goal is to survive it and if it doesn’t reverse be ready to reverse your trading direction from bullish to bearish. I do not think this will be necessary though.
 





2 responses to “Will Yellen raise rates? We do not know but sell everything, just in case”

  1. Gary says:

    I totally agree that the Feds will not do anything until after the election is over. Then of course if data is strong we get a December increase in the interest rate by a quarter percent. I think what happened on September 9 in the markets was another over reaction and could continue on Monday September 12. Then you will get some investors buying the bargains at the end of the day if only as a trade. The markets will move back up especially when investors know for certain there will be no rate increase in September. Once the election is over I plan to have plenty of cash available for when the Fed rates really do increase or some other geopolitical event happens and we have a true correction.

    • Martin says:

      I agree with you. There will be nothing done what can disrupt markets or world prior to election, so this is just an overreaction and I also expect it to return back up. If not next week then the following. I think Fed will support the market and manipulates it back up.

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