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Market Betting A Fed Hike In December Is Certain
Posted by:otterwood1 hour, 45 minutes ago
It’s almost been a whole year since the Fed last hiked interest rates but it looks like they will finally get a hike off this December. After Trump’s election the Fed is in an ideal situation where inflation expectations are up and stock markets are at record highs. The Fed originally wanted to hike four times in 2016 however turbulent markets prevented that.

There are no certainties but the Bloomberg World Interest Rate Probability (WIRP) function is currently putting the odds of a December hike around 100%, see below. The WIRP function derives these odds from the Fed Funds futures market and the odds of a hike were as low as 10% just after Brexit.

The question will now turn to how quick the Fed will continue hiking especially if we see the US dollar rally higher.

wirp.png


by Otterwood Capital Management
 
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Well said
I'd be surprised if rates rise as steadily as they fell for the last decade. I don't think a cash position short bonds will equal what an easy time we had going long. Regardless of what the fed does.
My advice for stocks, sell any Trump rally, buy any Trump dip. Bonds? You are either too young to loan the government money or you are too old to wait for the next bond bull mkt to payoff. I thought the Nov 8-9 selloff was pretty obviously BBC educated Asian money. And most likely that is where the next rally may come from. Great time to be a trader if you think everything is already priced in and any extreme is an opportunity.
I like Rickards, he is way smarter than me, but I was a little putoff when he started talking physical gold. I don't know if he is still a goldbug. Sounds like he has toned that down a bit.
I don't know what to think of the fed. In some ways they are more important than ever if they are going to support Trump and his wild spending ideas. Lord knows no republican congress will oppose any new spending on anything except maybe for show.
Funny after all this, to me it still comes down to the fed. They have already lost control of the bond market. Now they need to try to control Trump. I don't think he'll have to fire Janet, I think she will gladly leave. Would you want to be head of the fed?
 
If one made a small bet, Fed not raising the rates in December returns could be ASYMMETRICAL since market is viewing rate increase as a forgone conclusion. Traders should know not to confuse high probability with certainty.
 
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No kidding. They'd be calling up little old ladies asking if they could buy back the bonds they sold them just so they could cover. I don't make small bets but I do spread. What would I spread a long bond position against?
 
No problem, I haven't made a quality bet on bonds since I went long in 2002, that was the last one, I sold when rates hit a 2 handle and it's been nothing but waiting for inflation or something like it ever since. Thanks again for the Rickards clip. He is a big thinker outside a very little box. I first heard about him when I read Currency Wars. His project was working for the CIA to come up with ideas to crash the U.S. economy. He was so outside the box they took him off the project. Something to do with China and Russia trading oil in gold, thereby bypassing USD.
 
java said:
No problem, I haven't made a quality bet on bonds since I went long in 2002, that was the last one, I sold when rates hit a 2 handle and it's been nothing but waiting for inflation or something like it ever since. Thanks again for the Rickards clip. He is a big thinker outside a very little box. I first heard about him when I read Currency Wars. His project was working for the CIA to come up with ideas to crash the U.S. economy. He was so outside the box they took him off the project. Something to do with China and Russia trading oil in gold, thereby bypassing USD.
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I'd ignore Rickards and Schiff they have only one solution/ suggestion, no matter what happens in the market; GOLD....

PS in 2002 you were 13
 
dealmaker said:
I'd ignore Rickards and Schiff they have only one solution/ suggestion, no matter what happens in the market; GOLD....

PS in 2002 you were 13
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Was it that long ago? I guess I still own some bonds in the Vanguard Balanced fund, maybe 30 or 40% in that fund. I put the bond money in an ib trading account thinking I would go short ZN, never got around to it. I don't think I'll ever get long again. I won't let my kids invest in a balanced fund because they are too young and I won't because I am too old and getting 2% dividend with upside potential in spy which to a trader seems safe as milk. Besides, all those bonds ever do is make money, what fun is that? I have the formula somewhere, a rise of 1% in rates will cost me a fortune and so they are too risky. Nope, I'm conservative, I just keep all my safe money in the stock market. And the bond money finally found a home in some wheat vs corn calendar spreads. Can't be too careful with that DEC rate hike a forgone conclusion.
 
java said:
Was it that long ago? I guess I still own some bonds in the Vanguard Balanced fund, maybe 30 or 40% in that fund. I put the bond money in an ib trading account thinking I would go short ZN, never got around to it. I don't think I'll ever get long again. I won't let my kids invest in a balanced fund because they are too young and I won't because I am too old and getting 2% dividend with upside potential in spy which to a trader seems safe as milk. Besides, all those bonds ever do is make money, what fun is that? I have the formula somewhere, a rise of 1% in rates will cost me a fortune and so they are too risky. Nope, I'm conservative, I just keep all my safe money in the stock market. And the bond money finally found a home in some wheat vs corn calendar spreads. Can't be too careful with that DEC rate hike a forgone conclusion.
More...

Best way to trade this is directly and for that you will need an eight figure liquid net worth and ISDAs but in absence of that stocks, options, futures or forex etc., will do....
 
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