Monday, December 1, 2014

Mount Fed More

The following chart shows the 522-week moving average (~10 years) of the effective federal funds rate.

Click to enlarge.

As seen in the chart, there was an exponential trend in blue. It failed.

Fortunately, the Fed was able to replace it with a similar exponential trend in red. If this isn't a sign of the rising long-term interest rate environment that many believe we find ourselves in, then I don't know what is.

Retail Sales Soar, Making a Rate Rise by the Fed More Likely

''We've got consumers on a tear,'' said L. Douglas Lee, economist at HSBC Securities in Washington. ''They're spending what they're earning.''


'Growth is far more than people thought,'' said Debbie Jansen, senior economist at Stein Roe & Farnham in Chicago. This will make the Fed ''more nervous,'' she added, and therefore ''raises the odds that they're going to tighten'' monetary policy to keep inflation under control.

There's no denying that the economy is growing again.

The economy, now six years from the end of the latest recession, has recently been growing faster than what most experts believe is its long-term potential.

Has it really been six years since the end of the latest recession? The recession ended in June of 2009. Let's call it 5 1/2 years. There's no reason to exaggerate.

''There's been a much stronger tendency of consumers to splurge'' because of the bull market, he argued.

I find it hard to argue with that logic.

Still other reports today showed that first-time applications for unemployment insurance fell an additional 5,000 last week, to 307,000, reflecting a very strong job market.

Hold on a minute. The initial claims report is issued on Thursdays. This is not Thursday. What's going on? Oh, I see the problem. I really must apologize. This article is from 1997. I should have probably looked harder to find something more current.

November 27, 2014
Abe Tested by Weak Retail Sales as Japan Election Looms: Economy

He said last week the BOJ’s inflation gauge may fall below 1 percent, backtracking on his prediction in July that there was no such chance.

Japan? Sorry. I did it again. I should have probably looked harder to find retail sales in a country closer to us. You know, one that isn't stuck in ZIRP yet. I'll make one more attempt but that's it!

December 1, 2014
Stocks sink after retail sales slip, China slows

NEW YORK - Signs of weakness in China's economy and a weak start to the holiday shopping season knocked the stock market lower on Monday.

Oh, yes. That's much better. I am filled with optimism!

Source Data:
St. Louis Fed: Effective Federal Funds Rate


CP said...


The yield on the 5 year note seems way too high:$FVX&p=D&yr=3&mn=0&dy=0&id=p32326400847

Longer term view:$FVX&t=BAR&size=M&v=0&g=1&p=MO&d=X&qb=1&style=technical&template=

Stagflationary Mark said...


For what it is worth...

December 1, 2013
5-Year Treasuries vs. 10-Year Treasuries

The herd sure loves the current 1.37% 5-year treasury compared to the 2.75% 10-year treasury. Good luck on that one.

In hindsight, the herd messed that trade up big time. The 5-year treasury yield rose and the 10-year fell a lot.

Stick to the shorter durations they were told, repeatedly. What a crowded trade that was!

At these rates, I would no longer heckle buyers of the 5-year treasury though.

That said, I would still much prefer to lock in the 1% real yield on the 30-year inflation protected treasury and just let it ride to maturity though. Unfortunately, not everyone has that option. Most retirees can't do it (unless they expect to live past 100).

Luke The Debtor said...

And my heart, will go, ooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooonnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn!!!!!!!!!!!!!!!!11!!!!!!!11!1111!!!!!

Stagflationary Mark said...

Luke the Debtor,

Now look what you've done. I'm tearing up over here, much like the Titanic did.

You know, I'm torn. There's no crying. Somebody get me a tissue, lol. Sigh.