econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 21 September 2015

Fed Must Now Face The Real Threat: DEFLATION

from the Rick Ackerman, Rick's Picks

-- this post authored by Doug Behnfield

[Forward from Rick: With the Fed's decision not to raise rates, investors are more likely to return their focus to the deflationary forces that have been pushing government bond prices higher, and yields lower, for decades. Look for this trend to continue and possibly even pick up steam in the months ahead, says our good friend Doug Behnfield in the guest commentary below. A Colorado-based financial adviser, Doug's unconventional and often provocative ideas have been featured here many times in the past. He believes, as we do, that odds of a rate hike are remote and that it might have to await the next recovery cycle, which could feature inflation brought on by protectionism. (What would happen if rates go negative, as now seems quite possible? Click here for a scary rumination on the subject at ZeroHedge.)]

Yesterday, the Fed announced that they would not be raising rates in addition to once again downgrading their expectations for economic growth and inflation looking out over the next couple of years. The response in the stock market has been negative; and for bonds, particularly the closed end Municipal Bond Funds, extremely positive. That is probably not what most were expecting. It has been my contention that the Fed is unlikely to raise rates at all in this economic cycle that began in mid-2009, and my view appears to be supported by the current economic and market environment as well as the circumstances that Janet Yellen described as the reason for the Fed staying at 0% to 0.25% on overnight rates.

Rate-Hike Mantra

In Q1 (April 2015), a narrative began to emanate from Wall Street that first-quarter economic weakness was transitory and that after six years the economy was still poised to accelerate into a legitimate cyclical recovery as the year progressed. Probably by repeating the mantra enough times, it became conventional wisdom even in the face of predominantly contradictory economic developments, particularly low-inflation data. Even though the Fed became a source of extreme frustration by continuing to leave rates alone, the strength of the conviction only grew. The result was a significant back-up in interest rates. That has most likely come to an end, leaving the potential for a meaningful decline in rates and higher bond prices in coming months and quarters (see chart below).

One big question is: Why was Wall Street so gung-ho on the Fed raising rates? My answer to that is that collectively, "sell-side" market analysts and the Wall Street media pundits desperately wanted the Fed to endorse their dogmatic view of the economic outlook, without much regard for the damage that a rate hike might do to the economy. The narrative of sustainable economic expansion rendering 0% rates inappropriate became conventional wisdom, along with the idea that since things are so rosy, a rate hike would be a good thing, whatever that means.

Protectionism on Horizon

With the recent dramatic reversal in global equity markets and ongoing disappointment in global economic trends, it seems more likely that the "lift-off" that is so widely anticipated will have to await until the next economic expansion.

As an aside, my next Quarterly Commentary will explore protectionism as a theme that should develop well beyond Donald Trump's success in the polls and become a major inflationary force in the next cyclical recovery. But looking immediately ahead, the deflationary forces that have been driving the long-term uptrend in government bond prices, and the resulting decline in yields, should continue to be the dominant factor driving the markets - perhaps with much more intensity. Click here for a free two-week trial subscription to Rick's Picks that will give you access not only to daily trading 'touts', bulletins, updates and impromptu trading sessions, as well as to a 24/7 chat room that draws veteran traders from around the world.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Joan Robinson’s Critique of Marginal Utility Theory
The Truth About Trade Agreements - and Why We Need Them
News Blog
Where U.S. Weekly Wages Go The Furthest
What We Read Today 09 December 2016
How To Stop Using Filler Words Like Um And Uh
02 December 2016: ECRI's WLI Growth Index Improvement Continues
Preliminary December 2016 Michigan Consumer Sentiment Highest Since Early 2015
October 2016 Wholesale Sales Improved
Rail Week Ending 03 December 2016: Finally A Positive Month
November 2016 CBO Monthly Budget Review: Total Receipts Up by 1 Percent in the First Two Months of Fiscal Year 2017
Infographic Of The Day: Copyright - Illegal Download
Early Headlines: Asia Stocks Mixed, Oil Steady, Bank Mafia, Trump To Remain TV Producer, US Life Expectancy Down, India Stocks Suffering, Park Impeached, China Struggles To Support Yuan And More
Heavy Metal And Hard Rock Albums That Went Certified Diamond Status
Down The Drain: Wastewater With The Most Cocaine
Apple's App Store Set For 5 Million Apps By 2020
Investing Blog
Are Your Trade Entries Patient Enough?
Investing.com Technical Summary 08 December 2016
Opinion Blog
Looking At Everything: Trump's $1 Trillion Infrastructure Plan
The Global Financial Mess Is Due To Political Failure
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
09Dec2016 Market Close: Wall Street Closes On A New High, Trump Sugar High, Crude Prices Testing Resistance, US Dollar Melts Higher
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved