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Fed holds rates, sets date to unwind $4.5 trillion balance sheet
Old 09-20-2017, 03:25 PM   #1
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Fed holds rates, sets date to unwind $4.5 trillion balance sheet

OK, In layman's terms what will this do to stocks and bonds?
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Old 09-20-2017, 03:34 PM   #2
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OK, In layman's terms what will this do to stocks and bonds?
I predict that some will go up, and some will go down.

But that's just my guess...
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Old 09-20-2017, 03:41 PM   #3
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I predict that some will go up, and some will go down.
And I think just the opposite will happen.
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Old 09-20-2017, 03:50 PM   #4
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And I think just the opposite will happen.
Good enough for me....you can't both be wrong.
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Old 09-20-2017, 03:55 PM   #5
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OK, In layman's terms what will this do to stocks and bonds?
Both stock and bonds will crash. ER's will either have to claim SS early, or dust off their resume to go back to work, or apply for jobs at Walmart.

Oh, but people will say that this should be all anticipated and built-in to the price of assets already, so maybe things may just tread water.

Anyway, this morning I went with my wife for a grocery run, got home at around 11:30AM local time, checked my stocks and saw that I was down more than $12K. Wow! Have not had a day this bad recently.

Must have something to do with the Fed, but could not investigate right away as I needed to go to Home Depot to get some lumber to bring up to the boondocks home soon for a project.

Came back home after the market closed, and saw that the market recovered, and I am down only $339 for the day, but this is before MF reporting.

Market volatility is back. Fun time!
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Old 09-20-2017, 04:33 PM   #6
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It doesn't look like it did much today one way or another.


I wish they'd unwind more quickly.
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Old 09-20-2017, 04:37 PM   #7
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Both stock and bonds will crash. ER's will either have to claim SS early, or dust off their resume to go back to work, or apply for jobs at Walmart.

Oh, but people will say that this should be all anticipated and built-in to the price of assets already, so maybe things may just tread water.

Anyway, this morning I went with my wife for a grocery run, got home at around 11:30AM local time, checked my stocks and saw that I was down more than $12K. Wow! Have not had a day this bad recently.

Must have something to do with the Fed, but could not investigate right away as I needed to go to Home Depot to get some lumber to bring up to the boondocks home soon for a project.

Came back home after the market closed, and saw that the market recovered, and I am down only $339 for the day, but this is before MF reporting.

Market volatility is back. Fun time!
Wow, if you haven't been down more than $12K in a day in stocks for a long time, volatility has been super low!
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Old 09-20-2017, 04:42 PM   #8
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Some interesting things.
  • They start the unwind in October this year rather than December.
  • The skipped an interest rate rise this time, implied one for December, and indicated maybe one fewer less year than expected. Overall fewer rate rises than expected.
I'm not sure these specifics were baked into the markets, so maybe the markets need more time to digest these details.

It does seem to signal slightly less confidence in the US economy.
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Old 09-20-2017, 07:57 PM   #9
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It does seem to signal slightly less confidence in the US economy.
I listened to Yellen's entire spiel and got the opposite impression. She essentially said the economy is making solid gains and that's expected to continue. That was about the same time markets reversed their drop and gained everything back:
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Old 09-20-2017, 10:39 PM   #10
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I listened to Yellen's entire spiel and got the opposite impression. She essentially said the economy is making solid gains and that's expected to continue. That was about the same time markets reversed their drop and gained everything back:
They had planned to be a bit more aggressive with rate rises and dialed back slightly. I don't think Yellen would downtalk the US economy at this point. Solid gains is a wide range.
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Old 09-21-2017, 01:40 AM   #11
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10 billion a month ramping up to 50 billion a month has got to be deflationary and will contract the money supply. QE was like rocket fuel for the markets, this is QE in reverse. Uncharted territory ahead.
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Old 09-21-2017, 05:20 AM   #12
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+1

Simplified: Fed buying bonds with newly created money == more dollars in circulation == inflationary push. It's an untested way solving the problem of how to lower interest rates below zero.

So the inverse should mean: deflation push. Since we are approaching the 2% inflation target this might be a good time to start doing that. Note that it is not actively unwinding: the Fed just stops buying and doesn't renew debt, resulting a natural wind down. In terms of interest rates: it should push them up as well.

For bonds this is not so good news in the short term, for stocks it depends, but generally also not so favorable. Which is why they are only doing it now: with a robust economy the hits are easier to absorb and might actually be flattened out by growth.

But in the end: nobody really knows. Most are advising to keep bonds short in duration, and beware interest sensitive industries (real estate) a bit more than usual.
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Old 09-21-2017, 10:18 AM   #13
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Wow, if you haven't been down more than $12K in a day in stocks for a long time, volatility has been super low!
You made me having 2nd thoughts. So, looked at my records.

On Aug 17, 2017, I "lost" almost $30K (but I have set new highs since). That's only 1 month ago

My "superior memory" is getting shot!
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Old 09-21-2017, 10:20 AM   #14
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10 billion a month ramping up to 50 billion a month has got to be deflationary and will contract the money supply. QE was like rocket fuel for the markets, this is QE in reverse. Uncharted territory ahead.
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+1

Simplified: Fed buying bonds with newly created money == more dollars in circulation == inflationary push. It's an untested way solving the problem of how to lower interest rates below zero.

So the inverse should mean: deflation push. Since we are approaching the 2% inflation target this might be a good time to start doing that. Note that it is not actively unwinding: the Fed just stops buying and doesn't renew debt, resulting a natural wind down. In terms of interest rates: it should push them up as well.

For bonds this is not so good news in the short term, for stocks it depends, but generally also not so favorable. Which is why they are only doing it now: with a robust economy the hits are easier to absorb and might actually be flattened out by growth.

But in the end: nobody really knows. Most are advising to keep bonds short in duration, and beware interest sensitive industries (real estate) a bit more than usual.

Thank you both, These are the things I wanted to learn about.
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Old 09-21-2017, 10:22 AM   #15
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OK, In layman's terms what will this do to stocks and bonds?
They will either go up, or down. Unless they stay the same. Or a combination of all three, depending on your time frame.
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Old 09-21-2017, 10:25 AM   #16
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You made me having 2nd thoughts. So, looked at my records.

On Aug 17, 2017, I "lost" almost $30K (but I have set new highs since). That's only 1 month ago

My "superior memory" is getting shot!
LOL!
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Old 09-21-2017, 10:28 AM   #17
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They will either go up, or down. Unless they stay the same. Or a combination of all three, depending on your time frame.
I think 2 guys beat you to this answer, I thought maybe it was like a nuclear attack against a country, In that case I would think stocks would plummet. Since I never even knew what QE actually did, but everyone said its propping up the market, I thought this would lower the market.
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Old 09-21-2017, 10:55 AM   #18
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I think 2 guys beat you to this answer, I thought maybe it was like a nuclear attack against a country, In that case I would think stocks would plummet. Since I never even knew what QE actually did, but everyone said its propping up the market, I thought this would lower the market.
It probably will ....... eventually ........

that's the rub!

The punch bowl is slowly being drained. But the party might last for a while.
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Old 09-21-2017, 11:02 AM   #19
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It probably will ....... eventually ........

that's the rub!

The punch bowl is slowly being drained. But the party might last for a while.
Ahh, OK.
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Old 09-21-2017, 11:21 AM   #20
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Then: Fed boosting money supply. Yay, more money for everyone! Stocks go up.
Now: Fed reducing money supply. Yay, economy must be good! Stocks go up.
Future: Fed increasing interest rates enough to finally tame inflation. Boo, economy will be cooling. Stocks go down.
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