Now that the dust has settled, let us consider the most realistic trading approach over the near term.
The US term structure blew out 20 bps or so, 2 – 30 (mostly directional) and 12 bps, 5 – 10, as a result of the Fed announcement. This presents opportunity. Traders are to look to sell this spread at present levels, not to join the crowd and look to own it (we will want to do that a bit later).
Background: We all know that the Fed committed to a program of purchases of a specific item for one Qt. We also know they left this commitment open ended; they can close at any time, or continue indefinitely, expand or contract. Fine.
Fiscal policy making at the Fed is linked to the absence of responsible fiscal policy making in Washington. Those who have reviewed our recent sketches understand what it will take to provide a real spark to US employment. We wait for that.
But to return to our markets; the US economy just ahead does not justify the much weaker FI prices logged last two days, even given the Fed move. This will dawn on the market crowd in short order.
The trend growth in job creation is about 150M /month, consistent with a growth rate of maybe 1.5%.
Manufacturing activity was off in Aug for the third straight month, the first back-to-back declines in 3 years. It is likely that the recent softness in manufacturing activity and capital spending will continue for at least a few more months.
Although total and core retail activity took a spurt in August, much of the gain was due to the pumps. On a trend year-over-year basis, sales activity has been slowing for the past year.
We also learned today that industrial activity dropped in August, and it was not all Isaac. On a year-over-year basis output has been growing moderately. Those who passed Econ 1-A understand that we will need a spark in consumer durable spending – the best kind of final demand – to strengthen this activity because the inventory cycle is complete. Nothing else will. That won’t happen without a spurt in employment, and hours, and earnings.
Bernanke’s buying of a few mortgages is merely a side show.
Robert Craven
The US term structure blew out 20 bps or so, 2 – 30 (mostly directional) and 12 bps, 5 – 10, as a result of the Fed announcement. This presents opportunity. Traders are to look to sell this spread at present levels, not to join the crowd and look to own it (we will want to do that a bit later).
Background: We all know that the Fed committed to a program of purchases of a specific item for one Qt. We also know they left this commitment open ended; they can close at any time, or continue indefinitely, expand or contract. Fine.
Fiscal policy making at the Fed is linked to the absence of responsible fiscal policy making in Washington. Those who have reviewed our recent sketches understand what it will take to provide a real spark to US employment. We wait for that.
But to return to our markets; the US economy just ahead does not justify the much weaker FI prices logged last two days, even given the Fed move. This will dawn on the market crowd in short order.
The trend growth in job creation is about 150M /month, consistent with a growth rate of maybe 1.5%.
Manufacturing activity was off in Aug for the third straight month, the first back-to-back declines in 3 years. It is likely that the recent softness in manufacturing activity and capital spending will continue for at least a few more months.
Although total and core retail activity took a spurt in August, much of the gain was due to the pumps. On a trend year-over-year basis, sales activity has been slowing for the past year.
We also learned today that industrial activity dropped in August, and it was not all Isaac. On a year-over-year basis output has been growing moderately. Those who passed Econ 1-A understand that we will need a spark in consumer durable spending – the best kind of final demand – to strengthen this activity because the inventory cycle is complete. Nothing else will. That won’t happen without a spurt in employment, and hours, and earnings.
Bernanke’s buying of a few mortgages is merely a side show.
Robert Craven
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