Bonds Win Again

Bonds and Currencies win again. Interpreting the Fed minutes, it would seem the Fed has no intention of reducing the balance sheet starting in September, and one could argue from reading the statement it might not even be in 2017.  Directly from the minutes:

Fed Minutes:

Members agreed that, at this meeting, the Committee
should further clarify the time at which it expected to
begin its program for reducing its securities holdings in
a gradual and predictable manner. They updated the
postmeeting statement to indicate that while the Committee
was, for the time being, maintaining its existing
reinvestment policy, it intended to begin implementing
the balance sheet normalization program relatively soon,
provided that the economy evolved broadly as anticipated.
Several members observed that, in part because
of the Committee’s various communications regarding
the change, any reaction in financial markets to such a
change would likely be limited.

It has my belief since April that the Fed would not unwind the balance sheet in 2017, and today’s minutes seem to confirm that theory. The Bond market from the very beginning did not fear such a thing. Let’s go to the video tape: From our premium member area on April 6. 

The Interpretation

From reading today’s statement, it seems clear, that Fed will first look to stop its reinvestment policy and then look to pare down its balance, only after it has fully communicated how it will be done. Yields moved slightly lower on the news to 2.23 on the 10-Year.

10year by Scorpio244 on TradingView.com

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Tomorrow a look at The Death of the Department Store a special look at why Department Store are antiquated and for the most part no longer need. 

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With the Dollar once again back to weakening.

10year by Scorpio244 on TradingView.com

 

While equities, well, as usual, had no clue what was even going on.

 

S&P 500 by Scorpio244 on TradingView.com

 

Because if it had, it would have known this the best possible scenario for a bull market. Low Rates, Low Inflation, and Earnings growth. Ya can’t get a much better set up than that.

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Michael Kramer and the Clients of Mott Capital own shares of GOOGL and NFLX

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