Why an incline to rise rate at a SLOW pace is weighted on the Fed's GRADUAL economic outlook whereas there's bias between a pick up in national growth and a decline in international growth.
Firstly I want to reply to some of the posts.
Dow Jones index is reliable than sp500/gold posted by Skol. Actually the VIX index is more reliable tool to measure the pog.
VIX index shows a decline comming to the year end. VIX has surged 60% this week according to A. Joe. but Pog was only up a fraction. Why.
December is the month of tightening liquidities as hedge funds are reducing their overweight positions. There was an unusual sell- off activities due to the ill logical market reaction in responding to central banks announcements. That's why the VIX is up.
Every time there's a fear in market. Safe haven assets come to play. At the moment USD is represented a risk advert stock and a safe heaven currency due to the 85% possibility of a win situation to accommodate the Fed's 1st rate hikes.
Gold stocks will be neutral on Monday because investors are still waiting for the Fed's clarification. The liquidities are tight and there's no major forces to push gold stocks higher based on the current Pog.
If there are some fearful investors they must act quickly because It's the last chance on this Monday. As for me, I'm still enjoying the funny feelings based on Warren Buffet " be greedy when someone is fearful". Gold is like insurance. It only works when I buy it before I actually rely on it.
Traders are basically the ones to be fully alert if there's an abrupt movement in USD. They're going broke.
Swiss central bank surprised the market in March 2015 where It announced a de-peg to Euro. There was a trader in London whom went broke.
That's is an example for Timber.
Yuan is not going to de-peg to USD anytime soon because It's a hedge against volatile Yuan.
If the USD/CNH is wider. US will face a catastrophic according to A.Joe because US exports will face a big slump and China is enjoying it.
Have a look Yuan against the new 13 trade weight currencies index. Yuan is appreciated above Yen and Euro and others but USD is appreciated over Yuan.
This is telling me that USD is ways overvalued.
Gradual forecast
Paul Ryan victory over the highway bill was the key to remove the Fed independence on its monetary and to damper the Fed's gradual economic outlook.
Highway bill is going to draw 19 billions out of the Fed's capital surplus account to leave the remaining balance of 10 billions.
Any future surplus over this capital will be transfered to Federal treasury trust fund to help funding other bills.
The capital surplus account was designed to act as a buffer in case of a crisis.
. The account is used to absorb any realised loses on the sales of domestic securities. The loses of domestic securities are valued on the auction ratio. If the auctions are less attractive than the offered prices. They will lose.
The fed has no problems on the sales of those securities because they are considered as safe haven assets.
. The account is used to absorb any loses on foreign securities holding against an unprecedented interest rate risk where the Fed is starting to rise rate and China is posing a threat to dump the Treasury notes.
An appreciation of the foreign exchange value of the dollar would reduce the dollar value of the Fed foreign securities holding hence more debts.
. The Fed has grown its balance sheet in foreign securities holding from 900 billions to 4.5 trillions today.
The Fed also extended the maturity of its assets in mortgage backed securities and others. Those balance sheets were the supplements in ZIRP and QEs.
The strong balance sheets would better position the Fed to sustain its 2% inflation objective.
Now the Fed has no luxury to offer any longer dated notes rather than short term 2yrs and 10yrs notes. The Fed has lesser engagement to rise more funds because the capital surplus account is capped at 10 billions and the Congress is playing a hard ball to reduce its national debts.
. The Fed capital surplus account is also used to pay banks dividend for holding the Fed stocks. They are mortgage backed securities and other securities.
Current dividend is 6% but It will be adjusted after 1/1/16 relative to 10yrs treasury notes which is at 2.2%
Banks are crying fool for this new normal before they could earn extra money on the comming rate hikes.
The highway bill does not imperil the Fed's viability but the risks are already been felt in the banking systems. It could be perceived as a weakening financial that is affecting the Fed's future rate forecast as slowly and gradually.
It's also a reason for the Congress to introduce a bipartisan bill which is affected immediately on last friday to prevent the dumping of Treasury notes.
Japan and Malaysia will commit to this bill but China is not because China is not a member of Trans Pacific trade Partnerships.
That's why China is laughing whenever there's an appreciation in USD and China is freely allowed to dump any excess US Treasuries notes in appropriate time and manner in light of deteriorate value of Yuan in order to attract more investments.
