The call for more rate hikes seems to be rapidly forming a consensus. Is that contrarian? I guess we will see. Nonetheless, Tim Duy makes a pretty compelling case, not for what should be done, but for what is likely. I agree with his analysis: as long as housing stays reasonably strong, the FED will keep hiking.
Here is Mr. Duy's bottom line conclusion:
In short, regardless of the possibility of a recession in 2006, I still see the Fed as laying the groundwork for continued monetary tightening, even as they see the possibility that financial markets are not entirely prepared for that outcome.
I agree with Duy that the markets just are not prepared for such continued tightening. Here are the implications, if he is correct:
- I think it will invert the yield curve
- I think it will lead to a recession sooner rather than later
- It will be bad news for equity markets.
- It will be bad news for housing
- It will be bad news for commodities in general
- It should be bad news for gold and silver
- It should be good for longer dated treasuries
- It should be good for bets on continued tightening of the yield curve
- It should be good for the US$
I have a few final comments.
- The markets have likely not yet felt the full ramifications of the 10 hikes to date.
- IF the FED gets in three more hikes they will be well above "neutral" IMO.
- The FED has a history of over shooting both ways and is overshooting right now.
- Once the FED pauses, housing will likely be complete toast.
- The FED will believe that that can revive housing but they will be wrong.
- When the FED pauses, buy gold and hang on for dear life.
- The FED is going to eventually take back nearly every one of these hikes to fight the upcoming housing and debt deflation. It will not help.
http://globaleconomicanalysis.blogspot.com/
No comments:
Post a Comment