{"id":103596,"date":"2017-03-18T11:44:00","date_gmt":"2017-03-18T15:44:00","guid":{"rendered":"http:\/\/countingpips.com\/?p=103596"},"modified":"2017-03-18T11:44:00","modified_gmt":"2017-03-18T15:44:00","slug":"hawkish-yellen-kills-her-inner-dove-with-rate-hike","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/03\/hawkish-yellen-kills-her-inner-dove-with-rate-hike\/","title":{"rendered":"Hawkish Yellen Kills Her \u201cInner Dove\u201d With Rate Hike"},"content":{"rendered":"<div id=\"inves-2438263177\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">March 18, 2017<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><p>By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a> <img loading=\"lazy\" decoding=\"async\" class=\"attachment-home-th size-home-th wp-post-image\" style=\"display: block; margin-bottom: 5px; clear: both;\" src=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/03\/1116_reserve_feature.jpg\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" srcset=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/03\/1116_reserve_feature.jpg 580w, https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/03\/1116_reserve_feature-300x155.jpg 300w\" alt=\"\" width=\"580\" height=\"300\" \/><\/p>\n<p>Dear <em>Wall Street Daily<\/em> Reader,<\/p>\n<p>There\u2019s no escaping the Federal Reserve\u2019s decision to raise interest rates.<\/p>\n<p>Rate hikes are pervasive.<\/p>\n<p>They bleed into every financial endeavor \u2014 whether it\u2019s a mortgage payment, a credit card purchase or the values of stocks.<\/p>\n<p>Since the Fed plans to ratchet rates up two full percentage points by the end of 2019, it\u2019s time to look under the hood of your portfolio.<\/p><div id=\"inves-2740346339\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>Should you be strategically buying and selling based upon the Fed\u2019s new paradigm?<\/p>\n<p>Put simply, yes.<\/p>\n<p>Banks do especially well in higher-interest environments, as their revenue from interest on loans increases.<\/p>\n<p>The Broker\/Dealer Index (XBD), an index comprised of highly capitalized companies in the U.S. securities financial industry, is outperforming the S&amp;P 500 by 1.5% so far this year.<\/p>\n<p>But higher interest rates will impact other sectors as well.<\/p>\n<p>I asked my senior analyst, Martin Hutchinson, to do a deeper dive into the Fed\u2019s rate hike.<\/p>\n<p>Your portfolio may have a fatal flaw given Yellen\u2019s hawkish maneuver.<br \/>\n<a name=\"video\"><\/a><br \/>\nHutch\u2019s full analysis is below.<\/p>\n<p>Smart investing,<\/p>\n<p><img decoding=\"async\" class=\"align-none\" src=\"https:\/\/duip7hn7nchpo.cloudfront.net\/signature-louis-basenese.jpg\" alt=\"Louis Basenese\" \/><\/p>\n<p>Louis Basenese<br \/>\nChief investment strategist, <i>Wall Street Daily<\/i><\/p>\n<p><script src=\"https:\/\/fast.wistia.com\/assets\/external\/E-v1.js\" async><\/script><\/p>\n<div class=\"wistia_responsive_padding\" style=\"padding: 56.88% 0 0 0; position: relative;\">\n<div class=\"wistia_responsive_wrapper\" style=\"height: 100%; left: 0; position: absolute; top: 0; width: 100%;\">\n<div class=\"wistia_embed wistia_async_ndomb6337k seo=false videoFoam=true\" style=\"height: 100%; width: 100%;\"><\/div>\n<\/div>\n<\/div>\n<p><strong>Question:<\/strong> Martin, the Fed just raised the key interest rate by quarter percent. How far do you think they\u2019ll go?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> It\u2019s interesting. This was the second rate raise in three months \u2014 raising the federal funds target rate to 0.75\u20131%. They have one dissent, from Minneapolis Fed President Neel Kashkari.<\/p>\n<p>They haven\u2019t raised the dot plot of predictions for 2017. They issue predictions every three months as to where they think they\u2019re going to go. So theoretically, we\u2019re due two more raises this year.<\/p>\n<p>Janet Yellen said at the press conference that she would do three more raises in 2018 and another three in 2019 \u2014 which sounds a lot. But even when you add it all up, those are all quarter-point raises. So that would make the Fed target range at the end of 2019 2.75\u20133%. But with inflation at 2% \u2014 and it\u2019s running a bit above that at the moment \u2014 that\u2019s still pretty loose money.<\/p>\n<p>Gold was up $17 after the Fed\u2019s move, suggesting that they think inflation is coming back.<\/p>\n<p><strong>Question:<\/strong> So what do you make of all this, Hutch?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> My theory is that zero rates and heavy regulation suppressed the economy from 2008\u20132016. That meant we got very low productivity growth \u2014 but it also suppressed inflation. We didn\u2019t get the inflation that you\u2019d have expected from the low interest rates.<\/p>\n<p>Money supply, M2, rose 6% annually throughout that period. But GDP rose only 3\u20134%. That\u2019s nominal GDP. Real GDP rose about 3%, and then there was a bit of inflation on top of that. And if money supply is rising faster than real GDP, you\u2019d expect inflation to pick up. And my view is that whether it\u2019s the advent of President Trump or the end of zero rates, normality has now returned.<\/p>\n<p><strong>Question:<\/strong> Normality. What do you exactly mean by that?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> In a normal market, loose money causes inflation \u2014 and we\u2019ve still got very low interest rates and very loose money.\u00a0If it does cause inflation, the Fed will have to get more aggressive in raising the rates in order to curb inflation. So if you\u2019ve got inflation and rising federal funds rates, Treasury yields will have to zoom higher. And the budget deficit may go up as well. If President Trump is going to spend some money on the military and build infrastructure, then that\u2019s all going to cause the budget deficit to rise \u2014 which also causes interest rates to rise.<\/p>\n<p><strong>Question:<\/strong> So knowing all this, Hutch, are there investment implications?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> Yes, I think so. I think it makes good sense to buy an ETF that\u2019s bearish on the Treasury market. The ProShares UltraShort 20+ Year Treasury ETF (TBT) goes up by twice as much as Treasury bond prices go down \u2014 or as yields go up. You can get even more leverage by buying the 2019 $46 calls at $4.50 or better. That means you get not only double leverage from the TBT, but also the options give you additional leverage of about another 2.2 times. You would buy four options for $18 to get the same upside as one share of TBT for $40 at the moment.<\/p>\n<p>So in other words, four options contracts for 100 shares. That makes the options 4.4 times leveraged against the Treasuries (2.2 on the options x 2 on the TBT). 4.4 times leverage is a hell of a lot, so don\u2019t put too much money in this. But you could make out very nicely if my thesis is correct and Treasury bond yields rise.<\/p>\n<p><strong>Question:<\/strong> Excellent, Hutch, as always. Thanks for your time.<\/p>\n<p><strong>Martin Hutchinson:<\/strong> Great pleasure. Thank you very much.<\/p>\n<p><strong>Question:<\/strong> This is <i>Wall Street Daily<\/i> signing off.<\/p>\n<p>Good investing,<\/p>\n<p><img decoding=\"async\" class=\"align-none\" src=\"https:\/\/sites.agorafinancial.com\/EMAILS\/images\/signature-martin-hutchinson.jpg\" alt=\"Martin Hutchinson\" \/><\/p>\n<p>Martin Hutchinson<br \/>\nSenior Analyst, <i>Wall Street Daily<\/i><\/p>\n<p>The post <a href=\"https:\/\/www.wallstreetdaily.com\/2017\/03\/17\/hawkish-yellen-kills-inner-dove-rate-hike\/\" rel=\"nofollow\">Hawkish Yellen Kills Her \u201cInner Dove\u201d With Rate Hike<\/a> appeared first on <a href=\"https:\/\/www.wallstreetdaily.com\" rel=\"nofollow\">Wall Street Daily<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By WallStreetDaily.com Dear Wall Street Daily Reader, There\u2019s no escaping the Federal Reserve\u2019s decision to raise interest rates. Rate hikes are pervasive. They bleed into every financial endeavor \u2014 whether it\u2019s a mortgage payment, a credit card purchase or the values of stocks. Since the Fed plans to ratchet rates up two full percentage points [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-103596","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/103596","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=103596"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/103596\/revisions"}],"predecessor-version":[{"id":103654,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/103596\/revisions\/103654"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=103596"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=103596"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=103596"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}