Yesterday we read this line in an article on the Financial Post's website, "The Federal Reserve will raise its key interest rate as early as June" (Source)
So is this a done deal?
Is the U.S. going to finally raise its rates?
Will Canada then be forced to follow shortly afterwards - as usual?
Or is the media smoking something again?
Over the last few months we've shared all sorts of charts around employment, housing, mortgage delinquencies and more but it seems over the next few months we're coming to this amazing climax where someone breaks.
Either the Fed, led by Janet Yellen, raises rates or they blink and hold off - yet again.
On the one hand...
If they raise rates they risk the U.S. dollar strengthening even further which we don't believe they want because it hurts their manufacturing and export sector.
On the other hand...
If they don't raise rates the entire world may do a collective head scratch and wonder if they ever actually can - throwing everyone and everything into an ever-growing-easy-money-bubble-party.
Do they raise rates a teeny-tiny-little-bit to make for good headlines and then pause there for a long while.
Oh, the confusion of it all!
And the fun of it all!
These are truly historic times that all of us money geeks will be talking about for decades.
Books will be written, courses talk and lectures after lecture held about the Fed's greatest money experiment of the years 2008-20xx?
There's an article from the CBC.ca a few days ago with this in it:
"The U.S. Federal Reserve is giving "serious consideration" to beginning to reduce its accommodative monetary policy and a rate hike may be warranted later this year, although a downturn in core inflation or wage growth could force it to hold off, the central bank's chief said on Friday.—
Fed Chair Janet Yellen said that after the first rate increase a further, gradual tightening in monetary policy will likely be warranted. If incoming data fails to support the Fed's forecast, the path of policy will be adjusted, she said."
And this next paragraph is our favourite:
"With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year," Yellen said in prepared remarks at a monetary policy conference at the Federal Reserve Bank of San Francisco.
Yellen added that the timing and the path of a Fed hike would depend on the incoming economic data."
So we're not trained economists, actually, we're far from it.
We're the children of immigrant parents who grew up on construction sites, went University and College, worked in the software/IT industry and then somehow opened a real estate brokerage.
We're far from the Bay Street and Wall Street economic crew.
But if we're to take Janet Yellen's comments above seriously then we've got to ask:
Exactly what freakin' data is she talking about?
Median family income is not up.
The unemployment rate is only doing great because they're not counting millions of unemployed as illustrated by the U.S. labour force participation rate.
Inflation, as the governments choose to measure it, is not up.
So what data is she talking about?
We're being serious, are we missing the obvious or is it just so obvious that the mainstream media doesn't get it?
Check out these two charts:
That's the price of oil.
Looks like a crazy chart to us.
But maybe to a trained economist, it looks like a beautiful sign of an economic spring unfolding.
We're not sure ... because to us that oil chart looks like its very far from signalling inflation or an economic recovery (we are aware of the geopolitical aspects to this as well of course).
Check out this next chart...
That's the value of new orders for non-durable consumer goods.
Looks like it fell off a cliff.
When you study economics at University is this a sign of an economic recovery?
Who knows, maybe it is!
But to us, it's far from it.
It looks more like the easy money policies artificially propped that up for a few years and now there needs to be more punch added to keep the party going.
So if Janet Yellen is going to look at the data to decide what the Fed is going to do with interest rates then we'd love to know what data she's looking at.
And why the media just takes her on her noncommittal but very serious sounding word that rates are going up.
Here are our deepest fears:
1. The U.S. Fed doesn't have a clue as to what they're doing. They may raise rates this year for the sheer optics of it and it may crush the week economy because they are unable to read their own data like we can 😉
2. We're in the middle of a currency war that really got heated in 2010 and hasn't stopped - and that we're entering a new phase of faster and increased volatility in things like commodities/oil, national interest rates, property/land prices.
We think things are going to get a lot crazier before we're on a more even course economic course again and that it's in our own selfish best interests to keep very aware of what's going on.
Fun days ahead for sure.
In the middle of all this economic madness make sure you're enjoying yourself!
Until next time ... Your Life! Your Terms!
Nicely written boys. I am following this very closely. I have said for years that we are entering an deflation death spiral all the while the U.S. government has said that inflation was coming. It is huge spin to hide what really is happening. They are between a rock and a hard place. All the money given to the bankers since 2008 to "bail them out" was thrown back into the Derivatives casino this time in commodities (last time it was the mortgage derivatives). See how all the commodities did a moonshot over the last couple of years and are now crashing (oil, gold, silver, corn, copper, you name it). The bakers are now being forced to liquidate oil at their $100 positions. They are dead broke and the biggest stock market crash in history is right around the corner (probably before the end of the year). The same goes for gold which will fall back to historical prices (under $300 an once). This crash will make 2008 look like a boy scout jamboree. I am heavily short all these markets. Time will tell. You guys are definitely barking up the right tree. Keep up the good work..
Very interesting, yet scary. If they don't know what they are doing, we are in for a roller coaster ride that won't be soon forgotten.
I vote for Tom and Nick for joint Finance Ministers! Practicality over politics any time...
• Kocherlakota still the uber-dove Minneapolis Fed President Narayana Kocherlakota maintained his position as the most dovish person on the FOMC. Contrary to what we’ve heard from all the other FOMC members who’ve spoken recently, he said he thought the Fed shouldn’t start raising rates “until the second half of 2016.” That’s 2016, not 2015. Kocherlakota does not vote on the FOMC this year and will retire when his term ends in February next year, so his comments are of interest only insofar as they represent one extreme of the debate.
I find it interesting that so many are now seeing the writing on the wall, yet only six short months ago if one was to mention currency wars, interest rate delemas and the coming market crash; people would look at you with a sideways stare.
As far as investing in real estate goes my biggest concern is how many banks will be left standing after the next crash? It's easy to stick your head in the sand and pretent Canada is insulated from the effects of the U.S. banking and Policy System. A majority of people still not aware that at least two Canadian banks we're bailed out due to their heavy US exposure.
Our worlds banking system controlled by Central Banks is one not many. If cancer shows in America it's only a matter of time before it spreads everywhere. Technology permits us to trade at the spead of light it will help us collapse just as fast.
Very shortly QE4 will happen and the house of cards will blow with even more force than before.
Buckle your seatbelts, it's going to be a wild ride.