Thread: FOMC trade

After assessing the crap from it. That is what will happen.

1) USD bear spike in shortage of rate increase. .
2) Fade the trend for the remainder of the day....usd strength materializes

Similar to what occurred in equities this last friday.

DS, Wow, now that's a detailed answer... Thanks, I am in awe... I have a lot to think about here...

Scott

Originally Posted by ;

I read this book on the background of risk a couple of months ago and one of its chapters has been on game theory. One used the FOMC and Congress to highlight how conflicting participants make choices according to their own priorities.

It's simple to conclude that since the FOMC is a part of government, it works for the government's best interest, but the simple truth is that governments (in addition to financial markets) are still made up of individual participants. Each participant has aspirations and their own agendas and often those goals conflict with other participants in the environment.

Ben Bernanke and his ilk are judged on their ability to control inflation. It is etched deeply that stable, long term expansion is a consequence of a low inflation environment and irrespective of what else is going on in the world; their priority is to maintain this objective.

Congress works from the view that the happier the components, the greater the probability of reelection. The components would please immeasurably if the market was overheating and inflation drove up salaries at an increasing rate. One of Congresses many programs is the ability to luxury their supporters with tax reductions while maintaining (or increasing) national spending.

The majority of our current budget deficit is a direct result of this excess spending mentality. A byproduct is an ever weakening dollar place in world markets which gets the nasty side effect of increasing prices. If left unchecked this has a tendency to kick off the wage/price spiral which enables inflation to get out of control.

Knowing all this, why should we presume that the FOMC would want to undermine their particular priorities to encourage the Republican Party? That is what you are discussing. There's not any risk of the November elections and as such, a weakening market would undermine the celebration of majority. It could be argued that the FOMC would be served by the elections resulting in a majority. An increase in earnings would reduce the budget deficit (albeit temporarily) and the consequent strengthening dollar would reduce the inflation risks.

Before this blows up into a political argument, allow me to say that the majority of the time I subscribe to the Republican beliefs. I think when there was a socially liberal/fiscally conservative party I'd be their staunchest supporter, but because there isn't, I favor the lesser of 2 evils. The above isn't a diatribe of political party and examining it would only detract from the dialogue.

In conclusion, I believe it would be harmful, and borderline absurd, to suppose elections have some baring on monetary policy decisions.

Originally Posted by ;

In my estimation, I think that the Feds are going to raise rates once more due to inflation pressures. . .The difficulty is that the reaction of the markets following such a choice. . .USD will get hammered, bonds will probably trickle down following their great rally, gold silver will soon take up quiet a bit, stock market will probably dip too because of these reactions, the feds won't possibly raise rates once more in the not too distant future, at least not during this year anymore...

Nader,

If FOMC increases rates , be ready for a dramatic strengthening of the dollar. Long everything with USD as short and base where USD is cross. I believe FOMC will melt tomorrow with no additional gains.

But my trading discipline will not allow me the luxury of tunnel vision. I will not lock onto one direction over another; I'm ready to take anything the market provides me. Do love your analysis however.

Just advice; not a recommendation.

By the way Nader, why does your avatar picture show an extended LEFT hand?

That is what's going to accompany if focm makes the decision to raise the rates once again.
Inserted Video

Originally Posted by ;

Monetary policy has a bearing on elections because it directly impacts voters. Period. Even the talking heads and tv pundits and market analysts acknowledge as much. FOMC has so much effect, there's a rumbling in the grassroots level to disband it. . .because no one picked them to a position that was powerful. Extreme, but accurate.

I am not and will not dispute the effect of monetary policy decisions on elections with you. We are in full agreement on this. The discussion was seeing what impact election year politics was about monetary policy and it was that my reply was tailored.

I mention the chapter from the publication to highlight how divergent priorities influence the choices a party makes. The Federal Reserve was designed, and operates, as a limiting force to manipulate the economy. There is a reason the Federal Reserve was given the power and that motive is ignored by the assumptions being made about them working to enhance the agenda .

Your analogy regarding the possessor of gold would be suitable only when a single party possesses it. My argument is that the Federal Reserve and Congress both assert stockpiles of electricity and are seeking to improve their own agendas. I would be very interested in hearing it would be in Ben Bernanke's best interest to abandon his mandate to aid a weakening political party reelection when the duration of his office exceeds each current member of government.

Originally Posted by ;

Or worse, brokers ceased trading USD for the entire day!

UUUUUUUU
Are we at forex kindergarden forum?

Originally Posted by ;

Economy now

Thats a great one!

Originally Posted by ;

Your analogy concerning the possessor of gold would be suitable only when a single party owns it. My argument is that the Federal Reserve and Congress both maintain adequate stockpiles of power and are seeking to advance their own agendas. I would be quite interested in hearing it would be in the best interest of Ben Bernanke to leave his mandate to help a weakening party protected reelection when the duration of his office surpasses each current member of authorities.

Yes both the FOMC and Congress have power, nevertheless in November that a potential power shift can and probably will happen in the good old boys' club, Congress. When it's all said and done, those guys (FOMC, federal political appointees, and members of Congress) dine in the very same restaurants, attend the identical dinner parties, play golf in the very same clubs, have exactly the very same connections, contribute to the very same fundraisers....that's just political life.

My analogy is appropriate because those who have it (power) never wish to lose it; it is accepted by a measure of force, occasionally in a civil, lively fashion (politically), sometimes not so subtly (warfare ).

Novels and class room eduion will rarely affirm or deny what happens in the halls of power beyond the sterile relationships that allegedly exist as a result of separation of power or checks-and-balances. In other words to believe some body is really unbiased and objective is just naive. Do you believe the US Supreme Court is obviously an independent performer that they are justices for life?

It is called you scratch my back and I will scratch yours; it's called you owe me one; it's called revenge. It is called politics. I call it bending and the wrist guiding the hand in the marketplace. So now in this election season, I turn to you my weekend golfing buddy, whose daughter attends college along with my son, whose wife goes shopping at Tyson's along with my wife, who sits on a couple not-for-profit, charitable fondations together with me, I say to you and say that I need your help, good buddy. And you also say

Bernanke need not leave his mandate but there are exceptions to every rule. FOMC goes beyond Bernanke and I can't tell you who owes what to whom, or who controls whom. But this I know: most if not all the major political players in this town owe a debt(s) or are looking for repayment, and they'll do whatever is necessary to maintain their hold on power. And remember, they all hail from other states, other towns so they're never really isolated from other FOMC members, bankers and the players straight back home, where the voters are tired of interest rate increases (be ye democrat or republic is immaterial, a pause aids everone seeking re-election).

We are not talking an or gate here; it's an and gate. Monetary policy affects politics daily yes AND moreso during election season. Think about it. How about the one hand can the feds say with a straight-face there is no inflation, despite an increase in the so-called headline CPI? They do it by stating core CPI is still acceptable!! Here, that called pressuring FOMC to pause. Quite honestly, that core CPI was probably not a true number. Think. If you ask most Americans living beyond the Beltway, whether we're experiencing inflation, they will give you a frequent sense straight-forward answer

And I never knew how the ADP numbers were out of whack in July!! ADP was way off, but they were probably the true numbers (just out of step with the government's version of fact ). What happened? The July NFP came out confirming no inflation.

Last month, August, ADP got the message and joined the party line as their numbers were consistent with the official August launch, confirming no inflation.

Just distinguish mirage in reality. And interest rates will rise again as our new Treasury secretary is on record as favoring a dollar. Get November out of the way .

Would not be suprised when the fed raised rates however a raise isnt anticipated and they might stay the same at that point. Interesting that COT statistics shows the comms net short the gbp using the hedge funds and idiotic money net long almost at 100 percent lineup... may be setting up for a more long term downward move or dollar strenght an abrupt FOMC rate hike might be a alyst with it. In my opinion im seeing price on the pound sold, at a 123 pattern on 4hr and daily charts... with negative divergence on daily. The pound could move higher but I think were in more land. If something will happne IE usd rate increase seem out gbp we might see a massive move on this pair. (pair I trade sorry I havent mentioned any others). I think chances favor the rate staying the same... a rise would be extremely unexpected.

Originally Posted by ;

Wouldn't be suprised if the fed raised rates again, however a increase isnt anticipated and they may just stay the same in this point. Interesting that COT info reveals the comms net brief the gbp using all the hedge funds and dumb money net long nearly at 100 percent lineup... could be setting up for a more long term down move or dollar strenght an unexpected FOMC rate hike may be a alyst for it. In my opinion im seeing price on the pound over sold, in a 123 pattern on 4hr and daily charts... with negative divergence on daily. The pound could move higher but I think were in over heated territory. If something unexpected will happne IE usd rate increase look out gbp we may observe a huge down move on this pair. (pair I trade sorry I havent mentioned some others). I think chances favor the rate staying the same... an increase would be extremely unexpected.

I concur with this evaluation a rate pause was shrouded in and an unexpected rate hike will observe a sizable initial movement followed by continued dollar strength.