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Crossroads...to zero and back.
(BONUS VIDEO: Kickin' it old school with Eric Clapton)

From WKND notes, by Eric Peters of One River Asset Management, which is the most thought provoking writing I read every Sunday AM:

"...And as global asset prices continued to reset higher, the rates on the debt that supports these historic valuations reset lower. Begging the question, how will this swing of the pendulum someday reverse? Because if we've learned one thing, it's that highly-leveraged economies do not function properly when asset prices decline. And if leverage is exceptionally high, asset prices decline when interest rates rise. Which means they must not. But if rates can't rise, then any country that resets its debt stock near 0% is trapped. Like Japan. Which surprised many forecasters by not increasing QQE or cutting rates negative. Which of course, would have raised asset prices, but tightened the trap further still. Which is what the Fed seems desperate to evade. And tiptoed back toward the possibility of a December hike..."

Mitch here: Investors are at a crossroads. The Fed has tamped down the Fed Funds rate to near zero since 2008. It hasn't raised rates in almost 10 years. How much of the stock market performance since the 2009 Great Recession bottom has been driven by low interest rates? We're about to find out. But I can tell you it is a lot. To Zero and Back sounds like it could be the name of a sci-fi movie, but in reality, it describes the gradual process that the Fed will have to navigate for the first time. It's the FED's NASA equivalent of landing a man on the moon.

My own notes from August 5th:

The FED: Whether lift-off (the name given to the first official FED rate hike since 2008) happens in September, December, or early next year is not as important as is the glide path of future rate hikes. Yellen & Co. hope to move slowly enough to convince all economic participants that they'll barely notice the rate hikes while simultaneously convincing the same participants that the FED will not overshoot with rates that are too low and hence, inflationary. This is an extraordinary balancing act that is as original as it is sure to introduce uncertainty. Can the FED be both dovish and hawkish at the same time? That is the 64 Trillion Dollar question. My take is that the FED will be more dovish because of a very shallow glide path for rate hikes. The futures market indicates a very low Federal Funds rate going out two years. That certainly is dovish. If things change and we know the FED is data dependent, as I believe it should be, the futures market will adjust and will send a signal out to the rest of the yield curve (shortest term Treasury's to longest dated Treasury's), which is what the entire spectrum of asset prices and the cost of money is priced off.
Change is in the air. My view from August 5th hasn't changed. Everything from currency, stocks, bonds, housing, to automobile sales; it's all tied to interest rates. An old expression rings loudly in my mind - Don't fight the Fed. When the Fed eases, you buy stocks. But when the Fed tightens, you sell stocks. This Fed, though, doesn't want to pick a fight and it wants us to know that. It's the "win-win" Fed policy. Above everything you read and hear, how the Fed executes it's To Zero and Back mission is our crossroads. Let the countdown begin.

CROSSROADS: [Video] Kickin' it old school with Eric Clapton!

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