Some Thoughts Before The Fed Meeting

The Fed is back at it again on Wednesday of this week. And as with every Fed meeting, we get to play the “will they” or “won’t they” game.  

Our team at Macro Ops believes there’s a very low probability of a rate hike this meeting. Now we don’t believe in a near zero percent probability (like the one the market is pricing in) but a low chance nonetheless. The terrible payroll reading plus the low UMich inflation expectations number (a favorite of Yellen’s) will likely stay the Fed’s hand. And this is not to mention the Brexit vote coming up in a few weeks. No need to stir the pot even more beforehand…

The committee will still likely come out in classic fashion and jawbone about a high chance of raising in July. But we seriously doubt this “forward guidance” will have much of an effect on markets this time around. The Fed is in increasing danger of losing their signaling control over markets. They just don’t have credibility they used to.

At this point the Fed is becoming less of a key factor in the current macro game. They’re slowly realizing that their hands are tied and there’s little more they can do.  

They can’t hike. It’s too late in the cycle and the economy is becoming increasingly fragile. And if they don’t move rates higher this week or next month, they’ll lose their window, since politically it’s unlikely they hike any later in an election cycle. The Fed fell behind the curve on this business cycle and will now be left with little dry powder to fight the next downturn. They should have hiked in 2013 while things were running hotter. That was their chance.  

The Fed also can’t lower or resume QE this meeting either. For that to happen, things first need to get much worse in the market. And that will likely only occur after elections. So as we said, their hands are tied, which makes them a non-factor.  
The far more important factors in the current macro game are the BOJ, PBoC, and ECB. Any breakdown in their currency truce (Shanghai Accord) will effectively cause tightening by sending the dollar higher and widening spreads. And looking at Europe and China, we see the growing potential for some serious exogenous shocks in the form of a banking crisis and currency flight.

 

 

Federal Reserve Meeting

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.