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FOMC trade

  • #21
  • Aug 7, 2006 9:26am Aug 7, 2006 9:26am
DS, Wow, now that is a detailed answer... Thanks, I am in awe... I have a lot to think about here...

Scott


Quoting Darkstar
I read this book on the history of risk a few months ago and one of its chapters was on game theory. One of the examples they gave to explain the theory used Congress and the FOMC to highlight how opposing participants make choices based on their own priorities.

It’s easy to conclude that because the FOMC is a component of government, it works for the government’s best interest, but the truth is that governments (as well as financial markets) are still made up of individual participants. Each participant has their own agendas and aspirations 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 in their minds that stable, long term growth is a consequence of a low inflation environment and irrespective of what else is going on in the world; their priority is to maintain that objective.

Congress works from the perspective that the happier the constituents, the higher the probability of reelection. It would please the constituents immeasurably if the economy was overheating and inflation was driving up wages at an ever increasing rate. One of Congresses many tools is the ability to lavish their supporters with tax reductions while maintaining (or increasing) federal spending.

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

Knowing all of this, why should we assume that the FOMC would want to endanger their own priorities to support the Republican Party? That's really what you’re talking about. There is no risk of the November elections being canceled and as such, a weakening economy would only endanger the party of majority. It could easily be argued that the FOMC would be better served by the elections resulting in a Democratic majority. An increase in taxes would reduce the budget deficit (albeit temporarily) and the resultant strengthening dollar would reduce the inflation risks.

Before this blows up into a political discussion, let me say that the majority of the time I subscribe to the Republican ideals. I think if there was a socially liberal/fiscally conservative party I would be their staunchest supporter, but since there isn’t, I prefer the lesser of two evils. The above is not a diatribe of either political party and examining it in that light would only detract from the discussion.

In summary, I believe it would be dangerous, and borderline foolish, to assume elections have any baring on monetary policy decisions.
  • #22
  • Aug 7, 2006 9:42am Aug 7, 2006 9:42am
Quoting narafa
In my opinion, I think the Feds are going to raise rates once again due to inflation pressures...The problem is the reaction of the markets after such a decision...USD will get hammered, bonds will sink down after their great rally, gold & silver will shoot up quiet a bit, stock market will dive as well & due to these reactions, the feds won't possibly raise rates once again in the near future, at least not during this year anymore...
Nader,

If FOMC increases rates again, be prepared for a dramatic strengthening of the dollar. Long everything with USD as base and short where USD is cross. Personally, I think FOMC will pause tomorrow with no further increases until February 2007.

However, my trading discipline will not allow me the luxury of "tunnel vision". I will not lock onto one direction over another; I'm prepared to take whatever the market gives me. Do appreciate your analysis however.

Just information; not a recommendation.

By the way Nader, why does your avatar picture show an extended LEFT hand?
  • #23
  • Aug 7, 2006 9:49am Aug 7, 2006 9:49am
This is what will accompany if focm decides to raise the rates once again.
Inserted Video
  • #24
  • Aug 7, 2006 10:30am Aug 7, 2006 10:30am
Quoting MoneyMa$ter
Monetary policy has a bearing on elections because it directly impacts voters. Period. Even the talking heads and television pundits and market analysts acknowledge as much. FOMC has so much impact, there's a rumbling at the grassroots level to disband it...because no one elected them to such a powerful position. Perhaps extreme, but true nonetheless.
I am not and will not dispute the impact of monetary policy decisions on elections with you. We are in complete agreement on that. The discussion was regarding what effect election year politics has on monetary policy and it was in that vein that my response was tailored.

I mention the chapter in the book to highlight how divergent priorities effect the decisions a party makes. The Federal Reserve was designed, and operates, as a limiting force on Congressional power to manipulate the economy. There is a valid reason why the Federal Reserve was given the power to all but ignore Congress and the assumptions being made about them cooperatively working to enhance the Republican agenda ignores that reason completely.

Your analogy regarding the possessor of gold is appropriate only when a single party possesses it. My argument is that the Federal Reserve and Congress both maintain sufficient stockpiles of power and are seeking to advance their own agendas. I would be very interested in hearing why it would be in Ben Bernanke’s best interest to abandon his mandate to help a weakening political party secure reelection when the term of his office exceeds every current member of elected government.
  • #25
  • Aug 7, 2006 10:34am Aug 7, 2006 10:34am
Quoting BurgerKing
Or worse, brokers stopped trading USD for the whole day!

UUUUUUUU
Are we at forex kindergarden forum ?
  • #26
  • Aug 7, 2006 10:35am Aug 7, 2006 10:35am
Quoting dof
Sell now
Thats a good one!
  • #27
  • Aug 7, 2006 11:43am Aug 7, 2006 11:43am
Quoting Darkstar
Your analogy regarding the possessor of gold is appropriate only when a single party possesses it. My argument is that the Federal Reserve and Congress both maintain sufficient stockpiles of power and are seeking to advance their own agendas. I would be very interested in hearing why it would be in Ben Bernanke’s best interest to abandon his mandate to help a weakening political party secure reelection when the term of his office exceeds every current member of elected government.
Yes both the FOMC and Congress have power, however in November a potential power shift can and probably will occur in the good old boys' club, Congress. And when it's all said and done, these guys (FOMC, federal political appointees, and members of Congress) dine at the same restaurants, attend the same dinner parties, play golf at the same clubs, have the same connections, donate to the same fundraisers....that's just political life.

My analogy is appropriate because those who have it (power) never want to lose it; it is taken by a measure of force, sometimes in a civil, subtle fashion (politically), sometimes not so subtly (war).

Books and class room education will rarely confirm or deny what goes on in the halls of power beyond the sterile relationships that supposedly exist as a result of separation of power or checks-and-balances. In other words to think any nominated body is truly 100% impartial and objective is just naive. Do you really believe the US Supreme Court is always an independent actor, despite the fact that they are justices for life?

It's called "you scratch my back and I'll scratch yours"; it's called "you owe me one"; it's called "payback". It's called politics. I call it the wrist guiding and bending the invisible hand in the marketplace. So now in this election season, I turn to you my weekend golfing buddy, whose daughter attends school with my son, whose wife goes shopping at Tyson's with my wife, who sits on a couple of not-for-profit, charitable fondations with me, I say to you and say I need your help, good buddy. And you say: just name it!!

Bernanke need not "abandon 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 either owe a debt(s) or are seeking repayment, and they will do whatever is necessary to maintain their hold on power. And remember, they all hail from other states, other cities so they're never really isolated from other FOMC members, bankers and the power players back home, where the voters are tired of interest rate increases (be ye democrat or republic is irrelevant, a pause helps everone seeking re-election).

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

And I never understood how the ADP numbers were so 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 reality). So what happened? The official July NFP came out confirming no inflation.

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

Simply distinguish mirage from reality. And interest rates will rise again as our new Treasury secretary is on record as favoring a strong dollar. Just get November out of the way first.
  • #28
  • Aug 7, 2006 2:36pm Aug 7, 2006 2:36pm
Would not be suprised if the fed raised rates again, however a raise isnt expected and they might just remain the same at this point. Interesting that COT data shows the comms net short the gbp with the hedge funds and dumb money net long almost at 100 percent line... could be setting up for a more long term down move or dollar strenght an unexpected FOMC rate hike might be a catalyst for this. In my own opinion im seeing price on the pound over sold, at a 123 pattern on 4hr and daily charts... with negative divergence on daily. the pound could still move higher but i think were in over heated territory. If something unexpected does happne IE usd rate increase look out gbp we might see a huge down move on this particular pair. (pair i trade sorry i havent mentioned any others). I think odds favor the rate staying the same... an increase would be extremely unexpected.
  • #29
  • Aug 7, 2006 2:53pm Aug 7, 2006 2:53pm
Quoting enoc2g
Would not be suprised if the fed raised rates again, however a raise isnt expected and they might just remain the same at this point. Interesting that COT data shows the comms net short the gbp with the hedge funds and dumb money net long almost at 100 percent line... could be setting up for a more long term down move or dollar strenght an unexpected FOMC rate hike might be a catalyst for this. In my own opinion im seeing price on the pound over sold, at a 123 pattern on 4hr and daily charts... with negative divergence on daily. the pound could still move higher but i think were in over heated territory. If something unexpected does happne IE usd rate increase look out gbp we might see a huge down move on this particular pair. (pair i trade sorry i havent mentioned any others). I think odds favor the rate staying the same... an increase would be extremely unexpected.
I agree with this assessment that a rate pause has been factored in and that an unexpected rate hike will see a large initial movement followed by continued dollar strength.
  • #30
  • Aug 7, 2006 2:57pm Aug 7, 2006 2:57pm
to quote the originator of this thread:

" after analysing the crap out of it,...."

...i'm staying out of this trade:

i dont like the way this smells, especially with the actual action/inaction not being the focus,..... unless they cut, which would be a surprise and something i doubt will happen.

everyones focus will be on the statement especially after NFP.....

so i'm sitting this one out
  • #31
  • Aug 7, 2006 3:07pm Aug 7, 2006 3:07pm
Quoting smjones
Thanks Nader. That is something to think about. So if I understand your point correctly, you think a rate hike fits both an economic and a political agenda. Is that correct?

Scott
Exactly...


Thanks,

Nader
  • #32
  • Aug 7, 2006 3:16pm Aug 7, 2006 3:16pm
Quoting spinmypip
Hi Nader,

you think that the dollar will weaken if the fed hikes the rate because of the slowing economy? that's what i understood from your comment.
and if so, we can predict that the $ is depreciating tomorrow no matter of the interest rate decision.

thank you
No I believe that the USD will move counter expectations....If the feds raises rates, the USD will fall & if the Feds kept rates, the USD will rise...It's not a matter of interest carry anymore, it's a matter of currency strength & purchasing power in the first place now....Think about it, GBP interest now is 4.75%, EUR is 3% (And probably going higher) & so on for other currencies, so I believe that the strength of the economies will be the major factor to value a currency in the months to come....If you want to take an example, watch the USD/JPY, huge interest rate differential, yet, it can't rally, on the other hand, it's showing bearish signs every now & then, because everyone on earth now knows that the Japanese economy is much stronger right now than the US economy....


Thanks,

Nader
  • #33
  • Aug 7, 2006 3:21pm Aug 7, 2006 3:21pm
Quoting MoneyMa$ter
Nader,

If FOMC increases rates again, be prepared for a dramatic strengthening of the dollar. Long everything with USD as base and short where USD is cross. Personally, I think FOMC will pause tomorrow with no further increases until February 2007.

However, my trading discipline will not allow me the luxury of "tunnel vision". I will not lock onto one direction over another; I'm prepared to take whatever the market gives me. Do appreciate your analysis however.

Just information; not a recommendation.
Man, thanks for your analysis, I really appreciate your opinion...It seems that everyone of us is on a completely different side of the story...Only the market would tell & we should both respect it's opinion & abide by it...

Your analysis scares me a little bit as I am long gold & silver right now...If you are right, my positions should get fried to death...

Anyway, it's less than 24 hours & we shall be infront of our screens to see what's the outcome..

Quoting MoneyMa$ter
By the way Nader, why does your avatar picture show an extended LEFT hand?
This is just a symbol, nothing more nothing less....


Thanks,

Nader
  • #34
  • Aug 7, 2006 4:06pm Aug 7, 2006 4:06pm
Question: Given the FOMC interest rate statement tomorrow afternoon, will anybody be playing the Nonfarm productivity (yellow) and Unit labor cost (orange) news releases in the morning? Is it silly to anticipate any movement from these releases while the interest rate statement looms ahead in the PM?

-g
  • #35
  • Edited 5:15pm Aug 7, 2006 4:28pm | Edited 5:15pm
Quoting smjones
I have no opinion on this issue, that is why I asked the question. An interesting answer you offer, but not very informative. What is your opinion.
I assume you mean that it makes no difference to the Fed Board regarding elections. Is that correct?

Thanks Scott
It surprises me how many people still believe elections matter. It DOES NOT matter whether a republican or a democrat is in office. As Mike Ruppert says you can just call them the Genoveses and Gambinos.
Regardless of who's in power corporations will control the politicians..Remember Enron contributed equal amounts to both democrats and republicans.
Oh and by the way the Fed is a private company. Our government surrendered monetary cotrol to bankers in the early part of the 20th century to private bankers. You may want to look it up,,
  • #36
  • Aug 7, 2006 4:31pm Aug 7, 2006 4:31pm
Quoting narafa
Man, thanks for your analysis, I really appreciate your opinion...It seems that everyone of us is on a completely different side of the story...Only the market would tell & we should both respect it's opinion & abide by it...

Your analysis scares me a little bit as I am long gold & silver right now...If you are right, my positions should get fried to death...

Anyway, it's less than 24 hours & we shall be infront of our screens to see what's the outcome..



This is just a symbol, nothing more nothing less....


Thanks,

Nader
It is all a question of timeframe. IMHO the dollar is going puke in the long term no question there. Playing gold based on piece of news coming out is more akin to speculation. If you want to play short term play spot with tight stops.
  • #37
  • Aug 7, 2006 5:00pm Aug 7, 2006 5:00pm
Quoting BurgerKing
Or worse, brokers stopped trading USD for the whole day!

well...move to one that is direct interbank then....
  • #38
  • Aug 7, 2006 5:04pm Aug 7, 2006 5:04pm
No need to look it up we lived it here. It was Merriner and George Eccles of Salt Lake City, Ut who restructured the National banking system in the 1930s after the crash... You can look that up... I suppose we will have to wait and see what happens tomorrow... I still do not have enough information to make an informed decision on the subject...

Thanks Scott


Quoting zarni
It surprises me how many people still believe elections matter. It DOES NOT matter whether a republican or a democrat is in office. As Mike Ruppert says you can just call them the Gottis and the Gandolfinis.
Regardless of who's in power corporations will control the politicians..Remember Enron contributed equal amounts to both democrats and republicans.
Oh and by the way the Fed is a private company. Our government surrendered monetary cotrol to bankers in the early part of the 20th century to private bankers. You may want to look it up,,
  • #39
  • Aug 7, 2006 5:07pm Aug 7, 2006 5:07pm
Quoting smjones
No need to look it up we lived it here. It was Merriner and George Eccles of Salt Lake City, Ut who restructured the National banking system in the 1930s after the crash... You can look that up... I suppose we will have to wait and see what happens tomorrow... I still do not have enough information to make an informed decision on the subject...

Thanks Scott
I was referring to the privatization of the central bank rather than this. I believe it was in 1915ish
  • #40
  • Aug 8, 2006 12:44am Aug 8, 2006 12:44am
A nice read again from dismally.com http://www.dismally.com/2006/08/aver...gs_climbi.html
-soso
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