US - Fed 03 (Dec 14 - Mar 21)

[winston]

This week's FOMC meeting will give some hint about the rate hike from Fed chairwoman Janet Yellen. But market consensus mostly points to a first hike that will not be seen until 2015.

Source: The Standard HK

[winston]

TOL:-

All the lemmings of the world are tightly glued to the TV now, listening to Yellen, to see whether she would be tweaking her words here and there.

Thereafter, they would be able to comment and tell you what she said, what she meant etc, as if those few words would be able to replace your common sense and observation of the world around you.

Do you need to hear a few words from her to tell you that:-
1. the US Economy is recovering slowly ( much slower than normal )
2. interest rates would be very low for a considerable period
3. inflation is manageable and
4. interest rates would only be increased when there's no choice ie. market forces force you to do it

Did you learn anything new from listening to her now ?

Dont you hink that it's time to step back and to start thinking independently ?

[behappyalways]

US stocks surge after Fed promises "patience" on rates
http://www.bbc.com/news/business-30523363

[behappyalways]

The Fed Sees the Economy Getting Back to Normal. The Market’s Not So Sure.
http://time.com/money/3658904/fed-optim ... pessimism/

[winston]

Fed appears to be marking time on change

Minutes from the last meeting of the US Federal Reserve's rate-setting panel indicates there will not be any change of direction soon for American policymarkers.

As it is, cheaper oil is bound to benefit economies around the world and boost employment.

But no matter what transpires at the Fed's Open Market Committee's next meeting on January 28, US interest rates will likely go up this year.

So the greenback will keep climbing as will the Hong Kong dollar. And HK stocks will start to catch up with their Shanghai counterparts.


Source: The Standard HK

[winston]

$98.7 Billion Reasons to be Mad

That’s how much of our money, taxpayer money, the Federal Reserve gave to the U.S. government in 2014. Over just the last five years, the Fed has funneled $421 billion, oralmost half a trillion dollars of our money, to the U.S. Treasury.

The Fed takes this money from us without asking and uses it with no oversight by any elected official. When the funds flow back to the Fed, they simply hand it over to the U.S. government. Some people mistakenly think this gravy train is coming to an end.

No such thing will happen.

The Fed will continue earning record amounts of interest, and will keep funding the U.S. government instead of returning the funds to the proper owners… us.

When the Fed buys bonds, it does so with newly created money. The process is so simple, and yet so profound that it makes your head hurt. The Fed always buys bonds from a bank that has an account at the Fed. When the bank (electronically) delivers bonds, the central bank simply changes the amount of money that the bank has on deposit with the Fed.

It’s like going onto a spreadsheet and changing a number. Voila! The bank now has more funds in its account at the Fed, and the Fed has bonds.

The loser in all this is everyone who holds U.S. dollars. The value of our dollars is diluted by however much the Fed prints. Since the financial crisis, the Fed has printed more than $3 trillion, which is roughly 30% of the total amount of U.S. currency outstanding plus deposits in 2007.

The full effect of the dilution has not happened yet because banks have not lent out or invested the money they received from the Fed. Instead, banks are holding $2.7 trillion in excess reserves at the Fed because, since 2008, the Fed has paid interest on this money.

Last year the Fed paid about $6.7 billion in interest on excess reserves as well as on required reserves.

The Fed gets money by collecting interest on the bonds it owns, which now total around $4 trillion (the Fed had $900 billion in bonds before 2008).

But the Fed collects more interest each year on the bonds it owns than it costs to pay its bills, including interest to banks and funding the newly-created Consumer Finance Protection Bureau. The Fed delivers all of its excess cash (which some call profit, but that is a misleading term) to the U.S. Treasury in exchange for… nothing.

It’s a gift.

But it’s not a free gift. Remember, the Fed originally bought bonds with newly created dollars that dilute all of the dollars in our pockets.

What the Fed should do with the excess funds it receives is simply reverse the original transaction. Whereas the Fed increased the size of the bank’s account when the Fed bought bonds, the Fed could reduce the size of its own account after paying all of its bills.

If it did this, then every dollar the Fed wiped out of existence would strengthen all the remaining dollars outstanding. This would give back to all of us at least some of what the Fed took in the first place.

Fat chance.

Instead, the funds will keep flowing to the U.S. Treasury, and people bad at math will keep talking about how “great” it is that the Fed gives cash to the government so that the government doesn’t have to borrow as much. They don’t understand that this is an un-voted confiscation of our dollars with no oversight!

Now many of these same people are concerned that as the Fed raises short-term interest rates, it’ll owe so much to the banks in the form of interest that there won’t be any (of our) money left to hand over to the U.S. Treasury.

There’s no reason to worry. The Fed won’t run out of (our) money any time soon.

The Fed earned north of $110 billion last year on its $4 trillion bond portfolio. As noted above, it paid 0.25% interest on $2.775 trillion of bank reserves, or $6.7 billion. If the reserves remain the same and the short-term interest rate goes up to 1.25%, then the Fed would owe the banks an additional $27.75 billion.

This would still leave the Fed sending around $71 billion to the U.S. Treasury at the end of the year.

But this assumes that the Fed would keep earning the same interest on its own bonds, which is not true. The Fed not only receives interest during the year, it also receives principal payments as bonds mature or, are called away.

When this happens the Fed doesn’t hold onto the cash or send it to the U.S. Treasury, instead the Fed buys more bonds in order to keep its holdings at the current level. In a rising interest rate environment, the Fed will be purchasing bonds that pay more interest at the same time that it owes more interest to banks.

For those that stay up at night worrying about the Fed having too little (of our) cash to hand over to the U.S. Treasury, don’t worry. It appears the gravy train will keep running for years to come, no matter how mad the rest of us become.

Source: Economy & Markets

[winston]

Don’t Fight the Fed

Don’t fight the Fed! I’m sure you’ve heard that at some point in the past, especially if you’ve been trading the markets or even studying them.

The Federal Reserve Bank has several tools it uses to help with its congressional mandates on price stability and maximum employment. When the Fed changes course on monetary policy by tightening or loosening money supply, investors should understand how it could affect their investments.

The Fed can lower or raise the Federal Funds rate and it can affect interest rates across the spectrum (short- to long-term rates). The Fed Funds rate is simply the overnight rate banking institutions pay to borrow money needed for their reserve requirements.

This is just one tool the Fed uses but it encourages banks to lend more… and invest more freely when the rate is lowered.

Raising or lowering the Fed Funds rate has been effective in helping stabilize prices in an inflationary environment. Since we’ve been at a zero rate for the past six years, the effectiveness on deflation has been suspect.

For that reason, the Fed instituted quantitative easing (QE) which, in essence, was a creation of money supply fueled by buying U.S. Treasury bonds created out of thin air and the purchasing agency guaranteed mortgage-backed securities. Those asset purchases injected about $85 billion per month into the money supply in an effort to create inflation. QE finally ended in October of last year after nearly six years.

And so, the Fed’s target inflation rate has been 2% per year and after six years and trillions of dollars that were created on the Fed’s balance sheet, we still sit under the 2% target inflation rate.

The main beneficiary of the Fed’s easy money policy has been the stock markets, otherwise known as “risk” assets, to gain acceptable investment returns in this environment. When the Fed finally reverses course and starts to tighten the money supply, make sure your investments move to safer assets like cash.

Source: Economy & Markets

[behappyalways]

Janet Yellen says Federal Reserve flexible on rate rise
http://www.bbc.com/news/business-31610490

[winston]

4 ETFs You Can Use to Play the Fed

Position yourself for an eventual hike in interest rates

Source: Johnson Research Group

http://investorplace.com/2015/03/4-etfs ... Qn9R9KUd1Y

[behappyalways]

Federal Reserve modifies stance on low interest rates
http://www.bbc.com/news/business-31953699


The Fed’s delicate task
http://www.bbc.com/news/business-31954809