16 January 2018: Is the Fed being taken seriously?

One might wonder whether the monetary policy of the US Federal Reserve is actually having its intended effect. The unbridled market optimism only seems to be further intensifying, regardless of the fact that the Fed has started to tighten its monetary policy.
This seems to have made New York Fed President William Dudley nervous. In his speech The Outlook for the US Economy in 2018 and Beyond last Thursday, he fires a warning shot. According to Dudley, the Fed may have to “press harder on the brakes” at some point over the next few years, increasing the risk of a hard landing for the economy. “Even though the FOMC has raised its target range for the federal funds rate by 125 basis points over the past two years, financial conditions today are easier than when we started to remove monetary policy accommodation.” In other words, the Fed seems to be losing its grip on the markets. Time to brace for impact?

white-chapel-logo-smallRecord highs again for the stock markets on Friday, as several major financial companies (JPMorgan Chase, BlackRock and Wells Fargo) beat expectations with strong quarterly results. All three major US indices closed up strong. The S&P 500 gained 0.67% (+1.57% for the week), the Dow 0.89% (+2% for the week) and the NASDAQ 0.68% (+1.74% for the week). Volatility remained subdued, though showing a slight upward trend. The VIX closed at 10.16 on Friday, having hovered in single digits for the most part of the week.
UVXY ETFs traded flat, mimicking Thursday’s trading: both on Thursday and Friday, they opened at 8.62 and closed at 8.67. XIV ETNs recorded a small loss: -0.17%.
Danny Daredevil´s RSS stayed at -13%. Adventurous Anny´s RSS remained unchanged at 23%, as she is still holding a cash position. Solid Suzy´s and Lazy Larry´s RSS dropped slightly to 117%.
None of our models gave a trading signal at the end of Friday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

-13.40%

-15.08%

-15.08%

-7%

Adventurous Anny Cash 6 March 2017

22.91%

0.00%

0.00%

27%

Solid Suzy XIV 6 March 2017

117.08%

7.67%

7.67%

147%

Lazy Larry
XIV 6 March 2017

117.08%

7.67%

7.67%

147%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

 

These Dutch Guys met for lunch this afternoon at the campus of Tilburg University.
The iconic white building in the background in the shadow of some trees, is the Zwijsen building, a silence center for reflection and prayer.
A building they almost never see from the inside.

Logo Fed by US Government [Public domain], via Wikimedia Commons