FED Interestrate Increase to 1%

My ersonal guess onto the feds interest rate decition is at a round 1%.

There are several factors for this number. Many people are spuclating that it will stay the same and thAT the FED will not make anything to unstabalize the economy.

In fact the actual stage in which the economy is in is very stable, no matter what the “experts” on TV may try to suggest you, it is 90% of panicing and hoping to influence the deciders ideas and views towards the desired direction.

What is the desired direction?

At the moment we have a bubble forming up in the Stock markets. Due to very low interest rates it has become unwise to invest his money in banks or insurances, but the only alternative that is left is the stock market. Therefore we are seeing this new all-time-hights which are beeing broken and pushed on a regular basis. The truth is that the stock market is overblown at the moment, with most companies in USA with a KGV of 20+ years (simple math, if you buy the company then you need 20+ years of stable economy without crisises or reduction in rentability of the company - to pay the cost off by the surpluses the company is creating).

Any KGV above 15 years is simply unrealistic. Companies like facebook (with a KGV of 150 years) or Tesla with a KGV of years are rare examples that usually do not survive the “next crisis” without majordamage to their immage, investors and their business model - if they survive at all (i would not place my bets on tesla beeing around in 10 more years).

Most people here probably never heard of a KGV, but you heard of the people who base their trading decition solely on the KGV of a company. Those people all called “Value Buyer” and the famous names are George Soros and Warren Buffet who employ many people who constantly look for divergences in the books of companies to place their trading decitions on the potential outcome of the profitability (the time you need to pay out the investment by the surpluses of the given company). <-those people buy massively in crisises and sell “slowly” (called distribution to the crowds) in stable/high times like we are seeing now.

The effects of the QE programms and the effects of the low Interest rates the last few years were a game changer, not changing the game in its nature but changing it in its duration. Whoever is in this business for longer knows that crises come on a regular basis. The cicles of economy, the cicles of hope/greed, the circles of boom and crash, the cicles of activity/growth and stagnation/inactivity are what “chart and Technical traders” call crash/ high, elliot waves long term patterns, swing highs and swing lows etc. etc.

In order to support my statement that a increase in interest rate from the FED is comming very soon and is unavoidable (and will be more then most people expect) i will post historical datas which show the true actual condition of USA and its economy. Not the crap people spread over news with trying to make panic or trying to get the uninformed people into stocks or funds.

Here we go:

Lets start with the building permits (indication of the real estate economy and the connecting economies like construction companies, supporters, faciliaters etc. etc.) real estate (especially in USA) is a huge chunk of the combined economical power of the country. The supporting and connected industries make up around 35% of the total economic output of the country. Therefore this is one of the key industries to determine if a country is expanding or stagnating.

As we can see the statuts of this indicator is approaching “pre-crisis-levels” and is therefore on a very good track.

Consumer credit - Selfexplainatory

approaching “pre-Crisis-levels” - actually- is already above the levels of pre-crisis. indicating that most of the population already used up their capacities to borrow money for personal expenditures (houses, cars, TVs, hollidays etc.) indicating a creation of bubble forming on a new “debt crisis”

  • the logical next step is to reduce the avilability of loans to the population in order to prevent a bubble building and a overwhelming debt crisis which will harm the economy in the long run. This is beeing done by increasing minimum interest rates from the FED.

Core CPI - “Core Consumer Price Index” = INFLATION

is the basic number to meassure the inflation in a country. The target of the FED is at/around 2% inflation which the FED sees as healthy for the economy. As ylou can see, we are approaching this 2% target.

CPI - “Consumer Price Index” = Inflation
Already explained in the above, this index is spreading over more goods and aspects of the people consumption and the related prices.

As we can see it already exceeded 2% (set Target of the FED) and is showing signs that it will increase more (which the fed does not like)

Manufacturing intex (in this case “New York”) indicates the state of manufacturers and their capacity usages.

As we can see it is trending around 0. with a future probability of going up. This is one factor which could prevent the FED to rase the interest rates too high. In fact the usuall interest rate of the FED given a 30 years median average period os somewhere around 3%. If this indicator would be higher then my guess onto the interestrate raise of the FED would be more then the described 1%

Home Price index - Selfexplanatory

As we can see the prices have been stabilizing around a median point it used to have pre-crisis aswell. no further support in this area needed.

Housing Prices - Selfexplanatory

Stableises at a “pre-crisis” median. no further support needed.

Housing Starts - indicator of new houses builds etc.

As we can see the real estate economy is approaching pre-crisis levels and is at a very stable and healthy condition at the moment. Any further support from the FED or governemtn would start the creation of a new bubble (like we had it in 2008) - which was the reason for the latest crisis. this is a indicator the FED is looking very much on, in order to prevent a new bubble and the burst of such bubble creating a new financial crisis the regulatory instituions will start slowering this economical secotr down. “cooling down” for a more stable but steady growth, rather then a rocket-growth and then a crisis afterwards.

The labor market conditions.

One of the most important factors for the FED to meassure the stability of the general economy. As we can see the last few months were going downwards a little bit. But a median around 0 is what the FED is targeting at (too much employment creating high prices of employees which reduces the rentability of the domestic economy making it less competitive against foreign economies)

This is a factor which is “neutral” at the moment as explained forthe reasons above. The FED is watching this indicator very closely, but it is a rather new indicatior introduced only a few years ago - so reading it out of “history actions” is not possible. this is one of the reasons why i think the increase is going to be towards 1% only and not higher.

Unemployment - Selfexplanatory

The KEY-FACTOR for the decitions of the fed is the employment of the country. People need jobs. Jobs need stability.

The employment is back to “pre-crisis”-levels and therefore one of the biggest reasons why the FED is increasing its interest rates.

Manufacturing Index - Meassures the performance/activity of the manufacturing sector (cars,machines, etc etc)

As we can see it is the stability itself - not even in the crisis it went down as much as people had guessed. Amercian producst are still competitive and are beeing produced. No intervention or stimulus needed from the FED anymore.


Back too “pre-crisis”-levels

Personal Consumption (population)

As you can see in crisis times this indicator is swinging high/low very strong. this is due to panic (today the future looks great, tomorrow bad) therefore people buy a lot this month nextmonth they are more torn towards saving/spending etc. etc. This is a indicator that always stays around the same level as income and inflation grow hand in hand. people spend all their money as long as they are allive, and even if they dont, then their kids will spend it after their death. The “readable” datas that can be found here is the stability itsef, as you can see the last few years the “highs” and “lows” are more and more smooth - indicating that there is no panic and no fright from the future. People are more relaxed and more “median” or “predictable” in the patternal behaviour of spending. The trust in the economy is stable and s"spending" and “saving” are on a very “even” and “healthy” level going “hand in hand”.

Retail Sales

Directly corelated to “Personal Consumption”

Stable - no need for further Stimulus.

Please understand that the FED and the regulatory governemtns are thinking in different time frames. Things they do today will have an effect in months or years. So the actions they are planning in todays days - in the present - are evaluated on their future effects. The stability of the economy today is simply because the actions a year or longer time ago were the right actions.

Aswell please be aware that the targets of the FED and the governement are different then our personal targets. We all want big fat growth. The governemtns and FED wants STABILITY. Stability is endengared by stagnation/crisis and TOO BIG GROWTH in too short time just aswell in the same amount.

The interest rates are a direct influence to the economical growth. To put it in relations, in the late 1920ies we had a excessive and unregulated growth which ended up in a crisis that lasted for decades. this is a stage that is beeing avoided very strongl by todays regulators and the FED.

Aswell to take intoconsideration: we are alrady ending a cicle of boom, the next cicle is recession/stagnation, which means that the FED will be having to fight again bad times. In order to be able to fight bad timesthe fed needs ammunition. The interest rate is one of tis stronges Power to fight recession/crisis. In order to be prepared for the next crisis we first need a higher interest rate for a period of time so that a decrese of interest rate has a “feelable and effective” effect when it is “needed”.

Unlike the rest of the “Analists” on TV my personal view is that the interest rate climbe will come much faster then anticipated simply to prevent a overheating of the economy and to be ready for the next crisis - so to say to “refill the ammunition tanks/storages”

Thank You for reading.

In exactly 1 hour we will see if I was right or not.

I guess we could conclude that…

they did not share your optimism ;p

Ç’est la vie! Maybe next month :slight_smile:

By the way, here is Yellen’s press conference video, on YouTube, if anyone cares to watch:

yeesss lately i hit it all wrong, god. but hey at least i waisted 20 minutes writing and had something to do on a day without trading :smiley:

Great piece of writing, by the way!!!

thank you PipMeHappy!

You could definitely get it published…

Yes, in the hall of fame of “predictions gone wrong” :smiley:

Hey, someone who is always wrong is a just as good as a guru as who is always right!

Not saying you are wrong often I just thought it sounded wise… :stuck_out_tongue:

hehe yes it is wise, just do the opposite of what i say and youll always end up right :smiley:

bump this thread from 3 months ago. im in the same bias that fed will/should increase. now the ecenomic fundamental dataa are even better/stronger then 2 months ago.

It ‘should’, but ir ‘may nor’… based on the data and on Brexit concerns…

yes i know. lots of uncertainty. i “heard” its going to get raised to 1%. the fed simply must build up a pillow which it can throw back in into a new (sooner or later) comming up recession/slow growth phase.

from a macroeconomics standpoind a strong dollar would have huge benefits for USA in the next 5-10 years.

i know. everyone always talks about inflating/downgrading its own currency towards the other free floating ones. but a increase in worth has bebefits aswell and they (at the moment) are bigger then the disadvantages at least to the united states.