rate hike webinar slides-04-29-2015
TRANSCRIPT
Adios QE, Hello Rate Hike29 April 2015
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Idea Generation
Presentation deck
Product UpdatesScenario Updates
Market Update
Past Fed Moves + Impact
Scenario: Hello Rate Hike
Adios QE, Hello Rate Hike
HiddenLevers
MARKET UPDATE
US/Iran détente = oxymoron
Market UpdateChina GDP/Markets divergence hard to crack
Resource Currencies up with Oilsources: HiddenLevers, FT, Economist,
1
3
2
Market Update: Greek default nearsuncertainty in Greece increasing, not decreasing
sources: HiddenLevers, NYTimes, American Thinker, Guardian, Forbes, Telegraph UK
4
bear flag
Greek finance
minister out
Greek PM talking
referendum
09May IMF loans
due
Greece refusing
austerity
HiddenLevers
PAST FED MOVES + IMPACT
Past Fed Moves: S+P Impact
source: Business Insider, HiddenLevers
Period Months Fed Funds Change (bps)
S&P Change(%)
Russell 2K Change
12/65 – 12/66 12 +165 -12.2% --
8/67 – 9/69 25 +540 -0.5% --
4/71 – 9/71 5 +185 -9.35% --
3/72 – 9/73 18 +749 -2.75% --
3/74 – 9/74 6 +304 -32.39% --
2/77 – 5/80 39 +1300 +11.44% --
8/80 – 7/81 11 +1007 +0.34% --
1/82 – 3/82 2 +241 -7.01% --
3/83 – 9/84 18 +294 +8.97% --
2/87 – 11/87 9 +133 -18.97% --
4/88 – 4/89 12 +323 +18.49% +14.28%
2/94 – 3/95 13 +300 +7.19% -.01%
4/97 – 5/97 1 +19 +10.46% +12.24%
7/99 – 7/00 12 +174 +8.23% +9.97%
6/04 – 8/06 26 + 425 +14.66% +27.09%
Past Fed Moves: Sector Impact
*Individual companies used when no index data exists. Sources: HiddenLevers
Period Months
Fed Funds Change (bps)
S&P(%)
S&P Tech Index
S&P Financial Index
S&P Energy Index
2/87 – 11/87 9 +133 -18.97% *IBM: -18.8% *JPM: -47.42% *XOM: -11.04%
4/88 – 4/89 12 +323 +18.49% *IBM: +6% *JPM: +68.11% *XOM: +1.59%
2/94 – 3/95 13 +300 +7.19% +23.7% +5.46% +8.93%
7/99 – 7/00 12 +174 +8.23% +37.34% +4.21% -.52%
6/04 – 8/06 26 + 425 +14.66% +14.24% -25.67% +121.36%
source: HiddenLevers
Rates Rising – Sector Performance
Financials underperforms (4/5)
Techs overperform (4/5)
Energy is non-correlated (5/5)
Past Fed Moves: Fixed Income Impact
source: Allianz
25 bps rise more significant when starting at ZERO
Money Markets – yeah right!
Inflation Protected Bonds outperform
Market Update – Ebola Pandemic
sources: HiddenLevers, Forbes
Past Fed Moves: 2014 Taper
QE 1QE 2
QE 2.5 (Twist) +
QE3
bull flag
strength quickened post-taper
Not once did Fed alter course of taper
Taper Tantrums: -4-5%
Yields down, not up
source: HiddenLevers, Fed Minutes, Wikipedia
+130 bps
-19%
Past Fed Moves: 1987 Crash
1986-87S+P +60% in 1986-87Oil -50% in 6 monthsBoomers coming into workforce
2014-15S+P +49% in 2013-14Oil -50% in 6 monthsMillennials coming into workforce
HiddenLevers
SCENARIO: HELLO RATE HIKE
Scenario Update
Need for Scenario Update
- Fed Rate Hike imminent
- USD rise from end of QE topping out
- Fed minding asset bubbles, not just macro
Adios QE
Hello Rate Hike
steady as she goes rate hike postponed Fed pops bubble
(now priced in) (S+P, not macro) (still on the table)
GOOD: Fed Delays
source: HiddenLevers, Fed Minutes
so-so econ data = Fed delays hike = equity boost
easy money from Fed inaction
commodities comeback continues
Fed unhappy with job growth
CPI at ZERO below Fed
target
BAD: Super Tantrum
commodities mild
downside
the correction you’ve been expecting
source: HiddenLevers, Financial Times
EM shocksUSD-based
debt
technical supports missing
yield curve behaves normally
UGLY: Fed Pops Bubble
rate hike now deals
with Nasdaq
source: HiddenLevers
economic picture intact
safety play10y Yields
down
October 1987 redux
SPX lows2007 M top
Scenario: Hello Rate Hike
S&P1560 -26%
S&P1860 -12%
S&P2250 +7%
key lever
Yellen channels Bernanke, keeping easy money flowing and letting equities float up.
Market reacts negatively to loss off access to interest-free money. Hard to pin down MDD due to lack of technical support levels.
Fed would attempt to pierce equity bubble, while not affecting GDP at large, similar to 1987 rate hikes.
GoodFed Delays
BadSuper
Tantrum
UglyFed pops
bubble
Hello Rate Hike: Take-Aways
Fed has used monetary policy to pop asset bubbles before
No inflation = Fed’s hands not forced
Yellen Fed has not altered courseall rate hike cycles began with improving macro environment
Do you hear the words that are comin’ out of my mouth?
1987 1994
2015
Product Update
integrationRedTail
coming soonhistorical scenario lookup