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Friday, August 26, 2016

Market Alert - Pre-Market

Futures vs FV: SP +2.88; DJ +27.89; NASDAQ +2.75

Yellen speaks from Jackson Hole at 10ET. Ahead of that a lot of Fed-speak as her minions hit the airwaves.

GDP, Q2 2nd: 1.1% vs 1.1% vs 1.1% (from 1.2%)
Personal consumption: 4.4%, ticking higher from the first read. Still quite strong even as Dollar Stores say the low end of the US consumer has collapsed.

Dollar Store notes that the US consumer has improved -- in some areas -- but the lower end has fallen. This parallels our research but we also note that costs such as the ACS and education are also crushing out the middle class. There are pockets of solid consumerism in regions of the country, e.g. DC, New York, LA, Dallas, but much of the US is really struggling and indeed still losing ground.

In that context, Bullard was speaking this morning.
Bullard: Yr/year growth is only 1.2%, below trend for the last year. The Fed forecast growth trend growth, but that has not happened. The economy is "in a cyclical low-growth regime."

Bullard was asked if low rates were the cause of the slow growth. He dodged the question, instead talking about where the Fed is right now.

The Fed, he noted, is "pretty close to its goals, pretty close to a neutral rate," but it is important to look at this in the context of the "next 2 years." The Fed has to "rethink our normalization plans." Bullard says the Fed should not predict long term rates, just go for the short term made for today's situation of low productivity, low growth rates.

In sum, it would appear Bullard is saying the Fed is near raising rates, but also that there is likely no further hikes anytime soon as the Fed is near where it feels neutral rates are. Thus he is saying they could hike soon (September) and then likely done as monetary policy cannot do much more from there.

Wow. That could put a hike on the table next month, but then nothing for a long time. Unless Yellen is replaced in an election regime change. Then who knows? There would be tax cuts, some stimulus items, some rollback of regulations to get a business environment conducive to creating and running business. Taken the burden off the middle class and entrepreneurs would be huge for economic growth, certainly better than the policies in place that have produce the worst string of growth since the Great Depression. Oh, that includes Bush's terms as well as his policy was quite muddled with mixed emphasis that didn't change the structural issues that were building and have really taken hold over the last 8 years.

OTHER MARKETS
Bonds: 1.568% versus 1.58% 10 year. Somewhat flat line heading into the Yellen

EUR/USD: 1.1290 VS 1.1278

USD/JPY: 100.34 vs 100.56

Oil: 47.26, -0.07


Watching the analysts on the financial statements, all are now saying the Fed is ready to hike rates and that would not be a good thing, apparently trying to front run story to ease the news on the financial markets. A lot of 'yes they will hike and could be September, but won't likely hike for a long time after that.

So, Yellen speaks at 10:00 ET and there will be short term implications. She has been remarkably quiet though her minions are starting to speak. They always do just before she does, voicing their opinions so everyone can see they are 'independent', etc. Unlike other Fed chairs, Yellen doesn't really have a surrogate governor, a mouthpiece who basically talks the chairman's views.

After Yellen speaks the reaction could be more negative if she 'talks tough' (something I don't think she has in her quiver) the market could have a short term setback. I will say that over a week period, even shorter, I don't think the market will have a negative reaction to the prospect of another 25BP hike with nothing again for a long time.

It is Friday, Yellen is speaking at the Hole after skipping last year. That means there could be some exaggerations in market moves. We will watch and see if positions hold support and patterns after the gyrations -- if any -- start to subside.



Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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