Fed Funds Rate and Equities: What's the Lag?

The Fed Funds Rate peaked at 7.03% in 2000.  The target rate was 6.5% in 2000, and was first dropped on January 3, 2001 to 6%.  It eventually bottomed at 1% on June 24, 2003.

This was the so-called tech bubble, so I'm tracking the NASDAQ.

The NASDAQ peaked at 5049 on March 10, 2000 and declined 78% to 1114 on October 9, 2002.

The Fed Funds Rate peaked at 5.41% in 2007.  The target rate was 5.25% until August 7, 2007.  The Fed dropped it to 4.75% on September 18, 2007.  It eventually bottomed at 0% on December 15, 2008.

This was the Great Financial Crisis, so I'm using the S & P 500 Index.

The S & P 500 peaked at 1565 on October 9, 2007 and declined 57% to 677 on March 9, 2009.

The takeaway message?  The Fed was late in dropping the targeted Fed Funds Rate, finally acting on January 3, 2001, a lag of 10 months after the NASDAQ peaked in March, 2000.  And the NASDAQ continued to plummet even as the FFR continued to decline.  In fact, the bottom in the NASDAQ tech bubble didn't occur until October, 2002, some 21 months after the Fed initially dropped the FFR.

With the Great Financial Crisis, the Fed acted more quickly, initially dropping the FFR in September, 2007. a month before the S & P 500 started cratering in October, 2007.  However, the Fed's aggressive easing did not prevent the S & P 500 from declining 57% to its March, 2009 bottom, thanks to the bank bailouts (TAFP, TALF, P-PIP, etc.).

In 2023, despite bank runs and another brewing financial crisis, the Fed continues to raise its targeted FFR.  When they finally do pivot and drop the FFR, it will probably be too little and too late.  Based on the two most recent cycles (and this one should be worse as debt loads and the insolvent Fed's balance sheet is more leveraged than ever), we can expect equities to face severe headwinds for the next 12 to 24 months, post-FFR finally declining (probably this summer).  The silver lining in all this is the S & P 500 peaked on December 29, 2021 at 4793, so we are off our all-time highs (currently 4109 at the time of this writing).  The key question then becomes is the bottom in?  Will bank runs be ring-fenced and contagion avoided?  And how much liquidity will be needed to prevent contagion of counterparty risks?  Monetary authorities have hinted at between $2 trillion and $18 trillion.

A side effect will be inflation as the Fed and US Treasury will provide trillions in liquidity and credit in an attempt to cushion collapsing financial markets if they do indeed collapse, with the latest vehicle dubbed the BTFP.  https://www.federalreserve.gov/monetarypolicy/bank-term-funding-program.htm

Foreign financial institutions will also be feeding at the trough in the form of currency swaps.

But don't worry, it's not "QE", so all is well.  /sarcasm

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Pension Ponzi Bailout: Democrats Sponsor US Treasury Bailout Scheme

I don't know how this could not be bearish for the dollar and bullish for any tangible asset, including precious metals.  Sure, asset prices could be manipulated either up or down short-term, but eventually, the manipulation stops working longer-term.

https://www.themaven.net/mishtalk/economics/pension-ponzi-bailout-democrats-sponsor-us-treasury-bailout-scheme-_RuDwkWLqkqISWkpsC0v9Q

US Treasury Macroeconomic Report Everyone Should Read

Here's the quiz:  where did these words come from?  Gold bugs, anarchists, scare-mongers, preppers, chicken little bloggers, right-wing nuts?  Guess again.
Bold-face emphasis is mine.

Introduction
The United States has never defaulted on its
obligations, and the U. S. dollar and Treasury
securities are at the center of the international
financial system. A default would be
unprecedented and has the potential to be
catastrophic: credit markets could freeze, the
value of the dollar could plummet, U.S.
interest rates could skyrocket, the negative
spillovers could reverberate around the world,
and there might be a financial crisis and
recession that could echo the events of 2008
or worse.


Conclusion
If market
participants were to lose confidence in the
United States’ willingness to repay its debts,
the adverse effects seen in 2011 could
reappear, and even push up yields on Treasury
securities. Such a rise in Treasury yields
would also raise the cost of financing the
government’s debt and worsen the fiscal
position of the government.
In the event that a debt limit impasse were to
lead to a default, it could have a catastrophic
effect on not just financial markets but also
on job creation, consumer spending and
economic growth—with many private-sector
analysts believing that it would lead to events
of the magnitude of late 2008 or worse, and
the result then was a recession more severe
than any seen since the Great Depression.
Considering the experience of countries
around that world that have defaulted on their
debt, not only might the economic
consequences of default be profound, those
consequences, including high interest rates,
reduced investment, higher debt payments,
and slow economic growth, could last for
more than a generation.

Here's your answer to who authored this report to Congress:  the US Treasury.  The report was summarily ignored by Congress.  Markets won't.

https://www.treasury.gov/connect/blog/Pages/Report-on-Macroeconomic-Effect-of-Debt-Ceiling-Brinkmanship.aspx

GOT GOLD?

US Treasury Admits Collateral Problem In Bond Market; Considers Issuing Ultra Long-Dated Bonds

Great...bond market investors are shunning long-dated US Treasury bonds due to obvious risks (currency, inflation, credit/downgrade, interest rate, reinvestment), so the Treasury in its wisdom (and desperation) are thinking about issuing 100-year bonds, God forbid.  In fact, among all the bond risks, liquidity is probably the only one where there is no risk.  Although, with hyperinflation, TOO MUCH liquidity would turn into the biggest problem of them all.

http://www.zerohedge.com/news/2014-07-18/us-treasury-admits-collateral-problem-bond-market-considers-issuing-ultra-long-dated

Austerity Strikes The Fed: Boston Reserve Bank Slashes 160 Jobs Due To US Treasury Cost-Cutting

Ron Paul 1 - Fed 0.


http://www.zerohedge.com/news/2014-05-08/austerity-strikes-fed-boston-reserve-bank-slashes-160-jobs-due-us-treasury-cost-cutt

Kyle Bass on US Treasury Default

In other words, all paper assets go to zero.

Poker End Game - JP Morgan, Fed, US Treasury, China & Gold

While this piece speculates about a conspiracy wrapped inside a conspiracy, I've always had my suspicions on who the price suppressors of gold and silver are.  The usual suspects are easy targets:  the Fed and other central planners want lower precious metals prices to mask their massive counterfeiting schemes globally.

But the Chinese have motives too:  they are accumulating gold in exchange for US Treasury bonds because they understand the USDollar will lose its reserve currency status soon, and the Chinese want the yen to have a seat at the global reserve currency table.  With gold-backing, the yuan strengthens its case substantially--as will the Russian ruble.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/9/30_Poker_End_Game_-_JP_Morgan%2C_Fed%2C_US_Treasury%2C_China_%26_Gold.html

Exchange Stabilization Fund

Not only does the US Treasury manipulate financial markets, it's in their charter.  Instead of telling us conspiracy theorists to remove our tin foil hats, maybe the skeptics should put theirs on.


http://www.treasury.gov/resource-center/international/ESF/Pages/esf-index.aspx

The Exchange Stabilization Fund (ESF) consists of three types of assets:  U.S. dollars, foreign currencies, and Special Drawing Rights (SDRs), which is an international reserve asset created by the International Monetary Fund.  The financial statement of the ESF can be accessed at "Reports" or "Finances and Operations."

The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury ("the Secretary").

The Secretary is responsible for the formulation and implementation of U.S. international monetary and financial policy, including exchange market intervention policy. The ESF helps the Secretary to carry out these responsibilities. By law, the Secretary has considerable discretion in the use of ESF resources.

The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary …, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities.

Fed tapering?

Folks, the enclosed article from Zero Hedge below is long-ish, longer and more esoteric than what I normally like to broadcast, but it's important enough to comment on.

Due to its length, I will give you the Cliff notes version.  QE has to be tapered, because the US Treasury borrowing needs will be reduced 30% later this year, and by extension, so will the need for debt to be monetized.

Hence, the Fed will buy fewer US Treasuries as part of QE, perhaps reducing QE from its current $85 billion to approximately $65 billion per month.

Therein lies the problem.  This will shock markets, tanking all of them.  Mere jawboning by Fed Chairman Bernanke of "tapering" QE a couple months ago caused equities and the bond markets to plummet, and remember:  tapering doesn't mean ending or reversing QE; it suggests reduction of QE.  When and if the Fed actually follows through with it, expect markets to really tank.

This will probably irrationally include precious metals declining as well, but the rebound will be quick and severe, as it was in late 2008.

Why?  Because when stocks and bonds collapse, this will provide cover for the Fed to STEP UP QE, which is essentially nothing more than legalized counterfeiting.  Bernanke is leaving his post just at the right time--right when things will get really ugly in the next few years.  Remember:  Bernanke replaced Greenspan in 2005.  We all know what happened in 2007-2009.

So what should one do leading up to this scenario before September?  For one, lowering expectations for higher equities would be a start.  I am not an equities expert, but some may even short the market.  Pull some profits off the table, taking profits, increasing cash positions, etc.--those are all euphemisms for protecting your portfolio gains.  Stay in solid stocks in case they keep rising.  Also, equities may continue to rise as the dollar sinks--even if inflation-adjusted returns are treading water.

If one already has gold and silver, adding just a little more may be good--in case I'm wrong and the Fed continues to step on the easy monetary pedal.  Depending on how much you already have relative to how much you think you need, you can add a little more or just sit still, and wait for a collapse--although that collapse may not occur.  That's why you already have hands on deck with your existing holdings.

However, if you have very little or NO physical precious metals holdings at all, you need to initiate a position, because you don't want the train to leave the station without you, in case the Fed doesn't engineer a collapse of markets first.

For both groups, I give you this thought.  Don't focus as much on the price of gold and silver.  Focus on how many ounces you believe you should own.  If you believe the global and local economy will magically recover, and that all this money printing will not further deteriorate our government finances, then there is no reason to have more than 5% of your net worth in precious metals.

However, if you believe the Fed will continue its 100-year history of debasing the dollar, then you should absolutely own more than 5% in gold and silver.  In other words, if you expect prices on food, gas, utility bills, healthcare, tuition, textbooks, etc. to continue to rise, then buy more gold and silver.

Good luck to all of us.  The waters are about to get stormy, so make sure you have your life jackets on.

http://www.zerohedge.com/news/2013-07-29/fed-tapering-assured-treasury-projects-30-slide-annual-funding-and-monetization-need#sthash.NoBVPxhd.dpuf

US Treasury denies it is trying to torpedo Bitcoin

http://www.sovereignman.com/trends/us-treasury-denies-it-is-trying-to-torpedo-bitcoin-12056/

Intel Exclusive: Trillion Dollar Terror Exposed

http://www.veteranstoday.com/2012/02/21/intel-exclusive-trillion-dollar-terror-exposed/

Chief Advisor To US Treasury Becomes JPMorgan's Second Most Important Man

http://www.zerohedge.com/news/2013-04-28/chief-advisor-us-treasury-set-become-jpmorgans-second-most-important-man

Just What Is Going On With The Gold In JPMorgan's Vault?

The answer to these questions zero hedge poses is easy:  the gold vaults of JPMorgan Chase and the US Treasury are adjacent.  Eligible gold inventory plummeted right before the historic take down in the price of gold.  Those are facts.

The reader is left to connect the dots.

http://www.zerohedge.com/news/2013-04-24/just-what-going-gold-jpmorgans-vault

James Turk - US Treasury Enters The Gold War

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/2/19_James_Turk_-_US_Treasury_Enters_The_Gold_War.html

Perform an assayed public audit of all the Treasury's claimed 8,100 tons of gold and net of swaps, loans & sales

https://petitions.whitehouse.gov/petition/perform-assayed-public-audit-all-treasurys-claimed-8100-tons-gold-and-net-swaps-loans-sales/rGyFTLwD

White House Petition To Publicly Assay And Validate The US Treasury's 8,100 Tons Of Gold

http://www.zerohedge.com/news/2013-01-11/white-house-petition-publicly-validate-us-treasurys-8100-tons-gold

Treasury Borrowing Advisory Committee Members

Do the Fed Chairman and US Treasury Secretary call the shots for the US--or even the global economy?  One could make that argument.  But given the Fed is a private corporation with European and US banks as shareholders, one could also make the argument that commercial banks run the Fed.

What about the US Treasury?  Here is a roster of the Treasury Borrowing Advisory Committee which meets every quarter.  The list of players is hardly surprising.

http://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Pages/members-index.aspx

Major Banks, Governmental Officials and Their Comrade Capitalists Targets of Spire Law Group, LLP's Racketeering and Money Laundering Lawsuit Seeking Return of $43 Trillion to the United States Treasury

Thanks to Kitty for finding this article.

There may be slap wrists as a result of this widespread lawsuit against the banksters and their complicit, jackboot government bureaucrats, but no one will to go jail for this.

http://www.marketwatch.com/story/major-banks-governmental-officials-and-their-comrade-capitalists-targets-of-spire-law-group-llps-racketeering-and-money-laundering-lawsuit-seeking-return-of-43-trillion-to-the-united-states-treasury-2012-10-25

Treasury Quietly Warns: 'Expect Debt Limit to Be Reached Near End of 2012'

The US Treasury is starting to act like the credit risk it is becoming--yet again.

http://cnsnews.com/news/article/treasury-quietly-warns-expect-debt-limit-be-reached-near-end-2012

Major Banks, Governmental Officials and Their Comrade Capitalists Targets of Spire Law Group, LLP's Racketeering and Money Laundering Lawsuit Seeking Return of $43 Trillion to the United States Treasury

A law firm just sued the US government and banks, among others, for $43 trillion in damages for money laundering and racketeering. By invoking RICO laws, the plaintiffs are maintaining these banksters and their co-conspirators are organized crime partners.  I'm not saying the lawsuit doesn't have merit, but good luck on getting a favorable judgment, and then collecting.

http://www.marketwatch.com/story/major-banks-governmental-officials-and-their-comrade-capitalists-targets-of-spire-law-group-llps-racketeering-and-money-laundering-lawsuit-seeking-return-of-43-trillion-to-the-united-states-treasury-2012-10-25