Why the central banks are actually raising rates every quarter: trader

By Alan Valdes, Director of Floor operations at Silverbear

While taking the Lexington Avenue Subway downtown this morning, I actually got a seat! I had not seen one, nor have I been able to sit in months. “How slow are things on Wall Street this week?” Well funny you should ask. The last six trading days have seen two of quietest trading volume days of the year.

Many expected that to change today with Fed Chair Janet Yellen speaking at the Kansas City Conference at the Tetons in Jackson Hole. Nothing of substance came out of that speech, but the markets are finally running with expectations of a rate hike late Friday afternoon. The 10-year Treasury Note has broken to the upside out of a month-long consolidation pattern to 1.63%, and the S&P 500 is down 0.5% to levels not seen since early August.

It’s probably too late to raise in September and too early as well. There’s too much uncertainty with the elections come November to give a definite nod to December. But one never knows what the Fed may say. To that point, with the market at or near all-time highs, traders are looking for a reason to sell and lighten up on positions.

Most of my clients are now 50% in cash. The recent savings accounts numbers from the Federal Reserve show that, for personal use, not only are people hoarding cash at an astronomical amount, ($2.5 trillion), but that the amount is the largest in history—$2.5 trillion just sitting there making no interest. Hence, the low long-term US rates and, the fact that, by default, we are raising rates almost every quarter. Why? Because there are now over $13 trillion in sovereign government bonds trading with negative rates. Why? Because of fear and uncertainty!

Nothing the Fed does will move that anytime soon. The bright spot is when this fear subsides that money will be looking to be put to work. Then, and probably only then, will we see GDP explode to the upside! So if your focus is long-term, watch the stocks you follow. Watch for a pullback and add to your portfolio. You will be happy you stayed the course!