{"id":1008376,"date":"2018-09-13T13:01:34","date_gmt":"2018-09-13T13:01:34","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=1008376"},"modified":"2018-09-13T13:01:34","modified_gmt":"2018-09-13T13:01:34","slug":"the-rate-hike-that-will-trigger-a-bear-market-2","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1008376","title":{"rendered":"The Rate Hike That Will Trigger a Bear Market"},"content":{"rendered":"

By Brian Maher<\/a><\/span> <\/p>\n

\"Chart\"<\/a><\/div>\n

This post The Rate Hike That Will Trigger a Bear Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

The Federal Reserve will almost certainly raise its benchmark rate in under two weeks \u2014 for the eighth occasion since December 2015.<\/p>\n

For a market dizzied by the helium of low interest rates, rising rates are a sobering dose.<\/p>\n

The stock market has withstood the business to date.<\/p>\n

But how many additional rate hikes can it endure before collapsing under the strain?<\/p>\n

Two\u2026 three\u2026 four\u2026 maybe more?<\/p>\n

Today we reveal the precise<\/em> rate hike that will trigger the next bear market \u2014 and when you can expect it.<\/p>\n

But first, what was Monsieur Market up to?<\/p>\n

The Dow Jones was up 147 happy points today.<\/p>\n

The S&P closed the day 15 points higher, the Nasdaq a jaunty 59.<\/p>\n

Relaxed trade war jitters was the explanation on offer in the financial press.<\/p>\n

But to the question on our mind today\u2026<\/p>\n

How many rate hikes can the stock market endure?<\/p>\n

That is\u2026 which rate hike will prove the straw that fractures the camel’s spine?<\/p>\n

Mr. Barry Bannister directs investment firm Stifel’s institutional equity strategy division.<\/p>\n

He was one of few who accurately foretold February’s correction \u2014 while the stock market was slipping the bonds of gravity \u2014 and reality was slipping its leash.<\/p>\n

Mr. Bannister has done some additional investigating\u2026<\/p>\n

It concerns what the economics profession calls the \u201cneutral rate\u201d of interest.<\/p>\n

The neutral rate is the interest rate that neither stimulates the economy\u2026 nor restrains the economy.<\/p>\n

Anything below the neutral rate pushes. Anything above it pulls.<\/p>\n

Hence, \u201cneutral.\u201d<\/p>\n

Many consider the neutral rate impenetrable, unknowable\u2026 \u201cas elusive as sheet lightning playing among June clouds,\u201d in the words of writer James Huneker.<\/p>\n

But Bannister believes the stock market has it by the collar:<\/p>\n

\u201cAlthough some say the neutral rate is difficult to observe, stocks see the barrier quite clearly.\u201d<\/p>\n

When the Federal Reserve’s target rate rises above the neutral rate, trouble is on tap, says Bannister \u2014 at least since the 1990s:<\/p>\n

\n

A \u201cmaximum tolerable peak\u201d for the fed funds above the neutral rate has been associated with bear markets since the late ’90s global-debt boom.<\/em><\/p>\n<\/blockquote>\n

Observe the results once the fed funds rate (blue) crosses the neutral rate (red):<\/p>\n<\/p>\n

The fed funds rate has been below the neutral rate for a decade running.<\/p>\n

But the Federal Reserve has been hard at hiking rates since December 2015.<\/p>\n

And the fed funds rate now eyes the neutral rate, as the chart reveals.<\/p>\n

Meantime, official statistics suggest the labor market is drum-tight.<\/p>\n

And inflationary rumblings, long dormant, have been heard and felt.<\/p>\n

August’s consumer price index increased 2.7% over last year, for example.<\/p>\n

Hourly earnings also increased 2.9% year over year.<\/p>\n

Jerome Powell is therefore hung on the hooks of a thumping dilemma\u2026<\/p>\n

The official unemployment and inflation data \u2014 accurate or not \u2014 compel him to continue hiking rates.<\/p>\n

But additional rate hikes will lift the fed funds rate above the neutral rate\u2026 and invite a bear market in stocks.<\/p>\n

Bannister nonetheless believes the Fed has one choice only \u2014 to cool things down with additional rate hikes:<\/p>\n

\n

Weighing stability versus mandate, we believe the Fed has no realistic option other than [raising rates], eventually revealing the speculative excesses created in the past decade.<\/em><\/p>\n<\/blockquote>\n

Fine and well, you say \u2014 but enough is enough.<\/p>\n

Just tell me how many more rate hikes will trigger the bear market.<\/p>\n

The definitive answer, says Bannister\u2026 is two.<\/em><\/p>\n

Two additional rate hikes take the fed funds rate above the neutral rate.<\/p>\n

The first of these will almost certainly arrive in 13 days, at the conclusion of the Fed’s \u201cOpen Market\u201d Committee meeting.<\/p>\n

The market currently places the odds at 97.4%.<\/p>\n

We will likely be treated to the second rate hike in December \u2014 80.1% are the odds given today.<\/p>\n

Thus the Fed will likely cross the neutral rate by year’s end.<\/p>\n

The bear market follows if the foregoing holds.<\/p>\n

But when exactly?<\/p>\n

\u201cTiming the next 20% bear market is difficult due to policy distortion,\u201d Bannister concedes\u2026<\/p>\n

\u201cBut \u2018within six\u201312 months’ seems assured,\u201d he concludes.<\/p>\n

The arithmetic therefore puts June 2019 on watch.<\/p>\n

The window remains open through next December.<\/p>\n

But perhaps the Fed will be on alert, you say, and spring to action when circumstances demand.<\/p>\n

You may wish to reconsider your position, according to Bannister:<\/p>\n

\n

History indicates that the next bear market may be quite rapid, probably exceeding the reaction time of the Fed.<\/em><\/p>\n<\/blockquote>\n

A dozing tree sloth on a full belly exceeds the reaction time of the Fed, we might add\u2026 but will not.<\/p>\n

Regardless, you are free to salt the preceding to your own individual taste.<\/p>\n

How many false alarms have gone out over the years?<\/p>\n

A tricky catch, it is, to time any market event.<\/p>\n

We have suggested previously that the bull market could parade on another year or two.<\/p>\n

Bannister’s schedule fits neatly inside our own.<\/p>\n

But of course the gods, the inscrutable gods, keep a schedule all their own\u2026<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/em><\/p>\n

The post The Rate Hike That Will Trigger a Bear Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

…read more<\/a> <\/p>\n

From:: Daily Reckoning<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Brian Maher This post The Rate Hike That Will Trigger a Bear Market appeared first on Daily Reckoning. The Federal Reserve will almost certainly raise its benchmark rate in under two weeks \u2014 for the eighth occasion since December 2015. For a market dizzied by the helium of low interest rates, rising rates are […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[366],"tags":[],"class_list":["post-1008376","post","type-post","status-publish","format-standard","hentry","category-dailyreckoning"],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1008376","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1008376"}],"version-history":[{"count":0,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1008376\/revisions"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1008376"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1008376"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1008376"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}